Home construction and prices are on the rise in Douglas
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Home construction and sales have been moving at unprecedented rates in the Douglas area.
One only needs to look toward the golf course at the construction being done by MT Development to realize the amount of growth taking place.
MT Development is currently building Rancho Perilla Estates, which could eventually build out to 1,000 homes, apartments and an RV Park along with a small commercial area.
One thousand new homes would increase the number of home in the area by more than 15 percent.
And there are other smaller projects, apartment complexes on 10th Street, other home construction projects that are adding to that total.
Not only is home construction on the rise, so is the price of those homes, according to information presented during the annual Douglas Economic Forum last month by the Cochise College Center for Economic research.
New and Existing Home Sales
According to the report, data reflects new and existing home sales within the City of Douglas. In 2004, there were approximately 146 new and existing homes sold, up 10.6 percent from 132 in 2003. From January through June 2005, there were 72 new and existing homes sold, up 10.8 percent from 65 in the same period of 2004. This reflects a period of record low interest rates that helped along the housing market not only locally, but nationwide.
The average price of new and existing homes sold in Douglas in 2004 was $70,573, up 7.3 percent from $65,792 in 2003. The median price in 2004 was $68,500, up 11.8 percent from $61,250 in 2003.
For the first half of 2005, the average price of new and existing homes sold in Douglas was $76,003 up 11 percent from $68,476 in the first half of 2004. However, the median price of new and existing homes for the first half of 2005 was $69,000, up only 1 percent from $68,333 in the same period of 2004. (Note: The median price is the price at which half of all homes sold are priced above and half are priced below. The median price typically presents a more accurate picture of the housing market since a small number of higher-priced homes tend to push the average price upward significantly).
Douglas has largely escaped the sharp increases in new and existing home prices seen throughout the county that have reflected the increased demand for homes stimulated by lower interest rates. There are several reasons for this.
The first is that the lower income levels of Douglas residents have traditionally led to a lower rate of home ownership. In 2000, the home ownership rate in Douglas was 60.3 percent, significantly below the rate of 67.3 percent at the county level, 68 percent at the state level, and 66.2 percent nationwide. Thus, the incentives toward home purchases stimulated by lower interest rates have had less of an impact in the Douglas area, therefore avoiding sharp increases in demand seen elsewhere in the county, which tend to pull prices upward. On the supply side, there has been an abundance and wide price range of homes being built in the area, particularly within the city limits. Rancho Perilla Estates, which has been the site of most of the recent home construction in the Douglas area, has built a wide variety of homes ranging from 1,140-square-foot, two-bedroom floor plans priced at $129,500 to 2,070-square-foot, four-bedroom units priced at $203,430. The number and wide range of homes built in Rancho Perilla Estates has served to increase the supply of homes, counteracting price increases that would otherwise have occurred due to increases in demand. This interaction between supply and demand has served to keep prices relatively stable.
New Home Permits - Site-Built Homes
Data in this section reflect new home permits issued within the entire Douglas area home market, which includes the southeast quadrant of Cochise County, including the City of Douglas, Apache, Bisbee, Double Adobe, Elfrida, McNeal, Naco, Pirtleville, and the surrounding areas. Analysis of the subset of permits issued within the Douglas city limits also is included.
In 2004, there were 63 new, single-family residential, site-built home permits issued in the Douglas area home market. According to records maintained by the City of Douglas, 26 of these permits were issued for the construction of homes within the city limits. The average permit value of a new site-built home in the Douglas area home market in 2004 was $110,778, up 16.7 percent from $94,897 in 2003. The median price in 2004 was $85,000, up 28.8 percent from $66,000 in 2003.
Within the city limits, the average price for a new home in 2004 was lower than the market area, at $84,663, down 14.1 percent from $98,584 in 2003. (Note: The median home price for Permits within the city limits was unavailable.)
From January through March 2005, there were 15 new single-family residential, site-built home permits issued in the Douglas area home market. According to records maintained by the City of Douglas, nine of these permits were issued for the construction of homes within the Douglas city limits. The average permit value of a new site-built home in the Douglas area home market in the first three months of 2005 was $97,857, down 11.7 percent from $110,778 in the same period of 2004. The median price in the market area for the first three months of 2005 was $50,000, down 41.2 percent from $85,000 in the first three months of 2004.
Within the city limits, the average price for a new home in the first six months of 2005 was $114,031, up 41.2 percent from $80,733 during the same period a year prior. (Note: New home permits do not include the price of land. Several factors can contribute to the differences in the valuation of a new home permit, including the overall square footage of the home, quality of materials, home builder, and other factors.)
As with new and existing home sales, home construction in the Douglas area home market, particularly within the Douglas city limits, over the past several years has largely escaped the sharp increase in new home prices seen throughout the county. Although the average price of a new home in the first half of 2005 was significantly higher than the average for 2004, it remains below the average prices seen in 2002. The reasons for the absence of sharp increases in new home prices are the same as for the new and existing home market (discussed above), and include lower income levels of Douglas residents that have traditionally led to lower rates of home ownership, and the increased supply of homes being built in the area, particularly in Rancho Perilla Estates.
