Long Realty Company has released its 2019 mid-year State of the Market Report for Tucson and Southern Arizona showing that if you’re in the market for a home and you don’t proceed rapidly, you’ll lose.
“If you’re a first-time, low-price-point buyer, you’ve got to act really quickly because stuff is selling even before it hits the market,” said Kevin Kaplan, Long’s vice president of marketing and technology.
A trend of low homes-for-sale inventory continues with active listings down 11 percent from a year ago, making it a seller’s market with fewer than 3,000 homes currently for sale on Multiple Listing Service.
In a normal or balanced market, an inventory of homes would cover five or six months, which is not the case today locally.
“To have just 1.8 months of inventory in all of greater Tucson’s population of over a million, that’s frothy, pretty low for real estate,” Kaplan said.
The problem is slightly improved in the Sierra Vista market with 2.3 months of inventory on hand, but even more problematic in Green Valley where only 1.4 months of inventory is available.
It’s a defined seller’s market now because over the last decade the residential market has slowly been recovering.
There are three legs to this stool, according to Kaplan. New construction is flat, no upsurge because materials and labor are both scarce and expensive, so it’s harder for builders to build new. Plus, there aren’t as many builders left after the recession because a lot of them got flushed out when the market crashed.
“Secondarily, people who bought a foreclosure years ago with a 3 percent mortgage rate would lose a lot if they sold now, so more people are staying in their homes longer because they’re sitting on a great deal because they bought when prices were suppressed and mortgages cheap,” he said.
One national survey showed average time in a home is now over eight years.
And while there is some buying and flipping still going on, on a larger scale, institutional investors are buying homes as rental properties to add to their portfolios. In the Tucson area, 8.3 percent of home purchases in 2018 were made by investors, the highest such level in two decades.
“For years, investors would buy homes, rent them for a while, and then when their equity had been built up, they’d sell,” Kaplan said. “That’s not happening now. Investors are still holding on because rental rates have gone up and they’re continuing to build up equity, and with increased investor activity comes increased competition for the traditional buyer.”
Median home prices in Tucson have risen 8 percent over the last year to $220,000. Green Valley median sales prices are up 11 percent to $195,500 while Sierra Vista median sales prices have jumped 14 percent to $177,000.
Monthly payments ($1,042) on a median-priced home in Tucson ($220,000) have actually trended downward because of lower interest rates (4 percent).
“Price is generally a function of market,” Kaplan said. “High demand, low supply, higher prices, but I think Tucson is still under or even better than the national average on the affordability index.”
Faced with the fact that available inventory of homes for sale has not kept up with an elevated level of demand and new construction permits are up only slightly over the previous year, what lies ahead?
The mid-year report notes: “We expect to remain in a seller’s market for the remainder of 2019, but at some point, the market is likely to balance out. Interest rates may rise. The economy may shift and rising prices will reduce affordability. Ultimately, the best time to buy and sell is when it’s right for you.”
The real estate market is like the stock market, always trying to find its balance, Kaplan added.
“Both markets are cyclical and we’ve been going through a long cycle of recovery,” he said. “Short term, things should continue somewhat like we see at mid-year, little change in limited inventory and increased demand. This trend didn’t just suddenly appear, it’s been happening for years, but at some point, I see things leveling out a bit.”
Long term is harder to predict, especially going into an election year. “A lot depends on the national economy where the feds have just lowered rates as a pro-active move to stifle off any recessionary worries.”
Two adages seem appropriate: “He Who Hesitates is Lost” and “Be Prepared.”
“If you’re going to be a player in this market, you need to prepare yourself because it’s a bit of a maze to work through,” Kaplan said. “This is a current window of opportunity with interest rates being what they are. Be pre-approved and ready to go because available properties are often gone the day they’re offered. If you aren’t ready, you may miss out on a good buy.”