Posted in Northern Virginia Market | Posted on 08-03-2015 | Written by Metrostudy News
- New Home Starts in Northern Virginia are down 10% YoY through 2Q15;
- Growth is spread unevenly across the counties: starts in Loudoun County are down 20% while starts in Prince William County are up 6%. Our Fairfax market area, which includes Arlington and Alexandria, is also up 6%, but annual starts in Stafford County are down 27%.
- We are seeing changes in product composition of new homes – with a shorter pipeline of attached product, builders are controlling townhome sales by pushing prices more so than with their single family communities.
AUGUST 2015 – According to the Metrostudy quarterly survey, home starts, attached and detached, in Northern Virginia numbered 7,711 during the year ending 2Q15, down 10% from a year ago. Loudoun County accounts for 40% of all Northern Virginia activity, and annual starts in Loudoun have declined 20% from one year ago. Annual new home closings, or “move-ins” by Metrostudy methodology, were also down as builders closed 7,933 units ending 2Q15. This represents a decline of 7%, so starts and closings are trending similarly. This is indicative of a gradual slowdown with a balanced level of new-home inventory, unlike the previous housing recession where the market was overbuilt.
“It looks like another disappointing year for homebuilders in 2015,” said Ben Sage, Director of Metrostudy’s Mid-Atlantic region. “The region has many of the ingredients for an improving new-home market, including job growth, a balanced resale market, and low mortgage rates. The greatest opportunity would appear to be among first-time buyers, but builders are reporting that this consumer group lacks urgency and has difficulty qualifying for a mortgage. Metrostudy continues to forecast that economic growth will push homebuilding up next year, but a robust recovery does not appear to be on the horizon.”
In the resale home market, supply is beginning to grow seasonally, but it is also up from one year ago. March resale listings in Northern Virginia numbered 14,315 units (attached and detached), up 12% from a year ago. Despite this increase, resale inventory corresponds to only 4.2 months of supply, which is low. Nationally, 6 months is considered normal, so there should be upward pressure on home prices.
During the year ending March, Northern Virginia MLS sales numbered 40,597 units, which is up 3 percent from the previous year. The median price of a home sold through the MLS in this area reached $410,500 in June, which is down slightly from one year ago. According to the Case-Shiller Home Price Index, a better indicator of home appreciation trends, prices in the DC Metro Area increased 1.1% during the year ending April, the latest available. This is below average, which would indicate a more balanced or slightly over-supplied resale market.
Despite a 20% decline in starts, Loudoun County remains the most active market area in Northern Virginia, generating 3,042 starts over the past four quarters. The slowdown in Loudoun is broad-based geographically, but attached product accounted for a larger share of the decline with starts down 29 percent. Single family detached annual starts are down only 7 percent. Attached product in the county now accounts for less than half of all starts, down from 63% in 2012. Interestingly, the supply of vacant developed lots for attached and detached product in Loudoun is similar, so that would not explain the shift towards detached. There are, however, twice as many recorded future lots for detached product compared to attached. With a shorter pipeline of attached product, builders are controlling townhome sales by pushing prices more so than with their single family communities.
As for the rest of the region, Prince William County is the second most active area with 1,436 annual starts, which is up 6%. Our Fairfax market area, which includes Arlington and Alexandria, is also up 6%, but annual starts in Stafford County are down 27%. There are plenty of lots in Stafford, so this would appear to be purely demand driven. The resale market is up 8% in Stafford, so new product does not appear to be competing very well with resale.
The overall inventory of vacant developed lots (VDL), or finished lots, numbered 21,705 at the end of 2Q15, which is down from last quarter. This is surprising given that lot absorption (starts) is down, but 2Q15 registered the fewest lot deliveries since early 2011. The current inventory of VDL represents 34 months of supply. This is above normal for the area as a whole, but supply varies greatly by market area. VDL supply is low in Fairfax, Loudoun, and Prince William, while the more distant suburbs have a more ample supply. This is for all product types, including attached product as well as custom lots. With some key submarkets under-supplied with lots, more attention is focused on the pipeline of future lots. Metrostudy follows and reports on the entitlement of over 235,000 future lots in Northern Virginia, but only 13,255 of these are recorded at the counties.
“Given the relative weakness in the demand indicators, it becomes increasingly important to monitor new-home supply,” said Sage. “Finished vacant new homes in Northern Virginia number 1,082 units, up 24 percent from the previous year. Despite this large increase, current inventory would last only 1.6 months at the 2Q15 annual closings pace. This is a healthy figure, especially given the amount of attached-product that is built in the region.”
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