Posted in Indianapolis Market | Posted on 02-19-2015 | Written by Metrostudy News
- Despite a 3.5% Decline in New Home Starts YoY, 4Q14 starts were up 10.5% over 4Q13
- Builders have been fairly aggressive about closing out inventory to position themselves for 2015
- Builders and developers are both feeling the squeeze from a lack of quality lots in desirable locations, leading to more acquisition and development activity
February 2015: During calendar year 2014, there were a total of 4,288 new housing units started – including single-family detached homes, townhome units, and duplex units – a decline of 3.5% compared to calendar year 2013. The 1,061 units started in 4Q14 represents an increase of 10.5% over the 4Q13 total. The annual rate of closings currently stands at 4,206 units, down slightly from the 2013 total (0.6%). Even though the annual number of closings were down, the second half of 2014 showed a 5.9% uptick. Builders were fairly aggressive about closing out inventory in the latter half of 2014 in order to position themselves for 2015.
“The fourth quarter of 2014 was actually a bit better when compared to 2013, up 10.5%,” said Chris Huecksteadt, Regional Director of Metrostudy’s Indianapolis market. “Although a single quarter does not a trend make, the uptick in activity shown during the fourth quarter is somewhat encouraging as we head into the new year. The mood heading into 2015 seems to be one of optimism, following a slight letdown during the second half of 2014. That optimism, however, is somewhat guarded as economic and job growth continues on its modest pace. “
With the exception of Hamilton County, all of the market areas surveyed by Metrostudy were relatively flat when compared to the prior year. Hamilton County, which accounts for approximately 41% of all new home construction in the Indianapolis market, saw the largest decline, down 7.1% from the 2013 number of new home starts. Hendricks and Marion County were both flat, with 633 and 623 new home starts respectively (each accounting for about 15% of the market). One county actually saw a significant increase in starts activity this year: Hancock County, increasing from 273 starts in 2013 to 316 starts in 2014, an increase of 15.7%.
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.
“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 Huechsteadt. “For three 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. During calendar year 2014 just over 2,000 new lots have been delivered.”
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 20 months. Hamilton County accounts for more than 40% of all construction activity in the Indianapolis market and currently has a 19.5 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.
That being stated, the start of 2015 has been somewhat promising. Energy prices are contributing to a surge in consumer confidence (at least truck and SUV sales are up) and some optimism among home builders regarding the upcoming spring selling season. Given these factors, Metrostudy expects new home construction activity to push starts close to the 5,000 unit level in 2015. This year’s outlook will be heavily dependent upon growth in the local economy and builder’s and developer’s ability to deliver lots in desirable locations to meet potential new home demand. The lack of quality lot supply in desirable locations could be the biggest issue facing home builders in 2015.
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