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Real estate

Tucson could become more of a seller's market in 2017

If you’re hoping to sell a home in the Tucson area, you could find it easier to find a buyer and get higher prices in 2017.

But if you’re looking to buy, expect challenges, especially for decent homes priced at $150,000 or less that already can draw 20 or more offers.

The Tucson market is likely to become a bit more of a seller’s market in 2017 due to an unusually low supply of homes for sale and competition from new residents lured by the growing number of job, say local real estate experts.

Aside from the relatively low inventory, 2016 was a good year for Pima County. The total number of homes sold grew 11 percent to 14,804 in the first 11 months of the year, compared with the same period in 2015, according to Multiple Listing Service of Southern Arizona. The amount of sales grew 15.5 percent to $3.2 billion.

And the median sales price increased 6.6 percent to $182,041.  The average days on the market dropped sharply to 49 days from 62 days, said MLS.

“Everything I look at in southern Arizona and all of Tucson is really good news,” said  B.J. Gibbons, a real estate attorney, broker and investor who compiles “The Housing Report” for Long Realty. “And now interest rates are up. So we’re hoping that inspires a lot of people to get out and buy before rates go higher.”

Realtor.com in November predicted that Tucson would become the ninth hottest housing market in 2017 (and Phoenix the first) because of expected population and economic growth. It said prices would grow six percent and the number of sales 5.5 percent in 2017. 

Other trends that are likely to continue into 2017 are the low inventory has already begun to spur construction of new homes. The northwest part of Pima County, particularly Marana to Oro Valley, continues to be its hottest for sales. And sales of homes priced at $1 million or more remain sluggish. 

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Lowest inventory in years

The supply of Tucson area homes for sale typically rises in the spring, but the increase in 2016 was modest.

“We really started to see it (shrinking inventory) this year,” said Pam Ruggeroli, president of the Tucson Association of Realtors. “Typically in January and February we see a spike in inventory. March, April, May and June are our biggest sales months of the year, year in and year out. But in March, 2016 we didn’t see that.”

In November, there were about 4,100 homes for sale, a 22 percent decline from November 2015, according to The Housing Report.

Gibbons said “Our inventory of new listings, I dare to say, is at an all-time low.“

Tucson isn’t alone. Inventory has been shrinking across the country, partly in response to fewer homes being built during and after the recession. Realtor.com said inventory at the end of November was down an average 11 percent in the top 100 metros, compared to a year earlier.

There are probably a number of reasons why fewer people are trying to sell their homes, Ruggeroli said. Many homeowners are still upside down, meaning they owe than their homes are worth. Or they may want to buy but can’t find something they want to buy because the options are fewer. Would-be buyers may have been nervous about the presidential election. And many people who lost jobs in the recession have not yet recovered financially.

Gibbons also said inventory rose in previous years because of an increase in bank-owned properties that went on the market. But that isn’t so much of an issue anymore. Only 9 percent of Tucson area residential property sales were distressed (bank owned or short sales) in the first nine months of the year, compared with 13 percent at the same time a year earlier, said the Housing Report.

Tucson’s residential market began falling in 2006 and hit bottom in the fourth quarter of 2011, said Ruggeroli, who has 15 years experience in the business. She said many people who lost their homes to repossessions, foreclosures and bankruptcy are still not able to buy homes because they have to wait years before they can get a mortgage again due to scars on their credit reports.

“It takes time to get out of that hole,” she said.

Sellers versus buyers 

A reduced supply of homes for sale is mainly good news for sellers because they should be able to get higher prices, the experts say. Competition has already become intense at the lower ends of the market in the Tucson area.

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“It’s been a buyer’s market forever. That’s turning a little bit,” Gibbons said. “It depends on the price range. In some areas, it is more of a seller’s market, which is good.”

According to Ruggeroli, it already is a sellers market for homes priced at about $275,000 and less.

“Then it’s a slightly sellers market from $275,000 to about $400,000 and then it’s a buyer’s market over $400,000. At about $500,000 it really slows down and anything over a million, you are looking at two to three years or more of inventory,” she said.

“Anything under $200,000, if it’s in great condition and a great location will usually see multiple offers. Or we still have investors buying property low and fixing up and selling. If it is (priced at) $100,000 or below, sometimes you get 20 to 30 offers.”

In addition to the dwindling inventory, several other factors could dampen sales.

