(Northern California– January 25, 2012) The Bay Area continues to improve and is beginning to show signs of continued growth, according to a recent report by Metrostudy, a national housing data and consulting firm that maintains the most extensive primary database on residential construction in the US housing market.

The overall Bay Area economy has been showing signs of slight growth this year. “Through November the region added 52,800 jobs of which nearly 46,000 were in the Bay Area and 7,000 in Sacramento,” said Greg Gross, director of Metrostudy’s Northern California Region. The region’s job market is stronger than most throughout the state, but the prior losses were significant.

Northern California Annual Housing starts are down less than 1% to 4,956 from 4Q10, while closings are down 40% to 5,382. However housing starts have increased during the second half of 2011, suggesting improving demand, especially in the Bay Area. Closings have been outpacing starts for more than three years now. As a result, inventory levels are now below equilibrium, more so in the Bay Area where single family detached inventory figures are substantially below equilibrium now.

Finished inventory of housing has been steadily decreasing during 2011, with 3,164 finished vacant homes. The market now has 7.2 months of supply. Compare to single family detached inventory with only 854 finished vacant and a 2.8 month supply.

The inventory level of attached product has declined slightly, with 2,310 finished and vacant units, a 16.7-month supply, with the majority in the Bay Area. “Lot deliveries in Northern California have slowed over the past few years, which is helpful for those inventory levels,” said Greg Gross. “However, an increase in development during 3Q11 and 4Q11 brought up the total vacant developed lots to 22,372, while months of supply decreased to 73.5.”

“Metrostudy expects the Bay Area housing market to continue improving through 2012 as the job situation gradually improves and housing inventory shrinks, but we are less optimistic with the Sacramento market as continued job losses and weak demand will strain growth,” said Gross.

“It appears the market has bottomed out and will continue to evolve through 2012 and most likely show significant and notable signs of improvement by the end of the year,” said Greg Gross.

For information contact:
Greg Gross @ 925.826.3801
email: ggross@metrostudy.com

About Metrostudy
Metrostudy is the leading provider of primary and secondary market information to the housing industry and related industries nationwide. In addition to providing its own primary housing data for approximately 70% of the United States housing market, the company is recognized for its consulting expertise regarding real estate development, marketing and economic issues, and is a key source of research studies evaluating the marketability of residential and commercial real estate projects. Services are offered through an extensive network of offices located in major metropolitan areas throughout the U.S. For more information, visit www.metrostudy.com.

As the Bay Area housing market continues to evolve and take new shape in the face of decreased demand, a tight credit market, weak economy, new challenges continue to present themselves.  Join us at our briefing where we will discuss the San Francisco Bay Area housing market and the results of our lot by lot census of new home inventory and lot supply.

WHEN:  Monday November 14th, 2011  9:00 am – 11:00 am

WHERE:  San Ramon, California

INFO:  e-mail Greg Gross  ggross@metrostudy.com

As the housing market in Sacramento continues to evolve and take new shape in the face of decreased demand, a tight credit market, and a weakened economy, new challenges continue to present themselves.  Join us at our briefing where we will discuss the Sacramento housing market and the results of our lot by lot census of new home inventory and lot supply.

WHEN:  Monday November 7th, 2011  9:00am – 11:00am

INFO:  e-mail Greg Gross  ggross@metrostudy.com

(Northern California– August 1, 2011) Considering the market volatility, the Bay Area is performing much better than Sacramento and is beginning to show signs of stabilization, according to a recent report by Metrostudy, a national housing data and consulting firm that maintains the most extensive primary database on residential construction in the US housing market.

The overall Bay Area economy has been showing signs of slight growth this year. “The region’s job market is stronger than most throughout the state but the prior losses were significant,” said Greg Gross, director of Metrostudy’s Northern California Region. The Regional unemployed population is 10% compared to the State level of 11.8%

Northern California Annual Housing starts are down 36% to 4,081 from 2Q10, while closings are down 47% to 6,225. Closings have been outpacing starts for more than three years now. As a result, inventory levels are now below equilibrium, especially in the Bay Area.

In 2Q11, with 3,321 Finished Vacant homes, the market now has 6.4 months of supply. While Single Family Detached inventory figures are substantially below equilibrium now, with only 781, a 2.3-month supply of finished and vacant homes.

The inventory level of Attached product has declined, with 2,540 finished and vacant units, a 13.8-month supply with the majority in the Bay Area. “Without a doubt, the Bay Area remains a relatively unaffordable market in contrast to the Central Valley and Sacramento markets,” said Greg Gross.

