Posted in Raleigh - Durham Market | Posted on 12-11-2014 | Written by Metrostudy News
- Metrostudy’s 3Q14 survey of the housing market shows quarterly new home starts down 3.9% from 3Q13 levels. Year to date, starts are equal to 2013.
- Closings continue to trend higher, up 3% from 3Q13 levels.
- New Construction activity continues to be biased towards higher priced homes
- A Shortage of Lots and Developable Land inventory has been the biggest hindrances to near term grown in the Triangle
December 2014: Metrostudy’s 3Q14 survey of the Triangle’s housing market shows a market that continues to face crosswinds, even as demand is getting stronger. Our survey shows that for the quarter ending September 2014, the Triangle started construction on 2,432 new homes, down 3.9% from 3Q13. Quarterly Closings – previously unoccupied new homes that now are occupied – totaled 2,393 units, a 3% increase from 3Q13. The 8,690 annual starts surveyed through the end of 3Q14 was slightly higher than the number of homes started in the same period a year ago, 8,685. The annual closings figure of 8,697 was 7.7% more than the four quarters ended 3Q13. Following the overall trend, year-to-date starts are essentially the same as last year through the first three quarters of the year. Closings continue to show gains, up 7.9% year-to-date.
“Triangle new home construction activity continues to show a bias towards higher priced homes,” said Jay Colvin, Director of Metrostudy’s Raleigh-Durham region. “While new homes with base prices of $200,000-$299,999 are capturing 35% of all new home demand, homes priced between $400,000 and $499,000 showed the highest percentage gain in closings with a 32% increase from the number of closings over the four quarter period ending in 3Q13. Construction on homes priced below $200,000 continues to shed market share. Construction volume in this price range has decreased 20% from 3Q13 – closing pace has only decreased 9%.”
Total inventory – models, finished vacant unoccupied new homes, and new homes under construction – equaled 4,970 units in 3Q14, slightly above the amount recorded in 3Q13 of 4,959. Under Construction inventory now stands at 3,250 homes (4.5-months’ supply), which is 5.2% lower than 3Q13. Finished Vacant inventory now stands at 1,495 homes (2.1 months’ supply). At current closing pace Total Inventory (Models, Finished Vacant, and Under Construction homes) represents a 6.9- months’ supply of homes, down from the 7.4 months’ supply seen in 3Q13.
The 19,666 vacant developed lots in the Triangle in 3Q14 represent a decrease of 1,665 lots from the 21,331 lots surveyed in 3Q13. At the current absorption rate, these lots represent a 27.2- months’ supply – the lowest since 1Q08. Metrostudy considers 18-24 months to be normal, as on average that is the amount of time it takes to entitle and deliver new home lots to the market. Not all lots share equal demand. In Triangle submarkets with the highest demand, lot supplies are well below equilibrium, and in some municipalities the entitlement timeline has been significantly longer than the 18-24 month average.
Over the last 4 quarters 7,025 new lots were developed in the Triangle, which 49.7% higher than 3Q13. There were 2,498 lots delivered to the market in 3Q14, which is more than double the number of lots added to the market in 3Q13. The current pace of lot deliveries is 81% of the absorption rate (annual starts). This trend may be nearing an end as lot development activity has begun to increase at a higher pace. In 2Q and 3Q the average lot delivery has been just over 2,200 lots per quarter. Before 2009, the market averaged over 3,000 new lots per quarter.
Townhomes currently make up 20.5% of total Triangle new home construction, up from the 19.7% market share in 3Q13, but remain well below the 21.2% historical average, and significantly below the pre-recession average share of 22%. Triangle townhome builders started construction on 474 townhomes (THs) in 3Q14, 8.7% more than 3Q13. Annual starts of 1,785 homes were 4.5% greater than the 1,708 observed in 3Q13.
“Lot and developable land inventories are, and have been, the biggest hindrances to increased housing production in the Triangle in the near term,” said Colvin. “Land prices have been moving higher and higher as the market has recovered and builders and developers have focused on the core markets, but the result has been a growing inventory of land in the entitlement process, with the expectation of lot development growth throughout 2015.”
Some of this has already begun to take shape. In spite of weather delays, which slowed lot production in the first few months of the year, lot deliveries have resumed their upward trajectory. For the first time since 2008, the Triangle averaged over 1,800 lot deliveries per quarter so far in 2014. There are still fewer new lots being developed than the number of new homes that are being built, and lot shortages are persistent in the highest demand submarkets, but there is positive momentum and this is a positive sign for the housing market. Positive momentum aside, lot development will need to continue to grow to at least the pace of demand for greater overall volumes to increase over the next 12-18 months.
Metrostudy’s belief is that both volume and pricing growth will be moderate through 2015, as the new home market begins to deliver enough lots to actually growth volumes instead of simply replacing currently active projects that are running out of inventory quickly. The market has started to act and react to market fluctuations in a more traditional fashion, which is helping new projects to be assessed through a pragmatic lens, and secondary submarkets are being seen for potential rewards. Our expectation is that this will allow greater production of more moderately priced homes, helping to drive greater deal flow in both the existing and new home markets.
For information contact:
Jay Colvin – 919- 314-0420
Metrostudy is the leading provider of primary and secondary market information to the housing and related industries nationwide. Metrostudy provides research, data, analytics and consulting services to help builders, developers, lenders, suppliers, retailers, utilities and others make investment and business decisions every day. For more information, visit www.metrostudy.com
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