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Homebuilders tapping the brakes in Tucson amid rising costs

Javier Vasquez, of Koedyker and Kenyon Construction, prepares to stucco one of the few homes still under construction in La Estancia near South Wilmot Road and Interstate 10 on July 22. Homebuilders are pausing construction due to rising interest rates, among other factors. This could exacerbate the local housing shortage as the average new home price pushes closer to $500,000.

Amid an ongoing housing shortage, homebuilders in Tucson are tapping the brakes on new homes as concerns about rising interest rates, construction and labor costs weigh on affordability.

But, closings remained strong with 1,752 homes closed from January through June — versus 1,688 in the first half of 2021 — and the average new home price climbed to $468,212.

Builders pulled 2,812 permits in the first half of this year, a 16% drop from the same period in 2021.

“I was surprised to see the June numbers,” said David Godlewski, president of the Southern Arizona Home Builders Association. “Interest rates and what’s happening to people’s 401Ks is causing buyers to pause.”

Because of supply-chain backlogs and the chronic labor shortage, the time it takes to deliver a home has doubled, he said.

“There’s been a considerable drop-off in new sales as well as cancellations,” Godlewski said. “Someone who wanted that home six months ago when interest rates were at 3 or 4% and now is more than 6% can’t do it. They’d rather walk away.”

Builders are watching closely, wary of the overconfidence that resulted in the housing crash.

“The memories of 2008 still linger,” Godlewski said. “They’re not going to risk getting involved in a project that looked good six months ago — they have to look at it in real time.”

In April of this year, the top five homebuilders for permits were:

Meritage: 71

KB Home: 55

Lennar Homes: 42

Richmond American: 39

Pulte Homes: 30

In June, those permit numbers dropped to 30, 17, 30, 11 and 21, respectively.

Godlewski hopes it’s a temporary pause.

“Because this doesn’t help the supply or inventory issues that we have.”

Demand remains

In the resale realm, buyers seemed to pull back as well.

Comparing June 2021 to June 2022 there was a 19.31% drop in resale homes, from 2,496 to 2,014.

The average resale price in June was $396,401.

“Resale buyers responded to the concerning economic news and institutional buyers, flippers, and small-scale investor buyers held back also,” said local housing analyst Jim Daniel.

He believes the heightened caution is an offset to the bright-eyed optimism of just a few months ago.

“We’re forecasting a 10 to 15% drop for the year in permits,” said Daniel, with R.L. Brown Housing Reports. “But that’s on the back of 17% increases two years in a row.”

He expects builders will adjust floor plans or diversify into other types of housing, such as built for rent homes or townhomes.

“They know the entry-level buyers are the ones hit the hardest,” Daniel said. “They’re tapping the brakes to figure out ways to make the product more affordable.”

Builders haven’t had to slash the price of existing homes and the population growth in Tucson and Arizona will continue to drive demand for new housing.

“There are housing markets across the country that would love to have the housing activity that Tucson has,” Daniel said. “We’re not going into this with our hair on fire.”

Contact reporter Gabriela Rico at

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