The residential real estate market in Southern Arizona continues to churn unimpeded, according to research collected by Bright Future Real Estate Research.
The number of new home permits in the region—which includes Marana, Tucson, Oro Valley, Sahuarita and Vail—is up 7.6 percent from September of 2017 to 2018, from 224 to 241.
The year-to-date total indicated a major surge, with 2,762 permits in the region through September, versus 2,376 permits over the same period in 2017.
Ginger Kneup of Bright Future Real Estate Research attributes much of the area’s real estate success to the continued private sector employment surge, including the hiring sprees at Raytheon and Caterpillar.
“Buyers are, especially in certain areas of town, and certain price points, really challenged to find what they’re looking for,” Kneup said. “And the new home market has been able to meet buyer needs and demands that they haven’t been able to find in existing markets, so it’s been a great year for the new home market this year.”
The growth of existing real estate has been slower in the region, with resales falling 3.3 percent in 2018 versus the September 2017.
Kneup believes that slump is attributed to a lack of existing inventory and a confidence shared by buyers that purchasing a new home is a sound financial move.
“We believe that a lot of that demand in the new home market has been spill over from the tight resale market,” Kneup said. “The inventories are pretty tight in existing home inventory.”
Kneup’s research predicts that the final numbers for 2018 will include a 7.9 percent jump in new home permits across the region, with a 10.5 percent climb in new home closings.
Much of that boom in development has centered around the residential developments in Marana and the Vail area, which attributed 12.1 and 18.3 percent of all new home permits in the region this year, according to Kneup.
Southern Arizona Homebuilder Association President David Godlewski shares Kneup’s optimistic forecast for the region.
Godlewski believes that Tucson and the surrounding metro areas will continue to climb, so long as the national economy continues its upward economic trend.
“I think we’ve seen improvement in the real estate market because of a broader recovery in our national economy, and that’s provided people with confidence and security in their own lives, with their own jobs, knowing that we’ve moved out of the recession,” Godlewski said. “People have been sitting on the sidelines for a long time. They feel solid in where they’re at, and so they want to buy a new home, or have a new home built for them. I think that’s a big factor is just where we’re at from a macroeconomic perspective.”
Both Godlewski and Kneup are cautious about the next few years, however, thanks to the uptick in costs associated with building.
That uptick is the result of inflation, rising interest rates and the proposed 25 percent import tariffs on Chinese-made goods that are scheduled to go into effect on Jan. 1, 2019.
Those factors could put a damper on real estate development, according to Godlewski, as prospective buyers might hold off if the costs don’t line up financially.
“I think rising interest rates is going to be one of the key indicators of the continued progress in the real estate market,” Godlewski said. “And if we see increases like we have recently, if those continue into 2019, I think it has the potential to slow the pace of the market.”
For now, Godlewski is optimistic that this surge in new and existing real estate sales has the potential to be different from those in the region in the past.
His confidence comes from the lack of speculative real estate development, which led to a glut of inventory and the subsequent economic crash in the 2008 recession.
“I think when you’re looking at new home construction and the growth, we’ve seen in the past few years, it’s been very measured,” he said. “And so, while you’re seeing positive, and in some cases double-digit increases on a percentage basis year over year with new home construction, it’s not off the charts. So, I think that the builders are proceeding in a very strategic way, where they’re not getting too far out ahead of themselves.”
To Kneup, that market stabilization is a key factor in projecting the future, as there hasn’t been the volatility in sales that previous growth periods have experienced.
“We also see that the stabilization in existing housing market; it’s holding its own for the last six or seven months,” Kneup said.
Godlewski and Kneup both summarized the real estate environment in the region as being a buyer’s market but cautioned that those factors might not be in-play for long.
“I would say it’s a much more sustained growth that we’re seeing this particular recovery, so that gives me confidence in continued growth,” Godlewski said. “But like I said, I do think that there’s some factors out there that are on the horizon that could potentially cause things to slow down in the future.”