TUCSON CITIZEN:   Sat., Feb. 7, 2009

Foreclosures driving down new home starts

Teya Vitu

Tucson homebuilders now are in competition with foreclosure sales, not each other, a local expert says.  And foreclosures are winning.

Foreclosures drove down housing starts and median home prices last year and will remain a force in the housing market until at least 2011, said John Strobeck, author of the Southern Arizona Housing Market Letter.  Foreclosure sales accounted for 18.5% of all home resales in 2008 and peaked at 30% in December, Strobeck said Friday.

The median new home price in metro Tucson was $217,393 at the end of 2008, and Strobeck believes it will fall to $175,000 this year.  The median resale home price plummeted from $200,000 in March 2008 to $165,000 in December, he said.

In 2008, 12.4% of new homes sold for less than $150,000, while in 2006 a sub-$150,000 new home "didn't exist," said Strobeck, also the owner of Bright Future Business Consultants.

"Here is the reason we're seeing all this," Strobeck said to more than 200 people attending his 12th annual new construction review, analysis and forecast lunch at The Westin La Paloma Resort.  "There's a thing called foreclosure. That is becoming a huge part of our market. That is the most significant part of our problem."

Strobeck said there were 9,000 foreclosure filings in the Tucson area in 2008, and he expects the Tucson housing market will have to absorb 13,000 foreclosed homes through 2011 - the equivalent of a one year's worth of all new and resale home sales.

New construction permits dropped 41% in 2008, from 5,098 in 2007 to 3,018. And they are down 74% from the 11,762 permits issued in the greater Tucson area in 2005.  Strobeck expects construction permits for single-family homes to fall to 2,000 this year, then creep back to 2,500 in 2010 and 3,000 in 2011.