Metrostudy’s 3Q14 survey of the Philadelphia Region shows that new-home construction is moving along with the ebbs and flows of the market. Closings have picked up, but starts have slowed down from 2Q14. The Philadelphia region recorded 2,830 observed closings for 3Q14, a 17 percent increase from 2Q14. Starts for the third quarter decreased to 2,669, down six percent from 2Q14. Year over year numbers are also a shade off. The last quarter of 2014 will be more of the same with seasonality taken into account.
The Philadelphia MSA had 1,606 closings which were a big increase of 60 percent from the prior quarter and is just slightly behind the 1,686 observed closings in 3Q13. Starts increased for the MSA by 190 lots to 1,447 a 15 percent jump from the 2Q14. Year over year saw a 17 percent decrease from the accelerated starts of 3Q13. The Philadelphia MSA includes four counties in South Jersey that have pushed the MSA numbers lower for 2Q14, but for 3Q14 actually saw some positive signs. Observed closings increased by 183 percent in South Jersey. It is a six percent increase over 3Q13. Starts had also increased by 89 percent from the prior quarter. It is only slightly behind the amount of starts seen in 3Q13 when there were 314 starts.
“The Philadelphia Region has seen the pace of starts, closings, and lot being delivered slow down to close out the third-quarter of 2014,” said Quita Syhapanya, regional director of Metrostudy’s Northeast Region. “Months of supply for both vacant developed lots and housing inventory remain in equilibrium range. Metrostudy’s housing indicators are a mixed bag for the third-quarter, but overall the market is stable. It’s not great, but it’s not bad either.”
Total housing inventory (model homes, under construction units and finished vacant homes) for the Philadelphia region has decreased by 160 units, down two percent from 2Q14. The number of homes under construction decreased to 4,458 units compared to the 4,691 units under construction in the second quarter. Finished vacant inventory increased three percent to 2,799 for the third-quarter.
The median closing price for a new-home in the Philadelphia region was $321,300, a very small decrease from the $321,800 from the prior quarter. Year over year change was a one percent increase through the third quarter of 2014. The median closing price for a single-family home ended the third quarter at $353,200, a modest increase over the prior quarter and year over year the price for a single family home increased four percent. “Price increases have tailed off and we should expect prices to have modest increases moving forward,” said Syhapanya.
In 3Q14, there were 23,342 Vacant Developed Lots (VDL) in the Philadelphia Region. That is a very minimal increase from the 23,319 lots available in 2Q14. This is the second quarter in a row where VDL’s have increased since Metrostudy has tracked the Philadelphia Region starting 2Q13.
Vacant developed lots in locations that builders want to build and buyers want to live continue to be in short supply even with a slight increase in the overall finished lots for the region. At a high level including undesirable locations the months of supply for the entire region is at 27.8 months. A healthy market supply level for equilibrium would be between 24 to 30 months. At an annualized starts rate of 10,070 for a rolling four quarters it will take 27.8 months to go through the available finished lots in the entire market.
In the Philadelphia MSA there are only 8,362 finished lots available in the market, only 19.9 months’ worth of finished lots. The Philadelphia MSA continues to be in short supply of available finished lots. All five of the PA counties (Philadelphia, Montgomery, Chester, Bucks, and Delaware) that are included in the Philadelphia MSA are under 20 months of supply. New Castle County is starting 1,054 homes on a rolling four quarter basis and is at 19 months. Bucks County, which has the second most annualized starts at 884, is at only 20 months. Montgomery County started 769 and Chester is at 724 annualized starts. It would take only 15 months to burn through the available finished lots Montgomery and 19 months for Chester County at their current pace. Philadelphia County only has 8 months, but there isn’t a lot of subdivision building in that market. Most of the new homes being built are teardowns or in-fill and redevelopments in areas south of Washington Ave.
Metrostudy believes that household formations will continue to increase, but doesn’t expect to see normal levels any time soon. The most obvious reason are the millennials who are still living at home or are moving out, but taking in roommates while renting, who in turn make two possible household formations into only one. Household formations could easily double up because of their depressed rate and if the job market continues to show improvement that could push housing in the right direction as we close out 2014 and enter the unknown in 2015 and beyond. The price of land on the other hand will continue to be a challenge moving forward.
“Some positive signs for new home construction are that mortgage rates continue to remain low and will likely remain in that range to end the year,” said Syhapanya. “Hopefully some of the upward pressures to the rates will get some of the folks sitting on the fence off the fence. The job market both locally and nationally generally is improving, but we are still not maintaining growth at a monthly rate that will spur on momentum. The active adult market demand is rapidly picking up and should continue to forge ahead in many areas over the next couple of years. This group currently is underserved in new home construction and many in the new home building industry are seeing the need for product for this group.”