New Home Builders Embrace Surge in Sales

Homebuyers Flood Tucson Market

By Jay Gonzales

Sales and construction of new homes and master-planned communities across Southern Arizona barely hit a speed bump in the wake of the COVID-19 pandemic.

“It’s a real head-scratcher,” said Carson Mehl, VP of Cottonwood Properties and developer of Dove Mountain, a 6,200-acre, high-end master-planned community at the base of the Tortolita Mountains. “When the pandemic first came down, we had a big, quick, abrupt dip. We didn’t know what to expect.

“I was pretty pessimistic and worried,” he said. “But I never would have anticipated the strength of the rebound that was to come. And it didn’t take very long.”

Whether it was new homes or existing homes, high-end homes or first-time buyers, master-planned communities or individual developments, a brief lull in sales and construction was followed by a pre-summer jolt. Even better, there is nothing to indicate the market will weaken as the region continues to battle the virus into winter.

“I don’t want to speak for all the builders – but it’s obvious all the builders are very active, purchasing more land, trying to get it developed and trying to get communities open to continue to serve this demand,” said Amy McReynolds, president of KB Home Tucson Division, which has 13 active subdivisions, including in the master-planned communities of Gladden Farms, Rocking K and Rancho Sahuarita.

The numbers definitely tell a story. In mid-August, new home sales accounted for 17% of all home sales in the region, up from 14.6% in 2019. In 2011, the market share for new homes was under 10%, she said.

A May report by LendingTree, an online mortgage broker, said that in April, Tucson had the largest 2020 increase in Google searches for the term “homes for sale.” Good news that was echoed in multiple publications and studies that suggested Tucson is poised for post-COVID-19 recovery. 

“It looked pretty dire,” said Will White, a land broker for Land Advisors Organization, which represents several of Tucson metro’s large master-planned communities in their lot sales to homebuilders. Builders “all stopped spending money. They put their land deals on pause. They didn’t want to spend money on land development. Some of them didn’t want to spend money on vertical construction of houses.”

Then, just like that, homebuyers flooded the market, some in April, more in May, and then a surge in June and July.

“It was a very interesting time and we approached with caution so as not to overreact,” said Jeff Grobstein, division president for Meritage Homes in Tucson, which has 11 developments active or in the final stages of opening in the region. “We were in an aggressive growth mode prior to the pandemic. We took our foot off the gas for a pause but did not slam on the brakes. It proved to be an excellent strategy as it was much easier to get back to business as usual.”

According to statistics provided by the Southern Arizona Homebuilders Association, there was a steady rise in homebuilding permits over the previous 12 months headed into March. Then, permits for March were only 6.62% ahead of March 2019. In April, during the height of the stay-at-home order, permits dropped by 39% compared to April 2019. May showed a slight increase over 2019 and by June, the increase was back to its pre-COVID level at 22%.

In Marana, single-family resident building permits were up 14% in June over June 2019.

“Single family home permits have not slowed down in Sahuarita during the pandemic, and in fact, things have actually accelerated a bit compared to prior years,” said Michael Jansen, economic development specialist for the Town of Sahuarita. The town issued 465 single-family permits in its fiscal year ending June 30, the highest total since 2009.  

SAHBA President David Godlewski said it looks like the market simply adjusted to functioning in the pandemic environment, both for buyers and sellers. Then, it became business as usual – only busier.

‘People are going out and buying’

“In March, when all the dominoes started to fall and you saw the shutdown of the economy, there was significant level of concern that we were looking at a recession that was going to mirror the 2008 Great Recession,” Godlewski said. “But there were those within homebuilding who saw that, this time around, all fundamental elements of the housing market were still in intact. We didn’t have the crazy potential for the number of foreclosures and some of the mortgage and lending situations that we had in 2008.

“What I think has also been a good sign is that when the COVID-19 case numbers spiked in July, you didn’t see a slowdown in home sales,” Godlewski said. “That’s certainly an indication that even with a situation where there’s a rising number of (COVID-19) cases, it’s not deterring people from going out and buying.”

One builder suggested that the pandemic paused, yet did not end, the desire for purchases. Hungry buyers were just waiting for the right moment.

“Say you had 148 people that wanted to buy a home in March, and then you had 148 people that wanted to buy homes in April. All those people waited until May and June,” said Tamra Williamson, a retail specialist for Bourn Advisory Services, which handles sales for Fairfield Homes.

The pandemic has actually made it more efficient for builders to sell homes. People are making sure they can buy a home before they even start looking. 

“The quality of the buyer has improved in general,” Godlewski said. “The people who are just looking for something to do on the weekend and go to the new communities, they’re not out there. And, I certainly think the low resale inventory – we have such an incredibly low number of resale homes on the market – is also pushing those buyers over to new homes.”

Tucson – Among Top Cities for Migration

Despite uncertainty for the future, there are massive investments in master-planned communities and developments throughout the region – including Dove Mountain, Gladden Farms and Red Rock Village on the north and west sides, Star Valley to the southwest, Rancho Sahuarita south of Tucson, La Estancia near I-10 and Kolb Road, Mountain View Ranch in Vail, and the long-planned Rocking K development north of Vail.

“We have a 90-day track record, so that’s enough to make a trend,” White said. “We’re seeing pretty powerful statistics as far as demand for new housing. If that continues, or even continues in some portion of that, they’ve got to go buy land and replace those subdivisions that they’re going to sell out.

“I think what you’re going to see is builders acting on what the demand is and what they need to provide for the consumer. You don’t have any real clarity as to whether people are going to go back to normal or back to what we used to know. They’re also looking at new product types. They’re looking at ways to offer more stay-at-home amenities. We’re looking at all this right now and trying to absorb all this information.”