Finished Vacant inventory had grown to levels that were problematic, but as of 2Q11, these levels are now below equilibrium. Fortunately, the Bay Area appears to be adjusting well and inventory levels are becoming much more manageable if not too low.

Specifically, the Bay Area had 626 starts and 742 closings in 2Q11. While the Sacramento market had 339 starts and 360 closings in 2Q11.

“Metrostudy expects the Bay Area housing market to continue improving through 2012 as the job situation gradually improves and housing inventory shrinks,” said Greg Gross, “but we are less optimistic with the Sacramento market as job losses in the Government sector will strain growth.”

For information contact:
greg gross @ 916.873.7840
email ggross@metrostudy.com

About Metrostudy
Metrostudy is the leading provider of primary and secondary market information to the housing industry and related industries nationwide. In addition to providing its own primary housing data for approximately 70% of the United States housing market, the company is recognized for its consulting expertise regarding real estate development, marketing and economic issues, and is a key source of research studies evaluating the marketability of residential and commercial real estate projects. Services are offered through an extensive network of offices located in major metropolitan areas throughout the U.S. For more information, visit www.metrostudy.com.

The Wall Street Journal quoted me regarding the government’s New Home Sales statistics that just came out showing an increase in sales activity. The article was brief, but there is actually a lot more to the story, and in this blog post, I add some more analysis to the topic, and I relate the sales and inventory situation to trends in new home prices.

The government release yesterday said sales in April were up 7.3%… plus or minus 16.6%! So, they might have gone up a lot, or they might have gone down a little. The government data suffer from a small sample size, a lack of market-level detail, and from the fact that they ignore cancellations of contracts.

I thought it would be useful to add some local market color to the issue, using the data from our in-field research in dozens of markets nationwide (actual counts, so there’s no confidence interval). Our research shows that absorption is running higher than new construction nationwide (see data table at the end of this post). We noted in our first quarter study that absorption rose strongly in South Florida, Naples/Ft. Myers, and the Triad of North Carolina, but that most other markets experienced decreased absorption during the January through March. Our weekly sales and traffic data for April and May do show some gradual improvement as we shake off the first quarter decline and get back to normal. We experienced a double dip in housing (largely due to the post-tax-credit hangover), and the evidence is that we are lazily climbing out of it. Recent improvements in job formations are helping.

We also find that inventories have fallen dramatically since their peak in all of our markets, and they continued to fall in the most recent quarter. This is good news. Hard-hit markets like Chicago, Phoenix, Las Vegas, and Sarasota posted the largest decreases in our finished, vacant inventory counts in the latest quarter (finished vacant “standing” inventory is a good leading indicator of home prices).

With regard to prices of new homes, there also are some scattered glimmers of light. We are certainly not out of the woods, and many builders are still lowering prices in an effort to compete with short sales and foreclosures, but there are some scattered projects and submarkets where builders are raising prices! For example, at the Woodlands master planned community in Houston, Lennar has raised prices by about $10,000 in the past four quarters (subdivision called Jagged Ridge, where the Sam Houston model was $219,990 back in 2Q10, and now is $229,990, for 2,109 square feet; larger models there had slightly larger price increases over the period).
But that’s Texas, and everybody knows Texas is doing better than anyplace else in the country right now. Where else are prices starting to tick upward? There are some other examples, but typically the increases are not ‘across the board.’

Within the D.C./Northern Virginia market, prices have been increasing at a number of projects in Loudon and Prince William Counties. Toll Brothers has increased prices on their smallest models at Loudon Valley Villages (townhomes) by $10,000-$12,000 over the past year (+4%-5%). In another “A” submarket, Brookfield boosted prices recently at one model at Meadows at Morris Farm in Prince William County, from $399,000 up to $450,000 this latest quarter. Victory Lakes (townhomes) also in Prince William, increased prices over the past year by between 2% and 6%, varying by model.

In the Bay Area of northern California, there have been some scattered increases. The Preserve Townhomes raised prices on some models and lowered prices on others, and this some-up, some-down situation is a common occurrence these days.

In South Florida, Monterra is an excellent example of a project where the lack of viable competitive projects has worked to the favor of the builders. Prices on several products have increased, while others have been flat, and there have been some recent decreases on certain models.

