Q4 2014 Tucson Land Update

Q4 14 header

08 Jan Q4 2014 Tucson Land Update

Stone Canyon 14

Above: Stone Canyon – Monterey Homes

Focus on Move-up Homes

Entry Level Overlooked as Builders Focus on Move-ups

The Tucson land market has changed over the past couple of years. Single family finished lot inventories have fallen and seem to have stabilized below 4,000 lots. 2014 ended with 3,731 finished lots, just 208 lots fewer than at the end of 2013. The number of traditional single family homes started has been consistent as well, although it tapered off slightly in 2014. In 2012 builders started 1,467 single family homes (this does not include active adult or custom homes). This increased to 1,514 in 2013 but fell to 1,375 in 2014. Surprisingly community count had little impact on the number of homes built. There were approximately 69 active traditional SFR communities at the end of 2012. This increased to 76 active communities at the end of 2013 and 79 communities by the end of 2014.

After a very strong land acquisition year in 2013, in which there were approximately 64 land transactions valued at over $125.6 million, 2014 saw only 30 land transactions valued at $65.7 million or basically half the transactions and half the value. The differences in the types of land purchased highlights the direction the market is trending toward.

In 2013 there were 21 finished lot transactions valued at approximately $34.7 million. In 2014 there were only 5 finished lot transactions valued at $5.9 million. This highlights the severe depletion of available finished lots. While finished lot transactions declined significantly, platted lot or raw land transactions actually increased slightly. There were 14 land transactions valued at approximately $44.4 million in 2013. In 2014 there were 16 such land transactions valued at $45.1 million. This is expected as the limited finished lot supply is forcing builders to buy platted or even to entitle raw land to fill their pipelines. Both finished lot option transactions and investor purchases also declined. In 2013 there were 19 option transactions in 8 communities valued at $7.1 million. Option transactions fell to 8 in 5 communities and were valued at $5.1 million in 2014. There were 10 investor purchases valued at $39.3 million in 2013 but only 3 investor purchases valued at $9.5 million in 2014.

Traditional single family housing starts have been around 1,400 units for the past few years. With an increasingly limited supply of finished lots, builders have turned to purchasing platted lots to develop in order to replenish their pipelines. This gives them an opportunity to pick and choose the areas where they want to establish communities. However the increasing cost to develop lots has resulted in builders focusing on areas where they can cover their land and development costs and still get an acceptable margin. With typical development costs around $30,000 per lot plus land costs, entry level product is challenging to build and still make the numbers work. (the general rule of thumb for finished lot values are 20% of the home price) As a result, move-up homes priced in the high $200s or greater have been the focus. In 2014 only the SW submarket had average new home sales below $200,000 (averaged $186,000). The NE submarket had the highest average price at $484,000 with 36 homes closed. The NW was next averaging $285,000 with 732 homes closed. However when looking at just the communities east of I-10 and north of Ina Road (excluding Catalina), the average jumps to $335,000 with 361 homes closed. The SE and Far South submarkets averaged $246,000 and $243,000 respectively.

The higher average price areas of Oro Valley, the Tangerine Corridor, the Foothills or the Northeast area of Tucson are currently being targeted. This is evident when looking at where the land transactions are taking place. These areas also have larger lot sizes which support larger homes, yards and the higher sales prices. While more homes have closed on 45’ wide lots than on any other size throughout Tucson, the dominant lot size in the NW is a 65’ wide lot and a 70’ wide lot in the NE. When looking at the lots currently being developed, there are more 70’ wide lots (278) than any other (all but 65 are in the NW). The next most are 60’ wide lots (245) and all but 58 are in the NW. There are 201 lots 80’ and larger currently being developed while only 200 lots 50’ and smaller being developed.

It is interesting to note that the two new builders that entered the Tucson market this past year, Toll Brothers and Mattamy Homes are move-up builders and do not offer entry level homes. Both DR Horton and Meritage recently introduced semi-custom divisions in Tucson with Emerald Homes (Ponticello) and Monterey Homes (Stone Canyon) respectively.

