Effect will last to 2011, local expert says
Tucson homebuilders now are in competition with foreclosure sales, not each other, a local expert says.
And foreclosures are winning.
Foreclosures drove down housing starts and median home prices last year and will remain a force in the housing market until at least 2011, said John Strobeck, author of the Southern Arizona Housing Market Letter.
Foreclosure sales accounted for 18.5 percent of all home resales in 2008 and peaked at 30 percent in December, Strobeck said Friday.
The median new home price in metro Tucson was $217,393 at the end of 2008, and Strobeck believes it will fall to $175,000 this year.
The median resale home price plummeted from $200,000 in March 2008 to $165,000 in December, he said.
In 2008, 12.4 percent of new homes sold for less than $150,000, while in 2006 a sub-$150,000 new home “didn’t exist,” said Strobeck, also the owner of Bright Future Business Consultants.
“Here is the reason we’re seeing all this,” Strobeck said to more than 200 people attending his 12th annual new construction review, analysis and forecast lunch at The Westin La Paloma Resort & Spa.
“There’s a thing called foreclosure. That is becoming a huge part of our market. That is the most significant part of our problem.”
Strobeck said there were 9,000 foreclosure filings in the Tucson area in 2008, and he expects the Tucson housing market will have to absorb 13,000 foreclosed homes through 2011 – the equivalent of a one year’s worth of all new and resale home sales.
New construction permits dropped 41 percent in 2008, from 5,098 in 2007 to 3,018. And they are down 74 percent from the 11,762 permits issued in the greater Tucson area in 2005.
Strobeck expects construction permits for single family homes to fall to 2,000 this year, then creep back to 2,500 in 2010 and 3,000 in 2011 – all lower than any year since 1992.
Strobeck has an idea for how homebuilders can get work for themselves and their subcontractors.
“I’d like to see builders buy foreclosed homes, remodel them and resell them,” Strobeck said.
Strobeck is adding foreclosure prices to his monthly report of median and average prices for new and resale homes.
“There’s no reasonable fix that I know of (for the foreclosure epidemic),” he said. “The nice thing is it’s a temporary problem. We’ll get through it. It must run its cycle.”
Residential land sales in the Tucson region had similar dynamics in 2008. In the past four years, combined land sales tumbled from $750 million to $109 million, said Jim Marian, a partner at Chapman Lindsey Commercial real estate services.
“There was not a single land transaction for $10 million in 2008,” said Marian, adding that recent years have seen five to 15 $10 million-plus land sales each year.