Q3 2016 Builder Positioning in Tucson

Lot inventories, or the lack thereof, could shake up sales leaders

The Tucson housing market continued its upward momentum through the 3rd Quarter. While permits and house starts were below the stellar 2nd quarter numbers, they were still higher than any other quarter since the downturn. We are on pace to see 2,600 permits in 2016 and 1,800 single family house starts. It is good to see the sustained growth in the Tucson market and an improved outlook for the future.

As has been discussed in prior quarters, the single family finished lot supply is low. Over the past several years the builders and developers have taken notice and have been purchasing primarily raw and platted land around Tucson. These investments are paying off as new lots and subdivisions have been completed and introduced into the market at rates about the same as they are being built. Finished lot inventory bottomed out at 3,015 lots at the end of 2015 and has been holding steady around 3,140 throughout 2016.

Nearly 500 lots have been introduced in each quarter this year which has kept pace with the increased permits and house starts from the builders so far. It is interesting to compare the volume of new home sales to lot inventory levels and to lot development. Some builders have been more aggressive than others and are positioning themselves for future success as lot inventories throughout Tucson continue to tighten. Several builders who have enjoyed strong home sales are finding themselves in need of future lots to maintain their market positions. Comparing the top five builders in these different areas sheds some light on how builder ranking and positioning may change in the next few years.

When looking at new home closings over the 12 months ending September 30, DR Horton is the clear leader with 403 closings. Richmond was a distant 2nd with 261 closings with Pulte right behind at 221. Lennar was 4th with 172 closings and Meritage 5th with 149. KB Home and LGI Homes were the only other builders with more than 100 closings with 134 and 104 respectively.

The existing finished lot inventories of builders is much tighter.. Meritage currently controls the most finished lots at 321 with Maracay right behind at 316. DR Horton’s fast sales pace has depleted their lot inventory down to 294. KB Home comes in 4th with 265 lots and Lennar in 5th at 243 finished lots.

Pulte is currently has the most lots under construction with 310. Mattamy is right behind them at them at 308 lots. KB Home is developing 227 lots and DR Horton has 209. Meritage comes in 5th with 61 SFR lots currently under development. These numbers are what is currently being developed. Many builders have other lots currently going through the entitlement process that should start development within the next year or two depending on entitlement challenges, but it will most likely be at least two years prior to being ready to start constructing homes.

When combining existing lots and lots under development we see positioning that should be representative of builder success for the next year or two. This gives an idea of the lots that each builder will have to build on in the near future and highlights which builders need replacement lots the most. (see chart for details)

The top 5 builders with the most combined lots in Tucson are as follows: DR Horton – 503; KB Home – 492; Pulte – 441; Mattamy – 420; Meritage – 382. Please note that these numbers can change quickly as development of platted inventories begins.

Builders have spent over $26 million so far this year on platted or raw land with over 1,200 future lots. Last year they spent over $73 million for approximately 2,800 future lots. The timing of entitlements, approvals and development will determine their release to the market. These lots are coming but more will be needed as the housing market continues to strengthen in Tucson.

To read the full Q3 Land report click here.

For additional insight and information contact Daniel Feig / 520-747-4000 x103 danf@chapmanlindsey.com and Aaron Mendenhall / 520-747-4000 x102 aaronm@chapmanlindsey.com at Chapman Lindsey Real Estate Services.