Of the 43 communities that opened in the past two years, only 10 (23%) are currently offering homes under $180,000 and only 14 communities are offering homes under $200,000. Clearly the move-up market has captured builders interest in recent years with the higher price points and stronger margins.

However, the communities with the sub-$200,000 starting price points have had more activity than those over that amount. In 2014 there were approximately 669 new homes started in communities with starting price points under $200,000. Communities with starting price points between $200,000 and $230,000 started 218 homes. Communities with starting price points greater than $230,000 started 378 homes in 2014.

An analysis of the top subdivisions pulling permits has similar results. Seven of the top ten subdivisions have average base prices below $200,000 (this does not include active adult communities)*. Only two of these top ten communities are in the NW submarket.

Another thing to consider is the effect interest rates are having on the entry level buyer. The US Census Bureau estimates the 2013 median income for the Tucson Metro area is $43,824 per household. Based on this amount, a family with a 36% debt-to-income ratio and $5,000 to put toward a house can afford a $158,000 home with a 30 year mortgage at 3.75 %. If interest rates rise to 5%, the home they can now afford drops to $143,000. If rates go up to 7% they can only afford a $122,000 house. Today’s market conditions allow them to buy more house for their money, but the new home selection is limited and is only getting smaller.

It is clear the trend is moving toward larger lots and move-up product. As existing inventories of smaller lots with lower price points get built out, the entry level buyer will have increasingly limited new home options. The resale market will be the primary source of homes at this price point. There are still some entry level opportunities scattered throughout Tucson, including some rougher finished lots, but builders will need to adjust their product and financial expectations accordingly. Otherwise they will need to wait for the limited supply to push pricing up to levels that will make more financial sense, assuming that interest rates will not rise significantly which could result in the average Tucson household being priced out of the new home market entirely.

* Permit data from Bright Future Real Estate Research LLC

Please contact us for additional insight and information.

land transaction chart
closings lot size chart
comparison chart

2014 Residential Land Transactions

2014 Q3 land sales

Market Overview

Lot Supply

The finished lot supply remained unchanged in Q4 2014 from Q3 with a total finished lot count of 3,731. There were 243 new finished lots in six communities added to the market in Q4: 57 lots in La Cima Esplendora (KB Home); 48 lots in Casa Sevilla (Pulte); 27 lots in Vistoso Reserve (Lennar); 14 lots in Sierra Morado (Pulte); 7 lots in Los Saguaros (Toll); and 88 lots in Boulder Bridge (Miramonte). During Q4 there was a total reduction of 243 finished lots.

There are currently 8 communities (925 lots) under construction throughout Tucson. Of these up to 410 lots could be completed in Q1 2015. Three new communities could be added while the balance would be added to existing community inventories.

There are approximately 79 active SFR communities in the Tucson Metro area. Six communities were built out during the quarter, but still selling the remaining specs: 3 in the NW, 1 in the Far South, 1 in the Southwest and 1 in the SE submarkets. (these counts include multiple home series within a larger master community such as Sierra Morado, Madera Highlands, etc.) As many as six more communities could build bout in Q1 2015 based on recent building trends.

Lot Supply Statistics

Q4 ’14 vs. Q4 ’13 vs. Q4 ’12

Finished Lots: 3,731 / 3,939 / 4,202
New Lots Added: 243 / 481 / 10
Total New Lots Added – prior 12 mo: 1,173 / 1,251 / 73
Total Quarter Permits: 611 / 507 / 503

SFR Community Statistics as of December 31, 2014:

79 active traditional SFR communities
6 communities were built-out or closed in Q4 (most still selling specs)
5 new communities were finished or opened in Q4 (Miramonte/True Life have finished lots in Dove Mountain but no homes have been started
8 communities under construction (925 lots / up to 410 could be finished in Q1)
up to 3 new communities could be added in Q1
5 residential land transactions in Q4 2014 totaling over $5.07 million
1 finished lot transaction (age restricted community)
3 rolling options in 3 communities
1 investor land transaction (restructure of existing ownership)
There were no platted lot transactions in Q4

Lot Ownership

During Q4 2014 investor inventory was reduced by 55 lots. This reduction was from the 55 lot option DR Horton has for Sunset Point in SW Tucson.

