• Housing Market in Austin Continues Upward
• With Thin Apartment Vacancy, Home Buying Jumps in January

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New home starts in the Tucson area numbered 1,298 in 2011, which is the calendar-year low for this housing cycle. Starts, which are based on Metrostudy’s lot-by-lot survey of all new construction subdivisions from Red Rock to the Cochise County line, are down 27% from 2010. “Starts in the second half of 2011 were down 8% from the same period the previous year when the market was reeling from the expiration of the homebuyer tax credits,” said Ben Sage, director of Metrostudy’s Arizona division.

Regarding new-home supply, inventory figures are reasonably low, which indicates that builders are constructing homes only to meet current demand. Total new home inventory, which includes all homes that have been started but are yet to exhibit any evidence of occupancy, fell to only 846 units at the end of December. The number of new inventory units that are finished but empty, many of which are under contract, fell 39% from the end of 2010 and now number only 318 units, which is the lowest reading since we started surveying the Tucson market in 2003. This represents a 2.6-month supply, “which is reasonable,” said Sage, “especially given the current state of real estate. The relatively low count of new homes in inventory is critical to an eventual recovery. It illustrates that the problem is not with new-home supply as much as with demand. When buyers return, builders will have to start more homes because they will not be able to satisfy the demand from their current inventory.”

“It’s been a long few years for homebuilding, but builders have positioned themselves well for a recovery. Distressed resale inventory is in the process of clearing out, and when that is remedied builders will be more competitive. The local economy is beginning to show signs of life, and resale supply is back to historical norms. That should help home prices stabilize this year and point towards an improving new-home market in 2013.”

For information contact:
Ben Sage @ 480.756.9300
email: bsage@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.

Starts By Community
In the face of this down market, the new-home communities that generated the most starts in 2011 were as follows:

1. Saddlebrooke – 97 starts
2. Rancho Sahuarita – 91 starts
3. Rancho del Lago – 73 starts
4. Quail Creek – 62 starts
5. Dove Mountain – 58 starts

Starts By Submarket
Starts are down across the board, but the Northwest is gaining market share in terms of new-home activity, growing from 12% in 2009 to 21% in 2011. Here are the Metrostudy submarkets ranked by 2011 new-home starts:

1. Northwest (Oro Valley and Marana east of I-10) – 312 starts
2. Southeast (Vail and Corona de Tucson) – 245 starts
3. Far South (Sahuarita and Green Valley) – 238 starts
4. Southeast Pinal County – 163 starts
5. Near South (west of Davis Monthan to I-19) – 109 starts
6. West (West of I-10 from Star Pass to Marana) – 84 starts
7. Northeast (East of Oracle Rd. and north of Rillito River) – 58 starts
8. Central/East (East of I-10, south of Rillito River to Valencia) – 45 starts
9. Southwest (West of I-19 along Ajo Hwy. and Valencia Rd.) – 44 starts

Note: Metrostudy also surveys Cochise County, which generated 176 starts in 2011

Active Adult Community Starts
Of the 1,298 starts in the metro area, 225 were in active-adult communities, which have garnered a larger share of the overall market growing from 6% of starts in 2007 to 17% currently. The top active adult communities ranked by 2011 starts are:

1. Saddlebrooke (97 starts)
2. Quail Creek (62 starts)
3. Four Seasons at Rancho del Lago (48 starts)

"The Custer Fight" by Charles Marion Russell

Rather than go help Custer, Reno and Benteen held their ground for at least the next hour-and-a-half. It is reported that during this lull in the battle, Captain Benteen brought up the name of Major Joel Elliott. Eight years earlier, Benteen and his good friend, Major Elliott, had been part of a raid led by Custer on a Cheyenne encampment in Oklahoma. The Battle of Washita River, as it is known, wasn’t much of a battle as the Indians were easily routed, but Major Elliott and 19 of his troops, in pursuit of some fleeing villagers, met a party of Indian warriors who were coming to help. The cavalrymen were wiped out. Once the village was captured, Custer beat a hasty withdrawal fearing a counter-attack from nearby Indian encampments. He failed to determine the fate of Major Elliott and his small band, much to the dismay of Benteen who never forgave Custer for abandoning his friend. Speculation abounds that Benteen withheld his support of Custer at the Battle of Little Bighorn, and Lt. Col. George Armstrong Custer’s fate, along with that of his men, was sealed.

