Posted in Indianapolis Market | Posted on 05-10-2015 | Written by Metrostudy News
- 1Q15 New Home Starts were somewhat disappointing compared to the strong numbers that closed out 2014
- New home inventory and lot availability are low overall, which might restrict growth in the new home market
- We are seeing strong growth in Hendricks and Marion Counties, while Hamilton County activity is down 18.3% from 1Q14
May 2015 – Metrostudy’s 1Q15 survey of the Indianapolis housing market shows that over the past twelve months, there were a total of 4,288 new housing starts in the region, down 0.6% compared to the prior year. The 820 units started in the first quarter of this year also represent a decline of 0.6% over the 1Q14 starts figure. The annual rate of closings currently stands at 4,221 units, up slightly from the prior year (1.9%). Based on the slowdown in starts it is likely that closings will begin to level off as well. Builders were fairly aggressive about closing out inventory in the latter half of 2014 and first quarter of 2015.
“Following a strong finish in 2014, the first quarter of 2015 was somewhat disappointing,” said Chris Huecksteadt, Regional Director of Metrostudy’s Indianapolis office. “Although a single quarter does not a trend make, the decline in activity shown in the first quarter is somewhat discouraging as we start the new year. Below average job growth and an apathetic consumer are giving cause for concern as we head into the heart of the selling season in the Indianapolis market. New home inventory is relatively low and the amount of available lot inventory in the market is also low overall, which may also be restricting any possibility for growth in the new home market.”
Hamilton County, which accounts for nearly 41% of all new home construction in the Indianapolis market, saw the largest decline in construction activity, down 18.3% from the 1Q14 number of new home starts. Hendricks and Marion County both increased, with 160 and 113 new home starts respectively in the first quarter (up 58.4% and 20.2%). With the tight supply of lots, demand will likely follow where the lots are. As many desirable locations begin to build out in Hamilton County, it will be interesting to track the consumer as they consider other locations in the greater Indianapolis area.
Currently there is just a 1.6 month supply of standing new home inventory in the Indianapolis market, well below the estimated normal level of 2.5 months. This has led some builders to be more aggressive about adding to the levels of inventory, with slight increases in finished and vacant new home inventory occurring throughout 2014. With the slowdown in the new home market, caution has been in evidence as the amount of finished and vacant inventory declined in the first quarter of this year.
“With a relatively consistent pace of new home construction, and a declining level of vacant developed lot inventory, the months of supply for lots in Indianapolis has fallen from a high of nearly 80 months in the second quarter of 2009, to a current level of just 26.0 months,” said Huecksteadt. “For four straight quarters now the months of supply indicator has been below 30 months. If Metrostudy excludes lots in less desirable locations from the survey, the months of supply indicator drops even more sharply. Builders and developers are both feeling the squeeze from a lack of quality lots in desirable locations, leading to more acquisition and development activity.”
Even though the number of new home starts continues to steadily increase, closings have slowed and the amount of traffic reported by many builders has been spotty. Despite modest job growth and a slight increase in incomes, there seems to be little excitement among prospective homebuyers in the market place. The cost to deliver new homes in the market continues to rise and with every increase in new home prices due to costs and regulation, a few more homebuyers are lost to the resale market. In fact, the first quarter of this year saw an uptick of 2.2% in resale transactions (again, the pace new home sales is slowing). Rising home prices due to increasing construction costs, land and lot price increases, and rising development costs have forced new home prices above levels that could maximize absorption. The new home market has begun to find it difficult to reach the largest pool of potential buyers that are out there.
Given these factors, Metrostudy forecasts new home starts to range from 4,000 to 4,200 units in 2015, no to only slight growth. Strong wage growth combined with sustained job growth in the 1.5% to 2.0% range could positively impact this forecast. It remains to be seen, however, if the economy can sustain strong numbers for more than a three to six month period.
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