Recovery is not imminent for the Tucson residential real estate market because the inventory of vacant developed lots and the pipeline of platted lots are too high in the worsened economic environment.

That is the conclusion of Metrostudy, a housing market and consulting company headquartered in Houston with a Phoenix office that covers Tucson.

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"Fortunately, Tucson has a relatively small backlog of new-home inventory," the study found. "However, vacant lot supplies are a challenge."

Tucson’s supply of new homes has steadily gone down each of the past four quarters to 1,182 units at the end of March. The current inventory represents a 2.1-month supply, which is closing in on what Metrostudy says is housing consumption equilibrium of 1.5 to 2 months.

But the market has an oversupply of vacant developed lots that now totals 14,823, which represents a 38-month supply. That is twice the equilibrium level of 15 to 20 months, says Ben Sage, director of Metrostudy’s Arizona division.

The number of vacant developed lots in the market increased slightly in the first quarter as builders delivered 816 new lots to the market, while absorbing 793.

"Not only is there an oversupply of vacant developed lots, there is also a large number of future lots," Sage said.

The inventory of platted future lots totaled 19,197 at the end of the first quarter with development activity started on 7,151 of them. That’s nearly 63 percent of the market’s platted lots just sitting.

While planned development has been put on hold, landowners are facing carrying costs and other financial pressures to act.

Sage says land obligations are less liquid and can be more challenging in an economic slowdown.

The supply of resale homes in the market, which historically have been high, was down to about average with the rest of the country in the first quarter.

Sage credits local builder strategy regarding spec homes for helping keep new home inventory low in the Tucson market.

"For the most part, Tucson builders won’t start a home based on a contract with any sort of contingency, the most common of which is the need to sell an existing home first," Sage said. "This makes it difficult for buyers already in a home to have to close on that home first, then wait a few months for their new home to be built."

The result, Sage said, is that home buyers are more likely to choose a builder’s speculative, or spec, home that is already built because they can close quicker. That makes for a tighter supply of new-home inventory compared say, to the Phoenix market, where Sage says builders are still building spec homes.

While agreeing that Tucson’s housing market is "a bit different with the number of retirees and second home buyers," Sage doesn’t think that has much to do with current inventory levels of new homes.

"I don’t sense that there are many second-home buyers at the moment, unless they are from outside the country taking advantage of opportunistic exchange rates," Sage said. "Many domestic buyers still generally view their purchase as an investment, and they want to make sure prices have bottomed."

And while retirees may be anxious to come to Tucson, Sage said, if they have to sell their home first in another place, their options are probably limited.

"There are very few areas in the country where it’s easy to sell your home," he said. "At the end of the day, economic growth will be important to a housing recovery, especially within a mortgage environment that is not nearly as friendly as it was a couple of years ago."

Currently, Sage sees the biggest problem as lack of equity in homes that were bought in the last three to four years.

"These consumers - and some investors - are stretched to the limit now that the initially low payments are gone," he said.

Where the growth is…

Tucson region housing starts this year are 35 percent below 2007 and 57 percent down from the market peak of two years ago, according to Ben Sage, director of Metrostudy’s Arizona division.

Only one region of the Tucson market showed increases in housing starts over the past 12 months, southeast Pinal County where 410 homes were started, 268 out of them in Pulte Homes’ Red Rock Village.

Other areas in the market, including Cochise County, that remained active, according to Metrostudy, were in the far south and southeast sides, but even these areas were down 27 percent and 48 percent from a year ago.

The top six new home communities, ranked by the number of new home starts in the 12 months ending March 31, were:

1. Rancho Sahuarita, Sahuarita – 462

2. Red Rock Village, Pinal County - 268

3. Sierra Morado, southeast side — 204

4. Madera Highlands, Sahuarita — 201

5. Rancho Vistoso, Oro Valley — 201

6. Rancho Valencia, southside - 171

Contact reporter Ed Egger at eegger@azbiz.com or (520) 295-4238.