When it comes to negative events in life, people tend to have long memories. Those of us who have gone through this housing recession will never forget it. When it’s all said and done, we should each get a plaque that reads “I survived the Great Housing Depression of 2006-2011.” I think it is important, however, that we not get so bogged down in the current malaise that we fail to see the early signs that are pointing towards a recovery. On the resale home side, for instance, MLS listings have declined by 28% in the last year and number less than 5,000 units according to the Tucson Association of Realtors. Based on annual sales, which are up 13%, this corresponds to only 4.6 months of supply. Historically speaking, this is at the low end of, if not slightly below, equilibrium range. I am not saying that the market is normal, especially when over half of MLS sales are bank-owned homes or short sales, but resale demand and supply are trending in a positive direction.

Speaking of distressed properties, foreclosures obviously remain very high. In 2010 there were 5,119 single-family foreclosures in Pima County. Our final number for 2011 has not been tabulated, but based on records well into December, we expect foreclosures to be up slightly to about 5,300 units. This is like another arrow to the gut, but the good news is new notices of trustee sale are down. According to Inside Tucson Business, foreclosure notices declined 19% from 11,663 in 2010 to 9,433 last year. While the inventory of bank-owned homes has held fairly steady over the last year, in Pima County the number of outstanding notices of trustee sale has declined nearly 40% during that time. So, current foreclosure measures are certainly troublesome, but leading foreclosure indicators (new notices and pending notices) are pointing to an improvement in the distressed housing picture this year. We need it.

A key outstanding issue remains, and that is home prices. Many markets around the country took their medicine early as home prices fell off the table beginning in 2007 and bottomed in 2009 or 2010. Tucson’s price decline was more gradual, and – unfortunately – it has now found itself near the top (or should that be the bottom) of some recent home depreciation rankings. The median resale home price as of December was $120,000, which is 14% below December 2010. According to the FHFA repeat sales index, prices in 3Q11 were down 12% from the previous year. Over the last five months, however, the median price has hovered around $120,000. So, it is possible – given the relatively low supply of listings – that prices have stabilized. This is not certain, though, as Phoenix resale supply was at or below normal for two years before resale prices, only in the last couple of months, started to rise. Clearly the level of housing distress in a market weighs heavily on prices regardless of supply measurements.

On the new home side, starts in the Tucson area numbered 1,298 in 2011. This is based, not on permits, but on our lot-by-lot survey of all new construction subdivisions from Red Rock to the Pima County line near Benson. We survey Cochise County also, but I have excluded that area for this analysis. Starts are down 27% from 2010, which was larger than we anticipated. As resale prices continued to decline throughout the year, it was just too difficult for builders to compete. In the fourth quarter, however, starts were up modestly from 4Q10 which could mean that we are at the bottom in terms of construction activity. The top communities ranked by 2011 starts are as follows:

1. Saddlebrooke – 97 starts
2. Rancho Sahuarita – 91 starts
3. Rancho del Lago – 73 starts
4. Quail Creek – 62 starts
5. Dove Mountain – 58 starts

Some wonder why we are building any homes, but new-home inventory figures are reasonably low, which indicates that builders are constructing homes only to meet current demand. Total new home inventory, which includes all homes that have been started but are yet to exhibit any evidence of occupancy, fell below 1,000 units for the first time during this cycle. The number of finished but empty new-homes, many of which are under contract, fell 36% from the end of 2010 and now number 374 units. This is only a 2.7-month supply, which is acceptable, especially given the difficult real estate environment. The relatively low count of new homes in inventory is critical to an eventual recovery. It illustrates that the problem is not with new-home supply as much as with demand. When buyers return, builders will have to start more homes because they will not be able to satisfy the demand from their current inventory.

