Posted in Indianapolis Market | Posted on 11-19-2014 | Written by Metrostudy News
- Annual New Home Starts through 3Q14 down 6% YoY
- Builders and developers are feeling a squeeze from a lack of quality lots in desirable locations
- Metrostudy is revising its 2014 forecast downward as the consumer is sitting on the sidelines
November 2014: Through the first nine months of 2014, there have been a total of 3,272 new housing units started (including single-family detached, townhome, and duplex units), a decline of 6.0% compared to the first nine months of 2013. The 1,233 units started in the third quarter of this year represents a decline of 3.1% over the 3q13 starts total. The annual rate of starts currently stands at 4,232 units, while the annual rate of closings is at 4,144 units. Both numbers represent a decline when compared to the annual rate of a year ago. Many builders have reported a slowdown in traffic through their communities this year and especially during the late summer and early fall months.
“The middle quarters of 2014 were down 3.4% when compared to the same six-month stretch in 2013,” said Chris Huecksteadt, Regional Director of Metrostudy’s Indianapolis market. “That being said, the numbers for second and third quarter of 2014 were better than those of any year since 2007 with the exception of last year. While the slowdown this year is not likely indicative of a major decline in the coming months, it does show that the recent uptick in activity was not sustainable. Limited supply in quality locations, a cautious consumer, and modest economic growth are the primary reasons for the recent slowdown in new home activity.”
Through the first nine months of 2014, the majority of counties surveyed by Metrostudy saw a decline compared to construction activity in the first half of last year. Hamilton County still leads the way with approximately 41.1% of all new home construction in the Indianapolis market occurring there. Hendricks County is the new number two (formerly Marion County) representing 14.1% of Indianapolis new home construction over the past year. One county actually saw a significant increase in starts activity this year: Hancock County, increasing from 201 starts through the first nine months of 2013 to 293 starts in the first nine months of this year. Nearly all of this increase came from Springs at Deer Crossing in McCordsville, with 75 new home starts in 2014.
At the bottom of the market, standing new home inventory was a major concern, with a 3.5 month supply in the overall market. As the rate of new home closings increased and builders focused on eliminating the excess inventory, the months of supply indicator declined. 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 in both the second and third quarters of this year. With the slowdown in the new home market, caution would be prudent regarding any increase in spec inventory.
“With a relatively consistent pace of new home construction (the rate of lot absorption), 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 27.5 months,” said Huecksteadt. “ For two straight quarters now the months of supply indicator has been below 30 months. If Metrostudy excludes those 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.”
Only Hendricks and Marion Counties exhibited a months of lot supply above the 30-month threshold. All of the other markets in the Indianapolis survey are below 30 months, with Boone and Hamilton Counties currently at less than 24 months. Hamilton County accounts for more than 40% of all construction activity in the Indianapolis market and currently has a 20.5 month supply of lot inventory available. With the majority of lots in Hamilton County already spoken for, builders are aggressively seeking out opportunities and developers are looking to get lots to the market in order to meet the demand that is likely to occur. It may be the case that the lack of available supply is contributing somewhat to the slowdown in activity.
Much of the news that impacts the new home market continues to sound positive; job growth continues, the unemployment rate has fallen, foreclosures have moderated, and the resale market continues to improve. However, the positive news is just not positive enough to sustain the growth in construction activity that was seen over the past two years. In addition, consumer confidence has waned in recent months, causing many to sit on the sidelines and wait things out. There just does not seem to be much urgency among prospective home buyers in the marketplace.
Metrostudy expects that the remainder of 2014 will see little to no improvement in the pace of new home construction and sales, with 2015 not promising much better. The market is not too far off from having supply issues impact the market’s potential for growth in addition to an economy whose temperature can be described as tepid at best. Given these factors, Metrostudy has revised it’s forecast downward to a range of 4,000 to 4,500 new home starts in 2014. Next years outlook will be heavily dependent upon growth in the local economy and builders’ and developers’ ability to deliver lots in desirable locations to meet potential new home demand.
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