Builder controlled lots: 2,778 (74.3%)
Investor controlled lots: 959 (25.7%)

Investor Ownership Q4 2014:

45.8% Far South submarket (292 lots)
23.6% Northwest submarket (367 lots)
17.5% Southwest submarket (123 lots)
21.0% Southeast submarket (177 lots)

lot reduction chart


Permits in 2014 came in at 2,284 which was just 34 more than in 2013. As expected, there was a late surge in permits due to builders taking advantage of the City of Tucson’s impact fee moratorium in eligible communities. Q4 ended with 611 permits, compared to 507 in Q4 2013.

Based on current building trends, as many as 20 communities could build out in 2015. Up to 6 could build out in Q1. Only three new communities are close to opening in Q1. Other lots that are close to being finished will be added to existing communities. While some of the larger projects being developed will be able to support multiple communities, the overall number of communities will drop in 2015.

The overall number of SFR lots built on in 2014 was 1,381 which was 133 fewer than in 2013 and 86 fewer than in 2012. There will be an increase in housing starts during the first part of 2015 due to the surge in permits in Q4 2014, but we don’t expect a significant overall change for the year. We anticipate there to be a modest increase in permits to 2,300 in 2015.

bear canyon

Bear Canyon Overlook – AF Sterling

tortolita vistas

Tortolita Vistas – Maracay

madera highlands

The Estates at Madera Highlands – Richmond

Our lot supply numbers represent only traditional SFR lots. We do not track multi-family, active-adult, or custom lots. Our definition of a ‘finished’ lot is one that is fully improved and a building permit can be pulled. Lots are no longer considered available once trenching has been initiated. Sales do not affect our counts – only starts. Builder lots include all lots under their control, including options.

We currently do not include platted lots in our inventory or ownership counts. However, there is an increasing amount of activity from both builders and investors in acquiring raw and entitled land in the Tucson area. We do track them and will include them in our counts as they are developed.

Investor lots include investors, developers and other non-builders.

* Permit data from Bright Future Real Estate Research, LLC


About Our Company

CHAPMAN LINDSEY Commercial Real Estate Services, L.L.C. was formed in 1991 by successful real estate professionals who wanted to better serve their clients. As a full service commercial real estate company, CHAPMAN LINDSEY offers brokerage and leasing services with an emphasis in vacant land sales. CHAPMAN LINDSEY’s three partners combine over 76 years of commercial real estate experience to provide a focus of expertise in the areas of land, investment properties, property
leasing, acquisition and deposition services, and tenant representation.

The company is an active member of the Southern Arizona CCIM (Certified Commercial Investment Member) Chapter and the Tucson Association of Realtors.

Dan Feig and Aaron Mendenhall specialize in the sale of land and developed lots to investors, developers and home builders in Pima County.


CHAPMAN LINDSEY has closed over $600 million in transactions.
CHAPMAN LINDSEY has also closed over $125 million in land alone in the past 6 years.
CHAPMAN LINDSEY has exclusively represented the following home builders with the purchase or sale of their own land/excess inventory;

Cornerstone Homes, DR Horton Homes, Ducati Homes, KB Home, Lennar Homes, LGI Homes, Maracay Homes, Meritage Homes, Milestone Homes, Miramonte Homes, Pepper-Viner Homes, Richmond American Homes, Standard Pacific Homes and TJ Bednar Homes

If you are looking to buy or sell land, please contact us to discuss how we can put our expertise to work for you.

Daniel Feig / 520-747-4000 x103


Aaron Mendenhall / 520-747-4000 x102