New home sales are up in 2016. Per SAHBA, monthly net sales from their 12 member builders so far in 2016 has each been higher than any month in 2015 with the exception of January’s 173 net sales which was only one sale less than March 2015 and 10 less than April. The 620 single family permits pulled in Q1 2016 was the 2nd highest in a quarter for the past three years. Q2 of 2015 was higher, but only by 2 permits. 2016 is off to a good start here in Tucson. Much of the success is due to a few strong communities, including DR Horton’s Saguaro Bloom, Pulte’s Sierra Morado and the newly opened Center Pointe Vistoso by Maracay. Each of these properties has introduced new lots this past year either as a new community or as a continuation of an existing community.
As has been mentioned in prior articles, existing and available finished lot inventory is extremely limited in Tucson and what remains has challenges relating to location, lot size or price. Builders have been forced to seek out platted or raw land properties to fill their pipelines, which they try to keep full up to at least two years out. When finished lots were more plentiful, a builder could identify, negotiate and purchase a property in 3 to 6 months and they could begin building homes immediately. With platted lots it can take 8 to 12 months after the lots are purchased to develop the lots and begin constructing homes. Most builders will not close prior to final plat, so any property that needs to be rezoned and entitled can add an additional 1 to 2 years onto the timetable.
As the market has continued to improve, certain communities have enjoyed stronger than anticipated sales and communities are building out faster than initially projected. While this is great news for builders, it also presents challenges as their pipelines need to be replenished sooner. Builders need to be constantly on the lookout for new opportunities and have the foresight to think longer term and take some risks based on future needs and inventories.
Meritage was the first and most active builder to take on platted lots since the downturn. They recognized the need of future lots and identified the Tangerine Corridor in the Northwest submarket as the place to invest in. In May 2012 Meritage purchased two platted lot communities in the Tangerine Corridor – Sky Ranch and Tangerine Crossing Phase 3. Later that year they closed Saguaro Forest in Dove Mountain with Silverbell Preserve and Rancho de Plata closing in 2013. Meritage skipped 2014 but purchased 3 platted lot properties in 2015 and one so far in 2016 for a total of 9 properties with 695 platted lots. The three platted lot communities purchased in 2012 are now each built out and the two purchased in 2013 are nearly built out with only 5 remaining lots between them. These initial trailblazing purchases have netted Meritage over 250 sales to date. Their early 2015 purchases will be opening in Q2 2016.
DR Horton, Richmond American and Pulte Homes were ranked #1, #2 and #3 respectively one year ago in the number of finished lots owned. In the past 12 months, DR Horton, Richmond American and Pulte Homes are ranked #1, #3 and #2 respectively in the number of homes sold (per SAHBA reports). This correlation extends to the other builders as well. Of the top six builders in lot holdings a year ago, each ranked the same in number of finished lots owned as the number of homes sold within the past 12 months, with the only exception of Pulte being # 2 in sales and #3 in finished lots, while Richmond American was #3 in sales and #2 in finished lots.
As of the end of Q1 2016, lot ownership rankings have experienced slight changes. DR Horton remains at #1 with 389 finished lots. Maracay jumped to #2 with 267 finished lots with the opening of its Center Pointe at Vistoso communities earlier this year. Richmond American fell to #3 with 264 finished lots and Meritage jumped up one to #4 with 239 lots. Pulte fell to #5 with 170 finished lots and Mattamy Homes entered Tucson opening its Dove Mountain community and is ranked #6 with 124 finished lots. When looking at sales numbers from just 2016, the top three remained the same, but Maracay jumped from #7 to #4, pushing Lennar to #5 in reported net sales.
When comparing current lot inventories to lots currently under construction, the finished lot ownership rankings will change even more by the end of 2016. Meritage will take over the #1 spot with over 650 finished lots as it opens . KB Home could jump to #2 as it completes the four new communities currently under construction. Richmond could fall to #6 and Pulte to #8 in finished lot ownership as each are selling well in their existing communities but only have a small number of lots currently under construction that could finish out this year.
Most builders currently have other properties in escrow that will add additional lots to their pipelines in the future, but it will take time to get them ready to build houses on. Any builder who waits too long to secure new inventory can easily find themselves with a lot shortage in 2017 and 2018 and sales will suffer as a result. If their pipelines become too depleted they may be forced into paying higher prices for the remaining existing traditional inventory or developing new product to fit the non-traditional finished lot inventory.
Future employment opportunities coming to Tucson will impact housing needs. Caterpillar recently selected Tucson for its regional headquarters and will bring 600 high paying jobs to the area over the next five years. The Rosemont Mine project is nearing its final rounds of government permitting, which if approved, could be another major source of employment for the area. The trickle down effect of these and other upcoming employment announcements will create even more demand for housing, which in turn will create additional demand for land and lots by homebuilders. Look for an active land market in upcoming years.
Please contact Chapman Lindsey or Aaron Mendenhall at 520-747-4000 x102 for additional information.
To see the full report click here: Chapman Lindsey Q1 report