Housing Affordability
Beginning in 2005, the Cochise College Center for Economic Research (CER) began tracking housing affordability in Douglas. The CER utilizes the same methodology as the National Association of Realtors in its Housing Affordability Index (HAl). The HAl gauges whether a typical family could qualify for a mortgage on a typical home.
CER defines a typical home as a median-priced, single-family home. In 2004, the median price of a single-family home in Douglas was $68,500. A typical family is defined as one earning the median family income, as estimated by the CER using the most recent U.S. Census data. In 2004, the estimated median family income for Douglas was $23,056. In calculating the HAl, the CER uses the average annual mortgage effective interest rate, which is the national average effective rate on fixed, 30-year, non-jumbo loans closed within the previous 12 months as reported by the Federal Housing Finance Board. As of November 2004, this rate was 6.03 percent.
The HAl for Douglas for 2004 was 145.7. In interpreting the HAl, a value of 100 indicates that a family with the median income has exactly enough income to qualify for a mortgage on a median-priced home, assuming a 20 percent down payment and a qualifying income ratio of 25 percent, meaning the monthly principal and interest payment cannot exceed 25 percent of the family monthly income. An HAl above 100 signifies that a family earning the median income has more than enough income to qualify for a mortgage loan on a median-priced home. Thus, Douglas' HAl of 145.7 indicates that a family earning the median income of $23,056 has 145.7 percent of the income necessary to qualify for a conventional loan covering 80 percent of a median-priced, single-family home in Douglas.
To qualify for a conventional loan covering 80 percent of the cost of a median-priced, single-family home in Douglas, a family would need to have an annual income of only $16,000. Using this same methodology indicates that in 2004. a family in Douglas earning the median income qualified for a conventional loan covering 80 percent of the value of a home costing $99,500.
In tracking the HAl for Douglas, the CER also computed the HAl for previous years dating back to 2002. Between 2002 and 2004, new and existing homes became increasingly less affordable. From 2002 to 2003, the HAl moved from 178.1 to 162.8, and then dropped to its current level of 145.7 in 2004.
Apartments
According to the most recent census data, the median rent for an apartment in the City of Douglas in 1999 was $348 per month, or $395 in 2004 dollars. In 1999, approximately 71.9 percent of rental units within the city were priced under $500 per month, or $567 per month in 2004 dollars. As of 1999, there were 1,770 renter-occupied units within the city.
Since the most recent Census data, Ranch La Perilla has added 80 rental units to the city. Ranch La Perilla, located adjacent to the Douglas Municipal Golf Course, offers one- and two-bedroom furnished and unfurnished apartments, including executive fully equipped TDY units. As of 2005, one-bedroom units rented for $520 per month unfurnished and $770 per month furnished, while two-bedroom units rented for $630 per month unfurnished and $940 per month furnished. One-bedroom executive TDY units rented for $1,299 per month ($44 per diem), while two-bedroom executive units rented for $1,599 per month ($54 per diem).
Commercial Construction
In 2004, there were five commercial construction permits for new buildings issued within the city at a total dollar valuation of $9.1 million. In 2003, there were four permits issued, at a slightly higher valuation of $9.8 million.
Of the past five years (2000-2004), calendar year 2001 was the most active in new commercial construction in terms of the number of new commercial building permits issued, with seven permits issued at a total valuation of $2.5 million. The most active year during the same period in terms of the total dollar valuation of permits was the year 2003, with four permits issued at a total valuation of $9.8 million.
Commercial additions and repairs is another major category of commercial construction. In 2004, there were 12 permits for commercial additions and repairs issued within the City of Douglas, down from 18 in 2003. The dollar valuation also was down considerably at $340,106, compared to $5.6 million in 2003. For the first six months of 2005, the city issued 11 permits in this category at a total valuation of $1.1 million.
Looking at commercial construction in a single year can present an incomplete picture since commercial development is often a long process that may stretch over multiple calendar years. This is one of the reasons commercial construction in a single year is difficult to forecast. It is useful to look at several years of commercial construction to gain a more complete picture.
Comparing commercial development in different areas can also be complex, since the size of the local population weighs in heavily on the amount of commercial construction undertaken, as well as the economic impact generated by the construction. For example, in the five-year period from 2000 to 2004, Douglas experienced commercial construction of new buildings totaling $26.9 million, while commercial construction for new buildings in neighboring Sierra Vista totaled $56 million. However, adjusting for population size, Douglas' commercial construction over the five-year period averaged $332 per capita annually, while Sierra Vista's totaled only $284 per capita annually over the five-year period. This indicates greater commercial construction relative to the population in Douglas, and also suggests that this construction has had a greater impact on the local economy than commercial construction in Sierra Vista.
Cochise County Land Transactions
In 2005, the CER began tracking land transactions at the county level. In 2004, there were 2,467 land transactions countywide, up 14.1 percent from 2,162 in 2003. The median price of land that changed ownership in 2004 was $26,500, up 32.5 percent from $20,000 in 2003. The large increase in price was the result of an increase in the demand for land countywide, stimulated by lower interest rates and population increases. (Note: Median prices were determined through random sample analysis and represent a 95 percent confidence interval and margin or error of plus or minus five percent). The next part of the series will deal with tourism in the Douglas area.
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