Tucson Housing Shortage in 2009

Here is one of those questions that could get you an appointment for a psych evaluation. It might be one of those posts I’ll look back on and wonder what I had for lunch that made me even wonder such a thing.

On Friday I attended the Tucson Association of Realtors Annual Forecast and heard some interesting presentations about the National and Tucson real estate markets. Rosey Koberlein said there could a housing shortage in 2009 or 2010.

I know when she said it the room was wondering why she was saying this (the media were licking their chops at a juicy quote to stir up controversy, they were right).   But I had been wondering the same thing for a few months as I saw the decline in New Construction around Tucson.

We know that in 2005 there were over 11,000 single family building permits issued for Pima county.   I also know that the migration of people moving to the state since 2005 has decreased significantly.   We overbuilt.

New construction had a very negative impact on residential resale of Tucson real estate since 2006.   This past year we had a much better residential resale market without as much competition from new construction.   However there was downward pressure on the residential resale market from foreclosures and short sales.

It is being predicted that a lot more foreclosures are going to be on the market in 2009 which is part of the reasoning behind the estimate there will be even few building permits issued in 2009 than were in 2008.

Lets look at some numbers on New Construction permits.

Remember because someone has a permit issued doesn’t mean they actually built a home.

Permits in 2005 11,000 +
Permits in 2006   8,522
Permits in 2007 4,846
Permits in 2008 3,018

It is predicted there will be even few building permit requests in 2009.   For a county with a population of over 1 million people this is not a lot of building permits.

Tucson Inventory Absoprtion Rates

During a “Normal” market period 6 months inventory is considered “normal”   When we look at the Absorption Rates for December 2008 we see there are three areas of Tucson already in the 6 month range.   The overall absorption rate dropped in December from 12.59 to 9.84 months.   Even with the Foreclosures rising, the inventory is shrinking.

Tucson New Construction Doesn’t Turn on a Dime

It takes time to gear back up.   If we suddenly see a shortage of available inventory the demand won’t be met with new construction.   It takes anywhere from 9 to 12 months for a new build.   It isn’t like Extreme Makeover Home Edition where they do it in 106 hours.

One Builder already Raising Prices in 2009

We got a notice this past week from one builder they were raising their prices.   They only had a few spec homes left and they had no plans to build anymore specs in the near future.

Some People Want A New Home

There are always some people who want a new home.   There are a lot of reasons, it the last home they plan on buying and they want it to be new.   They like building a new home everytime they move and furnishing the home is what they enjoy.   Some think in this market they can get the best deal on a new home with a new home warrenty in place.   For whatever the reason, some people simply don’t want to buy anything but new.

New Incentives and Reason To Buy

The Tucson Real Estate Market is showing signs of increased buyer activity.   In the first two weeks we have had over 500 home go under contract.   Interest rates took a jump at the end of the week to 5.75 from 5.1 at the beginning of the week.   But even 5.75 is a great interest rate.

The new Economic Stimulus bill before congress contains the provision to make the first time homebuyer $7500 tax credit one that doesn’t have to be paid back, making it a true tax credit.   There are buyers ready to buy, and soon there should be banks once again willing to lend.   I can see the Tucson Federal Credit Union changing their slogan to “Better than a Bad Bank”.

These are the reasons the question, which on the surface might seem ridiculous, could have some validity.

I know in September when I was paying just under $4 for a gallon of gas I would have said “NO WAY” to a prediction it would be less than $2 in January, but it is.

Could there be a Housing Shortage in Tucson in 2009?

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