Housing starts continue to drop; Tucson home builders

The Commerce Department reported Tuesday that housing starts nationally plummeted almost 11% in July to it's lowest pace in 17 years. Construction of single-family homes in July fell 2.9% to a pace of 641,000, lowest since January 1991. Many home builders in Tucson are struggling as they continue to drop home prices that are being impacted by high resale inventory and surging foreclosures and short sales.

In Oro Valley there are quite a few home builders that are trying desperately to sell off their remaining home sites, spec homes and models. All of these builders have dropped their prices significantly since the communities first opened around 2005. One of Tucson's biggest builders, Pulte, has dropped the base prices drastically in their high end development of Sienna; prices are about $100K less then they were in 2006. Homes that once started at $642K are now starting at $542K, and some of their spec homes have recently old for almost $200K less then the original 2006 prices. This particular community is not yet built out and is already seeing a number of short sales, which are impacting surrounding property values.

Nicholas homes is another builder that's really struggling in Oro Valley. The Stonefield community still has almost half their home sites available and their base prices have dropped about 17% since December 2005. Home prices that once started in the mid $300K's are now starting around $276K. I drove through this community last week and noticed how run down and unkempt the model's exteriors looked. Weeds and landscape were out of control which made the homes looked like they'd been abandoned. One of the models is currently on the market for $449K. Considering the base price of this home is now $339K, it better have some incredible upgrades to warrant this price.

High fuel prices are impacting home builders located outside Tucson as buyers avoid developments that require a long drive time. Several Tucson builders are lowering prices to "lure" buyers that would might otherwise avoid their communities due to distance from amenities. New construction home sites as well as resale homes continue to sit in Red Rock and Vail because buyers don't want to drive so far outside the city.

Until Tucson home builders can sell off some of the existing inventory their "giving away" our resale market will continue to remain sluggish. Once we can eliminate the builder spec inventory that's available buyers should begin focusing on resale homes; this should help reduce our resale inventory and help to stabilize the market.