In the Boynton/Delray submarket of Palm Beach County, Canyon Springs showed very strong price increases between the 2nd and 4th quarters of last year, but the other Canyons communities have been flat.
In this blog article, I have not looked into concessions, and in some instances, builders are either adding or removing incentives, which alters the value equation.
There are still relatively few examples of builders raising prices on new homes, but just the fact that any builders are raising base prices at all is a remarkable turn of events. The increases are only occurring, as I was quoted above as saying, in projects ‘where all the stars are in alignment.’ As the economy and the housing market improves further, price increases will become more widespread, but for now, we are just watching for further signs of a turning point.

Annual Detached Single-Family Data

(data are for the four quarter period 2Q10 through 1Q11)
Starts Absorption

Northern Virginia 3,578 3,983
Southern Maryland 3,582 3,605
Twin Cities 2,652 2,942
Salt Lake City 3,382 3,889
Indianapolis 2,796 3,143
Northern California 3,688 4,512
St. George 802 870
San Antonio 7,002 7,609
Tampa 3,175 3,447
Las Vegas 3,886 4,843
Dallas-Ft. Worth 13,742 15,240
Nashville 2,705 3,264
Austin 5,504 6,289
Denver 5,096 5,470
Houston 16,704 18,674
Boise 1,281 1,543
San Diego 1,629 1,701
Central California 3,637 5,009
Naples-Ft.Myers 1,261 1,437
Albuquerque 1,290 1,608
Jacksonville 2,301 2,769
Rio Grande Valley 2,165 2,191
Sarasota-Bradenton 1,505 1,686
Phoenix 7,479 9,845
Charlotte 3,793 4,700
Raleigh 4,268 4,918
Southern California 5,456 6,944
Orlando 7,459 8,109
Chicago 1,926 2,659
Triad 1,301 1,636
South Florida 1,932 2,541
Reno 326 454
Atlanta 4,634 7,492

Source: Metrostudy (actual counts)

The California Building Standards Commission has adopted a statewide law that requires all Single family homes built after January 1, 2011 to have a fire sprinkler system. Places like Long Beach, Orange County, San Francisco and about 100 other jurisdictions have had local residential sprinkler ordinances in place, now the rest of the state will follow.

Can home builders pass along the additional costs to consumers while home construction in California is at the lowest level since 1955?  Does the promoted benefit of this new home feature outway the cost?

How much will these systems cost? According to an article in the Sacramento Business Journal from 4/25/2010; that cost varies, depending on who is doing the estimating. Supporters put it at about $1 per square foot of coverage. Bob Raymer, technical director at the California Building Industry Association claimed it’s more like $2 to $2.50 a square foot for materials and labor, and said costs can climb higher with additional requirements, such as hook-up fees by water purveyors. Those have ranged from $5,000 to $15,000 per home, he said.

Builders point out that the majority of home fires where a fatality occurred happened in residences built before 1952. Earlier this year, with almost half of the fire departments statewide reported 44 deaths in homes without sprinklers last year, while no deaths occurred in homes with sprinklers.

Home builders are operating with the thinnest of margins right now, and any additional cost increases are going to be even more difficult to pass along to the buyer.

In addition to Fire Sprinklers, more costs are on the way. Beginning in July 2011, homeowners across the state will be required to install carbon monoxide detectors in existing homes with fireplaces, attached garages or a “fossil-fuel burning appliance.” About 40 California residents die annually from carbon monoxide poisoning, state officials claim. By January 1, 2013, all other residential units must have detectors in place.

Over the past half century, home builders have made tremendous gains in building safer homes and saving lives just as auto manufactures have done with the implementation of anti-lock brakes, air-bags and stability control systems.

The question isn’t whether or not these requirements are needed or justified, the question is; will these added costs be a detriment to the recovery of the home building industry in the short term.

It’s no surprise that the world has been in an economic downturn to the likes that most of us alive have ever seen.  We see daily if not hourly reminders of just how the housing market continues to suffer, complete with encouraging “numbers” one day, then dismal “numbers” the next.  What is the average consumer to believe?  What do the “numbers” mean to Joe the Plumber or Ralph the Roofer?

We need to look closer to home.  Much of housing industry numbers have been focused on a “National Housing Market” which is increasingly bleak as a whole.  What seems to be overlooked is that there are some local markets that are seeing encouraging activity, and upward trends are emerging.  Let’s face it; what happens in Detroit has little or no direct effect on the Sacramento housing market. Read the rest of this entry »