Metrostudy’s 2Q14 survey of the Triangle’s housing market shows a return to a more normal operating environment, a positive direction for growth in the coming months. For the second quarter ending June 2014, the Triangle started construction on 2,344 new homes, down 4.9% from 2Q13. Quarterly Closings – previously unoccupied new homes that now are occupied - totaled 2,163 units, a 0.4% decline from 2Q13.
The survey showed 8,821 annual starts through the end of 2Q14, a 6.6% gain from the same period a year ago. The annual closings figure of 8,557 was 12.8% more than the 7,583 observed in four quarters ended 2Q13.
“An unusually cold and wet winter delayed not just housing starts, and lot development, but also froze housing demand and kept traffic levels below normal into the spring,” said Jay Colvin, Director of Metrostudy’s Raleigh-Durham region. “The result has been a flat market through the first two quarters of 2014, but there are signs that the market is getting back on track. Year-to- date, starts are up 3% over 2013, and closings are up 10%, but even with a strong summer and fall activity, 2014 is expected to finish below our previous expectations from a volume perspective.”
Total inventory– models, finished vacant unoccupied new homes, and new homes under construction– equaled 5,034 units in 2Q14, up almost 6% over the inventory surveyed in 2Q13. Under Construction inventory now stands at 3,244 homes (4.5-months’ supply), which is 7% higher than 2Q13. Finished Vacant inventory now stands at 1,575 homes (2.2 months’ supply). At current closing pace Total Inventory (Models, Finished Vacant, and Under Construction homes) represents a 7.1- months’ supply of homes, in-line with historical averages for the market.
Triangle Townhome builders started construction on 446 Townhomes in 2Q14, up 6.4% over 2Q13. Annual starts of 1,846 townhomes were 9.9% greater than 2Q13. Townhomes currently make up 20.9% of total Triangle new home construction, up slightly from a 20.3% market share in 2Q13.
Triangle townhome inventory of 939 units in 2Q14 represents a 6.6-months’ supply. 664 Townhomes were under construction, a 27% increase from 2Q13. Current under construction inventory represents 4.6 months-of-supply. The 2,940 vacant developed lots available for townhome product in 2Q14 represent 19.1 months-of-supply, a decrease from the 2Q13 figure of 26.2 months-of-supply.
“Triangle new home construction and sales continue to show a bias towards higher priced homes,” said Colvin. “While new homes with base prices of $200k-$299k are capturing 35% of all new home demand, homes priced between $400k and $499k showed the highest percentage gain in closings. Construction on homes priced below $200k continues to shed market share. Construction has decreased 11% from 2Q13– closing pace has decreased 8%. This price range was affected harshly during the downturn, and has been slow to recover, but will be critical to the overall market’s return to previous levels of volume.”
The 19,766 vacant developed lots in the Triangle in 2Q14 represent a decrease of 3,175 lots from 2Q13. At the current absorption rate, these lots represent a 26.9- 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 is significantly longer than 18 months.
Over the last 4 quarters 5,646 new lots were developed in the Triangle, which is 15.7% more lots than were delivered through the end of 2Q13. There were 1,961 lots delivered to the market in 2Q14, which is 61% more than were added to the market in 2Q13. The current pace of lot deliveries is 64% of the absorption rate (annual starts), which indicates that overall lot supplies will continue to decrease, however this trend may be nearing an end as lot development activity has begun to increase at a higher pace.
The Triangle housing market was directly impacted by delays in construction and development. An already tight lot supply was exacerbated by the exceptionally wet and cold winter/spring, which kept lot development professionals on the sidelines and in turn delayed the release of those lots for home construction and subsequent home sales. The lack of inventory– whether that be home or lot– continues to be cited as the primary culprit among on-site sales professionals. While eather cannot shoulder all the blame, prices have risen dramatically over the past year, with several communities seeing double digit and above price appreciation.
Much of this price growth is the result of cost increases, and not necessarily margin growth for the builder. At the same time interest rates have increased from a year ago – although this increase has been moderating over the past several months. The result has been a net increase in the cost to own for potential buyers. Metrostudy believes that the lack of inventory continues to be the biggest issue influencing the pace of home closings; however, as the cost of housing has increased the pace of demand growth has begun to moderate.
“The number of higher priced
homes being built has continued to grow at a faster rate than the number of
households with the ability to qualify for those homes,” said Colvin. “For unit volume growth, more moderately
priced homes will need to be produced in the Triangle. Right now, the realities
of finding land, entitling and developing projects, while maintaining
profitability present significant challenges.”