Posted in San Francisco Market | Posted on 08-26-2015 | Written by Metrostudy News
- Annualized new home starts through 2Q15 are down 4% over 2Q14 levels
- Starts Activity is concentrated in the higher price ranges – 25% of new home starts are priced over $1 million
- With prices at or above peak pricing, potential buyers may decide to rent: still, the average apartment rental rate has increased 61% since 2010.
AUGUST 2015: Metrostudy’s 2Q15 survey of the San Francisco Bay Area housing market shows annualized new home starts are DOWN 4% compared to 2Q14, while closings are UP 11%. Quarterly new home starts were up 11%, while closings are DOWN 31% compared to 2Q15. Annual starts have been outpacing closings since 1Q13. As a result, total inventory levels that were once below equilibrium are now at the highest level since 2009. By the end of 2013, the annual start pace had significantly outpaced the annual closing pace mostly due to Condominium starts. Over the past year, total new home inventory has risen 18%.
“Start activity has increased in the price ranges between $400K and $700K as builders adjust pricing to offset increased construction and land costs by offering smaller and slightly more affordable product, primarily in Eastern Contra Costa County and in Solano County” said Greg Gross, Director of Metrostudy’s Northern California region. “This quarter we are seeing starts increase in the $600-$800K range as activity is moving further out to secondary submarkets. 25% of new home starts are priced above $1 million. At this point the Sacramento market is more attractive where 35% of the starts are under $400K vs. 5% in the Bay Area. Finished inventory of housing has been steadily decreasing over the past three years. With 1,322 Finished Vacant homes, the market has 2.4 months of supply. Single Family Detached product comprises of 441 finished vacant; a 1.3- month supply. The inventory level of Attached product is 881 finished and vacant units, a 4.2- month supply and another 4,847 units under construction.”
Our average “offer to build” base price for new Single Family detached homes is down .7% over a year ago to $753K as builders may begin to see moderate demand and higher inventory levels as prices increase and also changing product mix. The average price for Attached homes is $842K; an increase of 18%. The first quarter brought more gradual price appreciation over the past year and few more moderately priced new communities in the suburbs.
The San Francisco Bay Area market has enjoyed robust economic conditions for more than four years. Job growth may have slowed recently from the highs of 2013, but still remains among the best in the nation. While most areas of California have experienced job growth, the Bay Area has been especially impressive. San Jose added 55,700 jobs followed by San Francisco; 41,800 and Oakland; 20,000. These three MSA’s are responsible for 90% of all jobs created in the region. The Bay Area has created 27% of all new jobs in California.
For comparison, the all time peak employment level in the Bay Area was just prior to the “Dot Com” collapse; In December 2000 there were 3,652,400 people employed. Currently there are 3,715,100 employed, 62,700 more than the all time high. We are officially in “uncharted territory.”
Lot delivery in the Bay Area has increased substantially over the past year, yet lot inventory remains low. In 2014; 4,042 new lots were developed, and 3,187 new lots were delivered during the first half of 2015. Months of supply continues to fall, now at 17.4 months. The supply of vacant lots continues to be rapidly absorbed; even with more 5,500 new lots being added in the past 12 months.
Metrostudy is tracking about 110,000 Bay Area future Single Family lots with 8,511 lots being developed now; a very small number considering the size and potential demand of the Bay Area. Considering the barriers to development, the market continues to face a lot shortage.
The Bay Area experienced a strong first half of 2015. Job growth is strong, housing demand is strong and the general economics in the region is strong. Demand is stabilizing, prices have increased rapidly, and affordability limits are being pushed in almost all sub-markets.
“Metrostudy expects demand to remain steady through 2015,” said Gross. “While job growth is strong in the Bay Area, the overall cost of home ownership is outpacing household income growth in most areas. With prices at or above peak pricing in most sub-markets, buyers may begin to rethink their home-buying decisions and decide to rent. The average apartment rental rate has surpassed $2,400 per month; an increase of 61% since 2010. Apartment rental rates in the Bay Area range from a low of $1,339 in Antioch to a high of $3,524 in San Francisco.”
Given the above, Metrostudy does not expect the housing market to weaken, but experience more of a stable period of supply and demand through 2015 as the economy continues to improve and the market adjusts to the rapid increase in home prices. The East Contra Costa, Sacramento and 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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