Speculators Scatter, but Investors Welcome in Optimistic Tucson

If you were to select one word that is interchangeable with Tucson, that word would be “sunshine.” Blessed with more than 300 days of blue skies per year, …

If you were to select one word that is interchangeable with Tucson, that word would be “sunshine.” Blessed with more than 300 days of blue skies per year, the city offers appeal for sun worshippers and snowbirds alike.

In winter, the population of Pima County—of which Tucson is the seat—jumps to more than a million people from approximately 843,746 at other times of the year.

Citing the presence of the University of Arizona, a thriving medical community with a variety of hospitals and health services, and recreational opportunities including biking and hiking, Realtor and blogger Dave Smith believes that Tucson’s population could boom, with 30,000 additional baby boomers buying second homes or retirement homes in Tucson on a yearly basis over the next 10 years. Smith runs the Tucson AZ Real Estate blog (http://www.tucsonazrealestateblog.com), which provides in-depth analysis of the local market.

Besides a strong economy, Smith also cites the architectural diversity of the city as an appealing quality to many potential buyers.

“Tucson has a variety of types of architecture and ecosystems within the city itself,” Smith says. “[This makes] it easy to find just the type of home and environment you are looking for.”

Because Tucson is located in the middle of four mountain ranges, the city lacks available space for freeway bypasses to be built, but Smith notes that this is not always a disadvantage. “Residents quickly discover ways to get around without a freeway or bypass system. For visitors or new residents coming from cities with extensive freeway systems, they find this a little antiquated in the beginning. Most quickly adapt.”

Coping in the downturn

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Tucson’s advantages, however, have not made it immune to the real estate downturn currently sweeping the country. Smith estimates that the city’s average and median sales prices are down by 9 percent over the last year, reporting on his blog an average sales price of $251,226 and median sale price of $176,500 for residential properties.

However, he is quick to note that Tucson saw price increases of about 60 percent over the past five years, and asserts that the lift from that time continues to benefit the city.

“Tucson has foreclosures and some short sales, but not as many as most cities,” he says. “I attribute this to two things that happened during the boom years here: first, many homeowners’ associations passed regulations stipulating that buyers had to be residents. No investment properties were allowed by people coming in and buying up four, five and sometimes six properties to flip or turn into rentals. This limited the number of homes which have gone into foreclosure due to speculators buying those properties. Second, builders did the same thing. There was a period of time for about a year where speculators would purchase a home, then sell it before it was ever built. The price of new constructions was going up by $5000 for every five homes sold. Since this practice of buy-and-flip-before-built was competition to the builders themselves, they required that the buyers sign a document stating that they were buying the property for themselves and not as an investment.”

Smith is careful to distinguish between investors and speculators. He considers investors to be educated insofar as market conditions and motivated by careful analysis.

“Speculators are gamblers, jumping on a bandwagon or fad, and purchasing with the hope of making a lot of money fast,” he says. “Tucson during the boom years saw a lot of investors move out of the market and sell to the speculators. In the past six months, we have seen investors once again moving into the Tucson real estate market, picking up some very good properties at amazing prices. I think this trend will continue through 2009 and into 2010. We all hope the speculators will never come back.”

Buyer opportunities

Michael Krotchie, a Realtor with Coldwell Banker Residential Brokerage in Tucson, runs his own Tucson Real Estate Blog (http://www.michaelkrotchie.com/blog). Krotchie recognizes the presence of a downturn, but overall is sanguine about market conditions.

“The economic downturn of this year, coupled with the election year, has decidedly slowed movement, but total volume sales are only slightly down from 2007,” he says. “The advantage to the Tucson market is (that this is) the opportune time for real estate to be purchased. Most sellers have accepted reality and are pricing their properties to sell accordingly, and having buyers’ expenses such as closing costs and appraisals paid is especially common.”

However, Krotchie does see his share of challenges in today’s market. Unrealistic sellers, he says, pose a challenge to timely sales of their homes. “Realtors are becoming part-agent, part-therapist with their clients by educating and enlightening them to the current market value of property,” he says.

The other major challenge Krotchie sees is buyers attempting to play the market to their advantage: “They’re trying to time the market,” he says. “They have seen prices fall and want to continue to wait until the prices hit absolute bottom, a dangerous game to play. I have already had a few clients who had a favorite property they wanted to wait out, only to have it snatched out from under them by a buyer who was ready to move forward.”

Krotchie attributes the fallout in Tucson in part to the bailout of speculators. “I still remember back in 2004 and 2005, seeing busloads of people from California and Nevada swooping in and buying brand-new homes in subdivisions left and right, and then hopping back on the bus,” he says. “It seems that the investors who weren’t in it for the long haul have since packed up and left, and once again opportunity has appeared for solid real estate investment. Lender-owned properties are continuing to show up, and because banks aren’t in the business to own and hold properties, they are generally priced to move.”

He maintains that Tucson’s position as the largest city in southern Arizona, as well as the fact that it is home to major employers such as Davis-Monthan Air Force Base, Raytheon and Honeywell, provides a draw for serious investors.

“Tucson continues to provide a solid community base for investment properties and will only continue to gain strength as the economy is stabilized,” he says.

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