appreciation bites back

In the last few weeks I've run into affordability issues with a few different people who are interested in buying a home in the Tucson Foothills. I know two of these people very well, Dave and Larry. Coincidentially, both of them emailed me recently and were lamenting the run-up in home prices in Tucson over the last couple of years and seriously questioning whether they could afford to buy a home here.  Dave is a past client who I helped to buy and sell two homes in the Tucson Foothills between 2001 and 2003, at which point he needed to move back east for a while. But now he's ready to come back to Tucson. Larry is a friend that I've known for 20 years or more who wanted to buy a second home here, but wasn't able to sell his large family home in Chicago until just last month, after almost two years on the market and a few price reductions. And now they both fear that since prices in Tucson have risen so much in the last few years, that it has gotten out of reach for them. Then recently I was out with yet another second-home buyer from back east, who'd been referred by a past client, and he discovered that he too would have to spend considerably more than he wanted to in order to buy the kind of home that he would like to buy. So the jury's out for him too, while he considers his options. These are three people who are crazy about the Tucson Foothills and would very much like to buy a home here, either a primary or a second home, yet there's a good chance that the price run-up of the last few years has put them out of the market for a Tucson home. Why is that.
Let's take a look at what's happened to prices in the Foothills since 2004.
In January/February of 2004 the average sale price of a Tucson Foothills home was $483,633-
In January/February of 2007 the average sale price of a Tucson Foothills home is $645,207-   That's a 33% increase in 3 years. It's not peanuts, but it's not outrageous compared to what's happened in other hot markets - and Tucson has been a hot market - during the same time period.
In January/February of 2004 the Avg.$/sq.ft cost of a Tucson Foothills home was $169.81
In January/February of 2007 the Avg.$/sq.ft cost of a Tucson Foothills home is $233.37
A 37% increase in 3 years, also a pretty reasonable increase, when compared to other popular markets around the U.S. during this period of wild appreciation. In the Jan/Feb period of 2004, 97 homes were sold in the Foothills - while this year, Jan/Feb 2007 we had 78 sales - that's 19% fewer sales, but still plenty to make a fair comparison with 2004.
Here's my take on it. In the case of Dave, Larry and many other people who are considering buying a home in the Tucson Foothills, their frame of reference is based on how much they were able to sell their home for in Chicago, Texas, Ohio or Connecticut. Those markets didn't see 11% appreciation/year over the last few years. 3 or 4% was more like it, if they were really lucky. Being behind the rising curve of appreciation, it's understandable that prices in Tucson seem to be, or are, out of reach. Apparently there are huge numbers of people who would like to move here from the east and midwest during the next few years. Yet the disparity in the appreciation of homes over the last few years, is, and I believe will continue to be for the foreseeable future, one of the biggest impediments to people fully realizing their goals of retirement in Arizona, and the growth of home sales along with continued appreciation in Tucson and other desirable destinations in Arizona.