While new-home inventory is not a problem, there are plenty of finished lots to meet near-term demand. During our quarterly field research, Metrostudy counts the number of vacant developed lots (VDL) or finished lots, defined as an empty lot on a paved street. The following summarizes our field-verified number of VDL at the end of December along with the months of supply based on annual lot absorption:

• In active adult neighborhoods: 1,040 VDL (56 months)
• In neighborhoods with attached product: 216 VDL (152 months)
• Single family, lot width less than 40’: 556 VDL (74 months)
• Single family, lot width 40’ to 89’: 6,272 VDL (85 months)
• Single family, lot width 90’+ (mostly custom): 3,036 VDL (40 years)

• TOTAL: 11,120 VDL (103 months)

Remember that the months of supply is based on the current starts rate, which is quite depressed. When housing activity picks up, months of supply will decrease. But, even if starts were double the current level of activity, we would still have 42 months supply of 40’ to 89’ wide lots (excluding active adult communities). It should be noted, though, that lot supply varies by geography. In the desirable Northwest submarket, whose share of new-home activity has nearly doubled in the last two years, there are 1,239 VDL in the 40’ to 89’ lot width range. This would last 57 months, which is lower than most areas but still plenty of supply for the time being.

So what needs to happen for homebuilding to recover? I would look first to an increase in resale home prices, which won’t occur until the foreclosure problem abates further. Rising resale prices will help consumer confidence and allow builders to be more competitive. Right now, many resale homes are priced below replacement cost. We have to clear that distressed inventory, which may take another year … longer if the economy gets off track (which we don’t anticipate). Look for starts to remain flat this year, but we expect 2013 to be much improved assuming we get more economic traction in the form of job growth. That may not be the best news you hear today, but take heart that you have survived a bloody fight and – unlike Custer – you’ll have an opportunity to learn from your mistakes and grow with the next expansion.

BACKGROUND
Ben Sage, Director of Metrostudy’s Arizona Region, has been researching and analyzing housing markets for seventeen years. He has prepared hundreds of market studies in various cities around the country for numerous product types. His knowledge and experience combined with Metrostudy’s accurate and reliable information have enabled Ben to advise many Arizona real estate firms in their risk assessment, decision making, and strategic planning. He can be reached at (480) 756-9300, option 3 or bsage@metrostudy.com, or visit www.metrostudy.com.

Metrostudy, a national housing market research firm, conducts an onsite, lot-by-lot audit of all new home subdivisions in the Phoenix, Tucson, and Prescott metro areas. Our survey includes all new-home subdivisions, attached and detached, whether custom or production. Metrostudy drives over 15,000 miles every quarter to visually inspect every homesite, resulting in accurate information on starts, closings (move-ins), new-home inventory, vacant developed lot inventory, future lots, and lot deliveries. We supplement our core information with public records – new home, resale, and foreclosure deeds – along with a weekly and monthly builder survey.

Unemployment in Indianapolis currently stands at 8.1%, up a half a point from the prior year, indicating a stagnant job market. Indianapolis has lost approximately 6,300 net jobs in the past 12 months. “Not only has the number of jobs lost kept the potential buyer pool from growing, but even those employed may have been hesitant to act given a volatile economy. Nevertheless, an improving economy should provide the housing market with potential home buyers over the next 12 to 18 months,” said Chris Huecksteadt, director of Metrostudy’s Indianapolis division.

Starts in 4Q11 were down 7% from 4Q10, pushing the annual rate down to 3,329 units (down slightly from 3,379 units the previous quarter). For the year, however, the market finished up 6%, with an increase of 184 units over 2010 totals. “We forecast 2,800 to 4,200 new home starts in the Indianapolis market in 2012, an estimated 20% increase over 2011,” said Huecksteadt.

Finished and vacant inventory is at 735 units, currently half of what it was three and a half years ago. New home inventory is at a 2.5 month supply and overall housing inventory is in the 2.5-3.5 month range. Home builders have continued to sell off excessive inventory while reigning in construction activity and spec spending.

“The housing market will remain below its potential as long as unemployment remains high and job creation lags,” said Huecksteadt. “Although the job market appears to be righting itself locally, there is still a long way to go before the economy can be pronounced healthy.”

For information contact:
Chris Huecksteadt @ 847.214.5291
email: chueck@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.

Throughout 2010 the rate of unemployment in Chicago had fallen from over 11% to 8.9%. Over the past several months, however, unemployment rose back up to its current level of 10.5%. “This could be the result of fewer people seeking employment, or population transferring out of Chicago to someplace where job prospects are brighter,” said Chris Huecksteadt, director of Metrostudy’s Chicago division.

