Posted in Sacramento Market | Posted on 09-02-2014 | Written by Metrostudy News
- While 2Q14 starts are up 2% from 2Q13, the Annual Starts rate is down 3.6% – the first decrease in the annual rate in three years
- Average base price for new single family homes is up 8% YoY to $438k;
- First time and Entry Level buyers are being squeezed: Home starts are shifting into the price ranges over $400k; starts of units priced under $300k have fallen substantially.
September 2014: Metrostudy’s 2Q14 survey of the Sacramento housing market showed new home starts improving as starts were up 2% from 2Q13, the first uptick after three consecutive quarters of declining numbers. At the same time, the annual housing starts are down 3.6% from 2Q13, and closings are down 3%. It has been three years since the market had a decrease in annual starts.
“Annual starts have been outpacing closings since 2Q12 which is indicative of increased demand,” said Greg Gross, Regional Director of Metrostudy’s Northern California market. “This increased start pace over the past year helped stabilize equilibrium. Builders are now reacting to more seasonality and softening demand. Rather than be caught with excessive inventory, starts have pulled back.”
Our average “offer to build” base price for new Single Family detached homes is up 8% regionwide over a year ago to $438K as builders see both higher demand and increased construction costs.
“This quarter we have seen a continuation of the squeeze on entry level and first time home buyers as start activity continues to shift into the price ranges above $400K,” said Gross. “We are seeing starts fall substantially in the range below $300K, and starts under $200k have essentially come to a halt. This has a lot of implications for the market as home prices are increasing at a much faster pace than incomes.”
Price Shift in Housing Starts
Finished inventory of housing has been steadily increasing over the past year. With 473 Finished Vacant homes, the market now has 2 months of supply, the highest level of finished homes since 2012, and a 57% increase over 2Q13. We expect to see more incentives and price adjustments as builders do not want to carry Finished Inventory. The Sacramento market was under-supplied during the end of 2012 and beginning of 2013, but the rapid increase in standing inventory is something we will monitor closely as we finish out the year.
Lot deliveries in Sacramento California have slowed dramatically over the past few years, which has been helpful for those inventory levels. Finished lot inventory has actually increased 11% over the past year and now stands at 13,772 and Months of Supply has increased to 57. While seemingly high, about 4,000 of these lots are in the outlying Sutter and Yuba Counties as well as within the Natomas area. This increase of lot development will make finished lots available in high demand areas. There were just over 800 new lots completed during the 2ND quarter alone. Understanding sub-market dynamics is crucial in the Sacramento Region. Metrostudy is tracking about 248,000 future lots with fewer than 7,860 lots being developed now; a fairly small number considering the size and potential demand of Sacramento California.
Metrostudy expects demand to remain steady in 2014. However there are some indicators that point to slightly fewer new home starts compared to 2013. Primarily those being lack of lot supply, rapid price increases, and the expected increase in resale home inventory entering the market are all factors which may cause new home buyers to rethink their home-buying decisions during 2014. We expect to end 2014 with 3,000 new home starts for the year. Sacramento and the Stockton regions will likely benefit from the expanding Bay Area economy, as homebuyers seek more affordable homes outside of the Bay area.
For information contact: greg gross @ 916.231.9370
Metrostudy, a Hanley Wood company, is the leading provider of primary and secondary market information to the housing and related industries nationwide. Established in 1975 in Houston, Metrostudy provides research, data, analytics and consulting services that help builders, developers, lenders, suppliers, retailers, utilities and others make investment and business decisions every day. www.metrostudy.com
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