One thing is certain – the demands of the consumer are changing, and builders are responding with new product types. In Rocking K, for example, the product was already in the works that takes full advantage of open space and outdoor living – precisely why Tucson has been receiving such national attention as a nice alternative to big cities, post-pandemic.

According to an annual report issued in May by UHaul International, the national moving truck rental company, Tucson already was among the top 20 cities for migration from other cities. UHaul’s rankings are based on the number of one-way truck rentals going to various cities.

Master-Planned Communities

Rocking K is a 2,000-acre master-planned community by developer Diamond Ventures that has been in the works for more than two decades. After years of planning, it launched a 558-home first phase last year with three builders – KB Home, Lennar and Pulte Homes.

“We designed Rocking K to be very open. It’s an outdoor experience,” said David Goldstein, president of Diamond Ventures. “Our amenities are trails, parks, the ability to hike Saguaro National Monument, etc. These are the types of things we did before COVID. Then COVID hit and we thought, geez, you would think we designed it for COVID.”

Rocking K is one of a number of master-planned communities and developments around the perimeter of Tucson that are seeing plenty of activity. Builders on the outskirts are finding that the commute is becoming less of a factor for buyers at developments like Coyote Creek, near Rocking K at the base of the Rincon Mountains, Mountain View Ranch near Vail, and master-planned communities like Red Rock Village at the Pima and Pinal County line.

“The traffic is incredible out here,” Debbie Backus said of the number of interested buyers Coyote Creek saw after the pandemic kicked in. “It’s been very exciting.”

“I just went to our engineer to start another phase,” said Peter Backus, Debbie’s husband and the developer of Coyote Creek. “We know that right now we’ve got an inventory that’s going to last probably 12 months and we will need new blood out here just to satisfy the demand.”

New Bridge a ‘Game Changer’

One of the biggest improvements for the builders in the Vail area is an extension of Valencia Road from Houghton Road to Old Spanish Trail that includes a bridge over the Pantano Wash. The extension will dramatically increase access to the developments like Rocking K and Coyote Creek, and to Vail in general.

“That new bridge that’s coming in is a big game changer for us,” said Debbie Backus. “For all the Raytheon people, they’re going to cut 15 minutes off their travel time.”

The $14 million project, expected to be completed by the end of 2020, is a public/private partnership with Pima County and Rocking K Development. Without the extension, getting to the area was via Old Spanish Trail from the north and west, or Mary Ann Cleveland Way which runs parallel to Interstate 10 on the north side of the freeway. The new road provides a direct path to Rocking K and the developments around it.

The pandemic also has forced companies everywhere to accept that their employees can be productive working from home – to the point that working remotely may be a way of doing business and saving costs going forward. Homebuyers are now looking for designs and floor plans that include office space and even classroom space for their students who might be taking classes from home for some time.

For some builders, like KB Home, those items have been an option – only now they’re seeing more demand.

“You’re looking at what you have and you’re determining what you want and what makes sense as you move forward,” McReynolds said.

“A lot of apartment dwellers are realizing how they were stuck in that space, with no backyard, no amenities,” said Craig LeMessurier, senior director of public relations and communications at KB Home. “They’re starting to realize, ‘Wow, I can’t live like this.’  They want to find a larger home.”

“Many of our floor plans have flex spaces for home offices as well as pocket offices,” Grobstein said of the demand they’re seeing at Meritage Homes. “We also have floor plans with lofts so kids who are doing classwork online have a great place for that.”

Tucson ‘Poised to Do Well’

For homebuyers coming from other places, there’s no question that the beauty of the desert is a selling point as they spread out throughout the region.

“If you’re the kind of buyer who   

appreciates a little more space, living in nature, or being closer to nature and having a little more room, this is a good place to be,” said Rick Kauffman, CEO at Holualoa Companies, the developer of Mountain View Ranch southeast of Vail.

Within shouting distance of Mountain View Ranch and the Vail community are the aerospace corridor where Raytheon Missiles & Defense and World View are located, the UA Tech Park at Rita Road and Interstate 10, or in the other direction Benson and some of the rural towns to the southeast. Even a commute into downtown isn’t all that difficult with the proximity to the Interstate.

“I moved out here from Pennsylvania and one of the things that hit me when I first moved to Southern Arizona was the mountains and just how beautiful the area is,” Kauffman said. “If you’re living on the east coast, you’re surrounded by trees. Here, you get those magnificent vistas and you wake up to that every day. That’s a special thing.”

Business has been brisk all around, not just at the new communities popping up in the region.

Many More Choices for Housing

“I’ve never seen Tucson more poised to do well,” said Rocking K’s Goldstein. “I mean, we’ve got all the elements in housing. I’m very proud of what we do at the Rocking K. But if you think about it, there are so many more choices for housing.

“If you want to live downtown, you can rent an apartment. You can buy a condominium. If you want to be in a luxury apartment, you can be in a three-story, luxury apartment, or you can be in a single-story detached apartment. Or if you want the suburban lifestyle, you can go to the Rocking K.”

Rancho Sahuarita broke ground nearly 20 years ago as a first-time home buyer community south of Tucson. It’s business model still has legs even though some of its signature amenities like clubhouses, gyms and community pools have had to close for periods during the pandemic, said Jeremy Sharpe, president of Sharpe and Associates, the developer of Rancho Sahuarita.

“I give our builders a lot of credit for finding innovative ways to provide what people are looking for in a house,” Sharpe said. “As we come out of this, home will be something different. It’s where we play. It’s where we work. It’s where we dine. It’s where we teach. It’s a school, it’s a restaurant, it’s a hotel.

“I saw our builders kind of feeling the same way. Our approach to our builders was really, how do we work together? This is something that none of us could have planned or projected, how do we work together to come out of this even stronger? I feel like we’ve done that.”