1650 E. River Road
New Home Builders May Be Leaving Town
I am always talking to many people in the real estate industry and have been watching what the new home builders are doing. It’s my job to know where a certain builder is financially and otherwise. This helps me greatly in negotiating with them and representing clients. If the homebuilder has too many specs, they’re typically much more ready to give a few homes away to move the inventory. From what I have been hearing and my understanding of what I see happening, it looks as if some major homebuilders in the Tucson area may be planning to leave the Tucson market.
As many people in the industry know, the Tucson homebuilders have been taking some substantial losses recently (past 18 months) on all aspects of their businesses. Many have had to write down what their land holding are worth, and then once they finish the homes, they have needed to discount them heavily just to sell them — in many situations at a loss. In addition, there is increased competition because there are many short sales and foreclosures taking place in the same communities in which the homebuilders are selling. This is making it even more difficult to get properties sold.
In turn, most of the homebuilders (especially the major publicly traded ones) have a hard time making new purchases of land to build on when the local market is in such an unknown state. Most homebuilders have stopped buying new parcels of property, and once they have no new land to build on, they may very well just leave the market. A few major homebuilders are looking for buyers to purchase dirt lots so that they will not have to develop them.
KB Home decided not to open what was billed as one of their “Mega Communities” — Saguaro Springs in northwest Tucson just north of Continental Ranch/Reserve. At full scale, it was to offer dozens of different floor plans, and three or four different product lines. KB Home even built the models for the community and was ready to open before they decided to indefinitely delay the site and may have completely pulled the plug on the entire project. I was told by a source that the reason for the delay was that KB Home and the land developer they were partnered with had a difference of $2 million dollars and KB may have decided to pull out over the discrepancy. This seems like a paltry amount, though, to explain completely giving up on a project they marketed so extensively. The site is still on the KB Home website (Verde), so maybe KB has an opportunity to fix the issue and still open for sales. My opinion is that homebuilders in general have decided not to incur any additional expenses buying new land or starting new communities until the market starts to stabilize, which will happen much sooner if builders pull out of the market. If builders pull out of the market, this will hold the supply of homes down and in turn pull down the inventories across Tucson. I’ll keep you updated as I am sure 2008 will see some tremendous changes to the new homebuilder marketplace across the Tucson area.