Metrostudy has just completed its comprehensive year-end 2013 nationwide research. This research note summarizes the high-level findings that have come back from the field. The research is at the subdivision level, where Metrostudy’s field researchers count activity on the ground, lot by lot and house by house. Metrostudy counts actual starts, inventory, lot supplies, move-ins and other key statistics every quarter in 30,000 subdivisions nationwide. The company deploys a team of 350 trained researchers to count every start, lot, and inventory home in every subdivision in the markets it covers nationwide.

Metrostudy has found that, although sales slumped in recent months, the overall trajectory of demand is still upward. The drop in sales in the summer and fall precipitated what Metrostudy measured as a 22% drop in housing starts (4th quarter versus 3rd quarter, not seasonally adjusted).

Construction Fell in the Fourth Quarter…
Metrostudy’s proprietary data on new construction show that the pace of housing starts fell in almost every market in the country in the final three months of the year, reflecting a slowdown in orders that took hold starting midway through the year. This was a reversal of prior trends, which had reflected robust growth in home construction.

Some highlights from the 4Q study, just focusing on the year-over-year change in starts:

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The steepest declines were in Suburban Maryland (DC area), Albuquerque, Boise, and Nashville. Nashville is a noteworthy case, because that market has seen a massive influx of national builders, and Metrostudy performed a several market studies last year for builders who are still poised to enter.

The slowdown in starts that occurred all across the country has its roots in the slowdown in sales that started in the late summer, called by many builders “the pause.”

…but “The Pause” May Be Resolving Now

The “pause” occurred because builders had pushed prices up too fast and too far in the first half of 2013, and many buyers got sticker shock. As an example, this is what happened in Southern California. There was a surge in net contracts per subdivision in the first half of the 2013 (the normal seasonal pattern), but highly exaggerated. There was a frenzy of home-buying that was accelerated by the rapid upward movement of prices, which motivated many buyers to pull their purchasing decision forward in order to beat further price increases.

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Of course, the announcement of the Fed’s “taper” at mid-year took the wind out of the sails of a lot of buyers, because as they approached closing, their mortgage rate (read: monthly payment) suddenly increased.

Now, buyers seem to be moving ahead with their purchases once again.

The Outlook for the Spring Selling Season: Cautiously Optimistic

Our builder contacts nationwide are generally saying they are “cautiously optimistic” about the upcoming spring selling season. Traffic is up for many builders, indicating an increased interest in shopping for a home. The key then is what builders call ‘conversions’ – how many of those shopping for a new home are also ready, willing, and able to buy a new home.

It should also be noted that, although starts fell sequentially on the quarter, home construction is up 8% comparing year-end 2013 to year-end 2012, and the expectation is that there will be a larger rate of gain in 2014.

Lot Shortages are Impacting Builders…

Many markets and submarkets are experiencing severe lot shortages (and record lot prices). That said, Metrostudy’s research indicates that lot production is increasing. The problem is that it is not increasing as fast as home construction.

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