Land, home sales quiet for the moment, but growth, sales will be back
By Ed Egger, Inside Tucson Business
Published on Friday, November 07, 2008
The future of land and home sales in Pima County lies somewhere between the boom that happened between 2004 to 2006 and what’s going on today. In the meantime, there is a pyschological standoff.
Land owners are trying to hold off from selling too low but there are few buyers - at any price - so long as the housing market remains in a slump.
In the meantime, Will White, of Land Advisors’ Tucson office, sees foreclosures growing in the land business as owners try to refinance due to declining values. That, along with an on-going oversupply of land, would push land prices even lower, he says.
The differences between the boom and what’s happening now can be seen in some of Land Advisors data:
• In 2005 there were 11,762 home permits in the Tucson area. This year there are 3,700.
• Land sales totaled $1 billion in 2005. This year it’s $150 million.
• Finished lots in 2006 were worth an average $64,602 and developers could realize a 200 percent profit on them. These days, a finished lot is worth $44,000 and the profit margin is just 4 percent.
• Median home prices grew from $169,000 to $258,000 between 2003 and 2006. This year, they’re down to $195,000. Further, White believes it’s possible they could go down below $170,000.
• Home closings are at a 15-year low of 4,000, less than half the high of 8,605 during the housing boom heyday.
Land Advisors data shows home prices are falling in all but one area of the Tucson region. That one area is the southeast side, along Interstate 10, where median prices are up about $5,000 per home to $230,000.
Media prices in all other areas are down from 2006. In Marana, they’re $215,000, down from $260,000. On the southwest side, they’re down to $200,000 from $235,000. Sahuarita is down to $200,000, from $260,000. Even the higher-priced Oro Valley area has seen declines, to $280,000 from $430,000.
White points to the 32 percent drop in value for a finished lot — along with a 60 percent drop in the value of a platted lot — as the prime reason land sales have slowed to a trickle.
He says there seems to be plenty of money waiting to be invested in land but the investors are waiting for the market to hit bottom.
Land Advisors in Tucson has focused on master-planned communities in Marana and Sahuarita, as well as large land tracts in the southwest and southeast corridors.
During the boom years, developers anticipated huge housing booms, and commercial developers followed up with plans for huge retail developments.
For example, White said, there currently is over 3 million square feet of retail property planned along the I-10 corridor north of Ina Road in Marana. How much of it will actually be built remains a question, but before 2006, none of it was planned.
White believes sluggish land sales in the Tucson region is temporary because this is a growth area with projections showing the metropolitan area growing from its current 1 million to 1.4 million by 2030 and 1.7 million by 2050. And homes and retail space will need to be built to accommodate that growth.
“The big question is how we will do transactions after things bottom out,” White said.
Here are White’s observations about current conditions and his projections for the future:
• Unlike during the boom years, when builders acted as their own developers and bought large quantities of improved lots, they are now buying only the necessary finished lots they need to build homes.
• Raw land will in the future once again become a good investment, because that is where the most profit can be realized. For the next two, there are plenty of lots to choose from.
• Land foreclosures will increase in the next six to 12 months and land prices will continue to be under pressure.
• Commercial land sales have represented 50 percent to 70 percent of all land sales and will continue to help drive the local market.
• A healthy average for residential growth would be about 6,000 to 8,000 units a year, but it may take a few years to get there.
• The State of Arizona and Pima County can have a major impact on where development occurs and the price of land since they own a lot of land and only 13 percent of land in the county is privately owned. “They need to be careful what they sell off,” White said.
• Marana remains the best bet for future growth because of its proximity to I-10, the major corridor to Phoenix, and that there is enough to create master-planned communities.
• Oro Valley has limited remaining land for development unless the state decides to sell land it holds in that area.
• The southwest side, including Pomegranate Farms and Star Valley, will become one of the largest growth areas.
• The southeast side could also become a major growth area, depending on how the state’s land is sold and developed.
• Investors from outside the market are continuing to buy land in the Tucson region. That’s not necessarily a bad thing, as it shows confidence in the future of the region.
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