The National Association of Realtors reported Thursday that pending home sales across the country in November fell to their lowest level since January and said the dwindling supply of homes and higher mortgage rates are discouraging buyers.

The 30-year fixed mortgage rate rose in the U.S. from about 3.5 percent on Election Day to almost 4.2 percent, Forbes reported Wednesday. But that isn’t bad considering it was about 4 percent a year earlier and 6 percent in 2006.

And millennials — those aged 19 to 35 who in 2016 became the largest generation in the country — don’t appear to be as interested in buying homes as generations before them.

“Right now we are seeing a lot of millennials who want to live near the downtown area, and the housing availability in the downtown area is just not there,” said Ruggeroli. “There is a lot to rent but not a lot to buy. And if there is something to buy, it is not affordable for somebody that does not have a high-paying job.”

More homes being built

The reduced number of homes for sale is already driving up home construction in Pima County.

In the first 11 months of 2016, there were 2,476 permits for new single-family homes issued throughout Pima County, about 25 percent more than the same period in 2015, according to the Southern Arizona Home Builders Association and Bright Future Real Estate Research. 

The largest number, 635, was in incorporated Pima County, followed by Tucson, 558; Marana, 535 and Oro Valley, 278.

David Godlewski, president of SAHBA, said “There is definitely some positive signs in homebuilding right now and there is optimism for 2017. I think we finally hit the turning point where we are going to see increasing trends.” 

Most of the activity has been in northwest, especially in Marana and along Tangerine Road,  but he said building is also picking up in the southeast around Vail and also the southwest.

A major challenge for homebuilders is that there isn’t a lot of land left that is close to infrastructure such as sewers and electrical lines. And about 200,000 of  Pima County’s more scenic acres are off limits because they are being preserved for natural washes, wildlife corridors and parks. As a result, new homes generally cost $80,000 to $90,000 more than existing homes.

“It is expensive to buy a new home. There has been a good increase (in building) this year, but it hasn’t really taken off because the development costs are high, the costs of all the regulations are high. It’s very difficult to build homes right now for under $200,000,” Godlewski said.

Most sales in northwest Pima County

The largest chunk of home sales have been occurring in the northwest part of Pima County, particularly Marana and Oro Valley and the northern foothills.

One reason is that it happens to be the MLS largest region, defined as anything west of Oracle Road and north of River Road, said Ruggeroli. That region not only has the largest number of houses but they are generally newer and more affordable. Marana also has a lot of flat farm land that is relatively easy to convert to homes.

In the recession, the northwest and southeast parts of metro Tucson were the hardest hit. And now they are picking up faster because homes are more affordable, Ruggeroli said.

In fact, the Marana region had Pima County’s sharpest decline in valuations — 15 percent — in 2013, according to the Pima County Assessor’s Office.  But 2017 valuations show that it had second highest increase, 4 percent, after the south Tucson-airport region’s 7 percent. Marana’s median sales price rose to $167,267 from  $126,757 in 2013.

Gibbons said the northwest has had the most sales in metro Pima County every year for the past five years, more than double any other part of town.  There were 3,930 closings through November in the northwest, and the next highest area was central Tucson with 1,994.

The wealthy and the investors

The hardest homes to sell are those priced the highest. In November, there were 174 active listings of  homes priced at $1 million or more. Yet only 43 sold from June through November, according to the Housing Report.

“In June we had 14 (closings of million dollar-plus homes) which is highly unusual. In the downturn, we were lucky if we had one,” said Ruggeroli. And many of these high-end purchases pay cash.

But if wealthy buyers are scarce, investors aren’t. Investing, says Gibbons, is “hot and heavy”  in the Tucson area. She is an investor herself and buys about 20 homes a year.

“Below $150,000, especially for any kind of bank-owned property, it’s very common to get 20 offers,” she said.

Fixing and flipping is still common. Ruggeroli said she has a client who probably paid about $50,000 for a home, put about $100,000 into it and is selling it in the $200,000 price range.

Forget the pre-recession peak

Tucson home prices are still about percent below their peak in the mid-2000s, and that is probably good news, unless you bought them and have yet to recover that much value.

“We are down 20 percent from the peak. We may never get back there, and I don’t think we should get back there. It was a false bubble we were in. We realize that was not realistic,” said Gibbons 

But Lee McPheters, director of the JPMorgan Chase Economic Outlook Center at Arizona State University, said that if you ignore that bubble that caused so much misery, “it appears that home prices are now back on a longterm upward trend, and may be slightly above.”

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