What kind of hardware required to develop a source game

I can't answer exactly, but I logged onto Steam and looked at Gary's mod; a mod that Valve themselves frequently refer to in their documentation of the Source Engine.
Gary's mod is a physics sandbox and is designed for the player to have the tools to spawn things and mess around.
As such, I thought that was closest (I did have a look on the Valve's Source website, but didn't find system requirements anyway.)
Gary's mod system requirements are:
Minimum:

OS: Windows® Vista/XP/2000
Processor: 1.7 GHz Processor
Memory: 512MB RAM
Graphics: DirectX® 8.1 level Graphics Card (Requires support for SSE)
Hard Drive: 150 MB
Other Requirements: Internet Connection

Recommended:

Processor: Pentium 4 processor (3.0GHz, or better)
Memory: 1GB RAM
Graphics: DirectX® 9 level Graphics Card

If that's for general messing around with many objects potentially on screen, my feelings are that developing Source games will not tax your hardware as much as other engines.
Finally, I looked at the last Source game released by Valve as a big blockbuster which I believe was Portal 2.

These are the requirements:

OS: Windows 7 / Vista / XP
Processor: 3.0 GHz P4, Dual Core 2.0 (or higher) or AMD64X2 (or higher)
Memory: 1GB XP / 2GB Vista
Hard Disk Space: At least 7.6 GB of Space
Video: Video card must be 128 MB or more and should be a DirectX 9-compatible with support for Pixel Shader 2.0b (ATI Radeon X800 or higher / NVIDIA GeForce 7600 or higher / Intel HD Graphics 2000 or higher).
Audio: DirectX 9.0c compatible
Mac System Requirements
OS: MAC OS X 10.6.7 or higher
Processor: Intel Core Duo Processor (2GHz or better)
Memory: 2GB
Hard Disk Space: At least 7.6 GB of Space
Video: ATI Radeon 2400 or higher / NVIDIA 8600M or higher / Intel HD Graphics 3000

Hope that helps.

Well I have a 2600k with sli 560 it's and running the hammer editor for source sdk was extra taxing. That's why I'm asking because I assumed the same as you and I was obviously wrong

Check cpu and gpu usage and make sure they are clocking up to full speed. Source was made to run on much lower end hardware since it is pretty old.