The summer season, particularly June and July, are generally sleepy months of relative calm in the land and lot business. My primary focus usually turns to things other than business. Days include lots of early morning tennis at Tucson Racquet Club, catching up on activities with friends and family, seeing a few summer blockbusters, relaxing on my patio with a good book or a single malt scotch (preferably both), and binge watching Netflix series that had previously passed me by.
Of course, there’s also the occasional brave soul who calls and schedules an appointment to see vacant land in 110-degree heat. I have no reason to anticipate anything different this year.
Here it is, the beginning of August, and I realized this week that I have done very few of my usual summer activities. I’ve actually been riding a wave of showings, listings, negotiations, and even completed land sales since May 1st!
According to MLS statistics, I closed 10 land sales between May 13 and July 15, with prices ranging from $45,000 to $300,000. I also have 6 additional parcels currently in escrow which are scheduled to close in August (should the stars align).
As of writing this, I am working on two contracts which presumably will come together in the next week-one for a $60,000 infill lot in Tucson and the other a $120,000, 3.3acre lot in the Tucson-Mountain area. So what exactly is going on that is generating this startlingly large amount of business in what is typically a slow time of year?
This past week I read 2 articles in the Arizona Daily Star– Gabriela Rico’s “Tucson Housing Market is Looking Up” and Alex Veiga and Josh Boak’s, “Still Low Mortgage Rates Ushering New Refi Wave”—which provided an insight in to this summer buying phenomena, and perhaps provides a partial answer to my question.
As Rico puts it, “better than expected job growth, falling foreclosures and rising new home sales” are the stabilizing forces supporting a market uptick. She points out that buyer’s previously stuck and unable to sell their homes valued in the $200,000-$300,000 range are now indeed selling and buying new ones (I would expect at a higher price point), fueling the trend.
Veiga and Boak highlight the “flurry of purchases and refinancing as consumers rush to take advantage [of historically low interest rates].” They note that the average rate on a 30-year fixed mortgage is currently 3.45%, versus a year ago when it was 4.09%. The prospect of an affordable mortgage is fueling many new buyers to jump into the market.
Similarly, the land market is directly affected by these trends. Purchasing land to build your own custom home has always been highly desirable to many consumers, but was unfortunately out of their economic reach.
In the past, high land prices, higher interest rates on lot loans, limited affordable builder options, and limited supply of inventory, stood between consumers and building their homes. Only those being able to afford a home valued near $500,000 and above were viable candidates for building from scratch.
Due to continuing low land prices, many “semi-custom” building options, low lot loan rates, and construction loan rates, today that half a million dollar price point is down to a starting point of around $350,000 – $375 ,000. This has allowed many more people to potentially build the custom homes they have always wanted.
Many people who think that financing land is difficult, that lots are unavailable, or that building is prohibitively expensive are surprised to hear that that just isn’t so. According to Janine Grimes, a mortgage loan officer with One AZ Credit Union, her company is offering 3 or 5-year balloon lot loans up to $150,000 with a 25% down payment.
Higher loan amounts require a larger down payment, but because they are a portfolio lender (they don’t sell their loans to other investors) they can make exceptions for individual circumstances. Interest rates start at 4.125% and are amortized over 25 years to keep payments low. They look for a FICO score in the mid-700’s, but again, they can make exceptions for those potential buyers with lower scores. They also offer a one-time close construction loan at competitive rates.
It seems that Tucsonan’s intrinsic desire to build their own home, coupled with local job growth, a stronger overall housing market, availability of affordable land, land financing, and post-recession demand, has created an environment where more people may be able to design and build a wonderful custom home that is perfectly suited to their families’ needs and lifestyle.
So, I guess I’ll have to put my vacation plans on hold until the fall and expect to be busy for the immediate future. And that’s just fine with me.