Posted in Charlotte Market | Posted on 02-20-2015 | Written by Metrostudy News
- New Home Starts Ended 2014 slightly up over 2013
- We are definitely seeing an affordability squeeze: the average price of a new home in 2014 was $295k, unaffordable for Charlotte’s average household income.
- The rising cost of land and construction continues to impact entry level housing construction – new home starts below $200k are down 7% even as starts between $300-400k are up 18.6% YoY
February 2015: Metrostudy’s 4Q14 survey of the Charlotte housing market shows that new home builders started construction on 2,058 homes, up 1% over 4Q13. Quarterly Closings – previously unoccupied new homes that now are occupied – totaled 2,325, up 5.5% YoY. The 9,226 annual starts surveyed through the end of 4Q14 was 1.1% higher than 2013. The annual closings figure of 4,046 was 7.4% more than 2013.
Charlotte continues to make headways – adding more jobs, and increasing housing starts. Tight land and lot inventories have constrained the pace of growth in recent quarters; however there are signs that this trend may be nearing an end.
“Starts of new homes priced from $300,000 to $399,999 were up 18.6% from 4Q13,” said Bill Miley, Metrostudy’s Regional Director in the Charlotte market. “The rising cost of land and construction continues to impact entry level housing construction. Starts on homes priced below $200,000 are down 7% from 4Q13. Homes priced above $500,000 now represent roughly 6.6% of overall activity. This segment saw gains in both starts and closings – 16% and 39% respectively – but home inventory was up 8%. Homes priced between $150,000 and $249,999, which represent 38% of the market, continue to see the lowest supply of housing inventory with a combined 5 months’ supply. “
Total inventory – models, finished vacant unoccupied new homes, and new homes under construction – equaled 4,596 units in 4Q14, slightly above the amount recorded in 4Q13. At current closing pace Total Inventory (Models, Finished Vacant, and Under Construction homes) represents a 6.1-months’ supply of homes, down from the 6.3 months’ supply seen in 4Q13. This range of inventory has historically been a point of equilibrium for housing inventories – a sign that level construction rates will drive prices higher.
The 24,374 vacant developed lots in the Charlotte in 4Q14 represent a decrease of 3,630 lots from 4Q13. At the current absorption rate, these lots represent a 31.7- months’ supply, well above the high end of Metrostudy’s normal range. Not all lots share equal demand. In Charlotte submarkets with the highest demand, lot supplies are well below equilibrium, and in some municipalities the entitlement timeline has been significantly longer than the 18-24 month average.
Over the last 4 quarters 5,963 new lots were developed in the Charlotte region, which is 6.5% more lots than were delivered through the end of 4Q13. The current pace of lot deliveries is 64% of the absorption rate (annual starts). The development pipeline is beginning to fill, and Metrostudy believes this gap will continue to narrow over the course of 2015.
Of the 9,226 new homes started in 2014, townhomes made up 8.6% of all new home starts, up from 7.7% in 4Q13. Despite the increase this remains well below the 14.3% historical average, and significantly below the pre-recession average share of 16%. Charlotte townhome builders started construction on 210 townhomes (THs) in 4Q14, 34% more than 4Q13. The annual starts figure of 789 homes was 12.7% greater than 2013.
Charlotte’s economy has been gaining steam and this has translated to greater housing development. While prices have been rising – driven by land, labor and material cost – affordability has been maintained for average income families. Median income families however have begun to feel the squeeze. The average sales price of new homes sold in the greater Charlotte area in 2014 was $294,828 and the average household income was $73,393. This indicates that at least for families that are earning at or above the average rate, new homes are still affordable. The median price of new homes sold in 2014 was $267,000. With median household income hovering around $52,000, this price point of home does not fit within budgets, and will be difficult to find mortgage financing.
“This is a trend that is being experienced across the country, and so far the path of least resistance for homebuilders has been to shift operations towards higher income earners and thus higher priced homes,” said Miley. “With the post-recession housing slowdown, virtually all price points were underserved, and the rebound in housing starts has been primarily driven by the relief of pent-up demand. This meant that even though builders were shifting to higher price points the rate of growth was able to accelerate. The challenge for the local new home industry will be growing the overall pace of housing as the price point of homes continues to move higher and the impact of entry level buyers will continue to wane. This creates opportunities for builders to innovate, and the market is already seeing some builders adjust and seek out underserved market niches.”
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