New-construction homes prices are forecast by Metrostudy to be up 9 percent in 2013, and in the best “A/B” submarkets, they’re expected to rise by 11 percent to 15 percent. Metrostudy already is seeing this trend in isolated pockets and expects it to become widespread soon.
These forecasts are based on same-house comparisons, not averages or medians, which will be unreliable this year. Why?
• As builders start buying lots in the B-/C+ locations instead of A/B locations, the average home price could conceivably fall, even though same-house comparisons in each type of location are strongly positive.
• Demand has been dominated by move-up buyers. Soon, first-time home buyers will be back, and they’ll pull down the averages.
Throughout this year, home builders will be driven by extreme cost pressures (lots, materials, and labor), and consumer demand is likely to continue to strengthen, allowing builders to pass along the higher costs. By 2014, however, the pace of price escalations will slow again.
Some builders are gnawing their fingernails over lot prices that are 30 percent to 50 percent higher than last year. If a land deal works only under extreme escalator assumptions, the worry is justified. Make sure your projections are based on airtight submarket data.