By: Will White, Land Advisors Organization Tucson
TUCSON, ARIZONA -- (Editor's Note) Last month Real Estate Daily News began publishing “Tucson’s Land and Housing: 2020 and Beyond” the fist of a 5-part series written in conjunction with Will White of Land Advisors Organization-Tucson. The focus of the series is to provide an insightful look into the various components driving Tucson’s successful, but complex, land and housing market. Will has been a Land Broker in Tucson for over 20 years and currently represents many of Tucson’s most successful master-planned communities and large-scale residential projects. Following is Part 2 of the series.
As I sat down to draft the second installment of our “Tucson’s Land and Housing: 2020 and Beyond” series, it became obvious that it is more important to address the historical disruption we are all facing, rather than the other chapters more relevant to a ‘normal market’. With that in mind, I will be instead discussing the COVID-19 crisis and what I believe to be some of the most significant impacts and implications to Tucson's land and housing market. As I believe this crisis will be shorter than many are predicting, I will address these other topics in future editions of RED News.
To virtually everyone’s surprise, we have opened a brand new, unexpected chapter in the world. Every community is being affected, and Tucson is no exception. What is arguably the most shocking element of the COVID-19 crisis is how quickly it hit, and what an amazing difference 30 days has made. Change has been spectacular, and a unique element of this situation is that everyone has an opinion, but no one truly has an answer. New information is released daily, which is turn changes opinions as to what will happen next.
We are no different, and do not suggest that we have the definitive answer as to how this will play-out in Tucson. The answers are not clear at this point and may not be for some time. We do, however, have a unique vantage point: We spend every day talking to Developers, Homebuilders, realtors, economists, landowners, title companies, data providers, and more. In doing so, we believe that we are getting a true sampling of what people are thinking and expecting in Tucson, and when we overlay this with our experience in Tucson real estate, feel that we can provide a better-than-average perspective on the market.
It is clear this is an immediate, direct hit to housing demand. What is interesting is that, entering the crisis, demand was less of a problem than supply. Better said, consumer demand for housing was exceptionally strong, and the bigger problem was that of historically limited supply. The Tucson market had nowhere near enough inventory, on many fronts, prior to this event, which suggests that in the short term, diminished demand will be able to be fulfilled and the Tucson market will keep moving along. That is very good news in the short term. When demand inevitably returns to its prior level, the supply shortage will be critical again, but this event will give Developers and Homebuilders a bit more time to get in front of the problem.
The Great Tucson "Time Out"
What we are currently dealing with in the Tucson real estate market is not unlike a time out taken during a sporting event. Regardless of the score, the game is put on pause, and this brief period allows everyone involved to reassess how the game is being played and to put together a new strategy to deal with the situation going forward.
That is essentially what is happening now, and rather than 20 seconds or two minutes, the time for The Great Tucson Time Out appears to be more like 60 days. Many land decisions being pushed out into June, and this time-out period will allow the homebuilders and developers to assess the available market data, gain clarity on the appropriate go-forward position, and put together the best strategy for their unique situation.
And like a time-out in a game, this break usually allows teams to regroup and refocus a bit. I think that is exactly what will happen in Tucson, and for the benefit of Tucson. If you look at this market in Q1 of this year, most everyone was struggling to just keep up. Builders were behind on lot/land deals, lot construction cycle time was approaching 12-14 months average, and homes were taking longer to build. In response, homebuilders moved quickly to spec building, development timelines were being extended, and labor remained very hard to find (and to keep). While this time-out won’t solve all these problems, it will allow people the time to recalibrate and hopefully come up with revised strategies to better manage the above.
Remember, we had a very strong market prior to this disruption and, while this undoubtedly will cause problems, there is no reason to believe we won’t be able to return to that robust status.
Much Different Landscape than 2008
In times of crisis, it is human nature to find something to compare the event to. It helps us put the current problem in context and can show that this too will ultimately pass just like the comparative event did. Unfortunately, the event that the COVID-19 crisis is compared to is the Financial / Real Estate crisis of 2008, and we with that couldn’t be further from the truth.
This is a problem that wasn’t caused by the financial and real estate markets, and Tucson isn’t in the same position it was in 2008. That time period was plagued by a huge over-supply of new homes, land and lots, and we had a huge amount of room to fall. Fast forward 13 years to today and we have (approximately) 1/3 the amount of new homes being built each year. Prices are not plummeting as they did in 2008, and they are not expected to. Also, in 2008 many landowners had debt issues that need to be sorted out as the market regained its footing. Over the last decade, the repositioning of land ownership in Tucson was made in cash and these owners have the current luxury of holding and making decisions to price and sell on their terms.
Based on our ongoing conversations, people are concerned, but the fact that this isn’t a real estate / housing / financial instigated crisis is compelling people to look at this situation more strategically than desperately.
Temporary vs. Permanent
This crisis is a significant change, no doubt. It is affecting people at all levels and specializations within real estate. From Developers to laborers, homebuilders to salespeople, everyone’s work now looks different than it did just 1 month ago. While we believe it is beyond debate that this has adversely affected virtually everyone in our industry, we also are of the opinion that this situation is temporary. Fundamentals going in were extraordinarily strong, and while we know we won’t exit this crisis with them being the same, we still think they will be good. People will still need homes, builders will need to deliver product, and the longer time for land development will need to continue to keep the pipeline moving.
Tucson was a very attractive place to be before the COVID-19 crisis, and it will be once the crisis is over. From weather to affordability to quality of life and natural space and surroundings, Tucson is likely to see strong, continued immigration from other states as people are likely to be interested in finding easier, safer living in areas where cost of living is more affordable. Tucson has made big strides in the past decade in its overall economic picture, and its roster of strong, experienced master-developers and talented homebuilders will help it to address this temporary challenge head on. When the path becomes clear we believe there will be pent up demand that will push this region to new heights, and Tucson will regain the considerable momentum it had just 30 days ago. While that seems like an eternity ago, we believe Tucson will be back on its feet in no time.
Part 1 of the series can be found here: https://realestatedaily-news.com/tucsons-land-and-housing-2020-and-beyond-first-of-a-5-part-series/