With interest rates at an 18-month high, people trying to sell their homes will have a tougher time competing with new home builders.
The reason is that homebuilders can fold mortgage buydowns into the price of a new, albeit often smaller, home in the Tucson market. And new home prices have dropped considerably in the past three years.
After peaking at $513,062 in May of 2023, the average new home price this summer was $465,769.
“The new-home market has been moving along the bottom of this cycle for some time and is likely to remain there through the rest of 2026 and into 2027,” said local housing analyst Jim Daniel. “Builders will continue adapting to this market reality with new product offerings and smaller lot sizes.”
Mortgage rate buy downs and other incentives are helping to give local new home builders an edge in attracting Tucson homebuyers.
Smaller lots, which translate into smaller price tags, mean new homes are in head-to-head competition with existing homes.
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The average price in the Tucson market for an existing home is $418,298, a difference of less than $50,000 compared to the average new home.
“The resale market will feel the impact of mortgage rates rising to an 18-month high as buyers shift toward new-home builders offering rate buydowns and other incentives,” Daniel said.
Mortgage rate buydowns mean the interest rate is reduced for up to three years when a new home is purchased. Those buydowns are rare, if not unheard of, in a resale transaction.
The current mortgage rate on a 30-year loan is up to 7.28%, up from about 6% at the beginning of the year.
National homebuilders continue to show optimism in the Tucson market with permits for new construction up 23% — to 2,530 permits — so far this year. That's compared to 2,042 permits during the same period in 2025.
D.R. Horton is leading the market with two of the top subdivisions in the area, Sorrell Ridge Estates on the city’s southwest side and Entrada Del Toro, in Sahuarita.
So far this year, builders have opened 15 new housing communities in the area with over 1,700 lots, data from R.L. Brown Reports Real Estate Research shows.
Except for the KB Home development, Enclaves at Tumamoc near St. Mary’s Hospital, most of the home building activity is happening on the outskirts of Tucson – far southeast, southwest, northwest and Sahuarita.
Construction continues on new housing on Tucson's southwest side at D.R. Horton's Sorrel Ridge Estates, 7840 South Paseo Potro. With interest rates at an 18-month high, people trying to sell their homes will have a tougher time competing with new home builders.
“There does not appear to be, nor should there be, an expectation of lower mortgage rates or lower labor and material or land costs,” said Daniel, the analyst with R.L. Brown Reports.
That means, he said, that keeping home prices low will require continued building on the fringes of the city and smaller lot sizes.
So far, that strategy has kept activity in the Tucson new-home market moving at a healthy pace.
New home sales have averaged nearly 300 a month this year.
“The Tucson new-home market has enjoyed solid and consistent sales,” Daniel said, “despite the interest rates and psychological challenges that have severely impacted other markets.”