Chicagoland started 2,859 new units in the 12-month period ending in 4Q11, up 6.5% compared to the annual rate of 3Q11. During 4Q11, 759 homes were started, representing an increase of 30% over the 4Q10 starts total. Closings, however, continued to decline. There were 3,689 closings during the 12 month period ending 4Q11. “It is difficult to pinpoint any single reason for the dramatic downturn in the housing market,” said Huecksteadt, “but homes that are too high-priced and locations too far from job centers have each played a role.”

Housing inventory overall has declined over the past year (and has done so since 2008). Finished and vacant inventory in the Chicagoland market is down 922 units compared to one year ago. But given anemic demand, there still exists a 13.6 month supply of new home inventory (6 to 9 months is considered normal).

“Even with positive indications from construction and manufacturing sectors, existing inventory and foreclosure units will remain a concern for this year. The hope is that steady improvement in the job market will provide the demand to absorb this excess inventory,” said Huecksteadt. “Still, this will take some time, keeping a lid on any potential recovery in the new home market for this year.”

For information contact:
Chris Huecksteadt @ 847.214.5291
email: chueck@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.

Added to that is the phenomenon that buyers who did a short sale 3 years ago can once again qualify for an FHA loan. People who thought three years ago that they would never be able to buy a home again are now finding out that they can.

The other fascinating development is that the majority of buyers, even in moderately-priced new-home projects, 50% to 60% of the buyers are buying with cash! Of course, relatively few of these people are in their 30s; Gen X generally doesn’t have the savings. The buyers are often Boomers who are five years away from retirement, and they have cash.

The flip side to this optimistic-sounding assessment of consumers is this: the fact that the majority of home purchases are made without financing is not because there are a lot more people out there with fat savings accounts; rather it is because those lucky few who have a good amount of savings are the only ones who can buy. There are fewer people who can get mortgages and have no choice but to buy with a mortgage. People have dings, bruises, and scars on their credit records, and that is a key obstacle. Even though low mortgage rates are a good thing, they are only a benefit to those who can qualify.

In sunbelt markets, we are seeing retirees or even second-home buyers from Michigan, Ohio, and Indiana, despite the current weak condition of the economy and housing market in those states. Many of those automotive and industrial workers who hung on and still have their jobs have good pensions coming to them, and maybe even savings accounts. If they bought their homes 25 years ago, they have a lot of home equity, and once they give up on the notion that they want to hold out for a return to 2006 values, they will sell their homes and have the downpayment (or entire cash payment) for a new retirement home in the sun.

This event is limited to subscribers to Metrostudy’s Quarterly Advisory Services in the Austin market.

If you are not a current subscriber to Metrostudy’s services, and you wish to attend the event, please contact Eldon Rude at 512-473-2250, ext. 1000

This event is limited to subscribers to Metrostudy’s Quarterly Advisory Services in the Austin market.

If you are not a current subscriber to Metrostudy’s services, and you wish to attend the event, please contact Eldon Rude at 512-473-2250, ext. 1000

The Charlotte MSA unemployment rate is at 10.3% as of December 2011, down from 11.2% one year ago. The Charlotte MSA unemployment rate has decreased almost a full percentage point over the past year, while a shrinking labor force is keeping our unemployment rate too high. The Charlotte MSA labor force decreased by 2,235 in 2011. “What we need is improved job growth with fewer unemployed. That would help the Charlotte housing market improve rapidly,” said Bill Miley, director of Metrostudy’s Charlotte division.

Charlotte started 1,306 homes in 4Q11, 35.2% higher than starts in 4Q10. Charlotte closed 1,381 homes, 4% less than 4Q10.

Detached housing inventory stands at 6.9 months of supply, and accounts for 89% of annual starts. Finished vacant inventory stands at only 3.2 months of supply. “With these numbers, Charlotte is well positioned within normal equilibrium levels. Any increase in demand could quickly foster the need for additional new starts,” said Miley.

“Confidence in the future of our local economy is a cornerstone to economic growth in Charlotte. It’s the key to increased consumption and job growth,” said Miley. “With both the upcoming Democratic Convention creating increased national visibility and Chiquita’s headquarters move to Charlotte next year, we are seeing both positive media coverage and a improved local economy.”

“Stronger consumer confidence, an improving local economy, record low mortgage rates, and affordable housing market, where 50% of the new homes are available for less than $200,000, will help tap pent-up demand and increase new home sales and the need for additional starts. Charlotte is ready,” said Miley.

For information contact:
Bill Miley @ 704.650.7584
email: bmiley@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.