Metrostudy’s first-quarter survey of the San Francisco Bay Area housing market shows that while annual new home starts are higher than 1Q13, quarterly starts have fallen significantly from that period.  1Q14’s annual new home starts are up 25% from 1Q13, while quarterly new home starts are down 38%.  Annual closing levels are down 4%, and quarterly closings are down 29%.  Annual starts have been outpacing closings since 3Q12.

As a result, total inventory levels that were once below equilibrium are now at the highest level since 2009. By the end of 2013, the annual start pace had significantly outpaced the annual closing pace and Metrostudy raised the caution flag as this can indicate weakening demand.

Our average “offer to build” base price for new single-family detached homes is UP 9% over a year ago to $807K as builders see moderate demand and higher inventory levels. The average price for Attached homes is $740k; an increase of 5%.

“Start activity has shifted dramatically to the price ranges above $700K as builders adjust pricing to offset increased construction and land costs,” says Greg Gross, regional director of Metrostudy’s Northern California market. “This quarter we are seeing starts fall substantially in the range below $500K. Affordability remains a concern as home prices rise and supply is low. 19% of new home starts are priced above $1 million. At this point the Sacramento market becomes more attractive where 52% of the starts are under $400K vs. 4% in the Bay Area.”

Finished inventory of housing has been steadily decreasing over the past three years now. With 1,689 Finished Vacant homes, the market now has only 3.6 months of supply.       Single Family Detached product stands at a 1.6-month supply. The inventory level of Attached product is 1,223 finished and vacant units, a 7-month supply and another 3,597 units under construction.

“Lot delivery in the Bay Area has slowed dramatically over the past few years, which has kept inventory levels far below equilibrium,” says Gross. “Lot inventory has declined 10% over the past year and now stands at 6,069 and Months of Supply is very low at 19 months.  Lot supply continues to be rapidly absorbed; only 381 new lots were developed during 1Q14.  Considering the barriers to development, the market continues to be facing a lot shortage.”

Metrostudy does not expect the housing market to fall dramatically, but experience more of a “cooling off” period during 2014 as the economy continues to heal and the market adjusts to the rapid increase in home prices. The Sacramento and Stockton regions will likely benefit from the expanding Bay Area economy, as homebuyers seek more affordable homes outside of the Bay area.

For information contact: Greg Gross at 916.231.9370


About Metrostudy

Metrostudy, a Hanley Wood company, is the leading provider of primary and secondary market information to the housing and related industries nationwide.  Established in 1975 in Houston, Metrostudy provides research, data, analytics and consulting services that help builders, developers, lenders, suppliers, retailers, utilities and others make investment and business decisions every day.

Learn more about markets featured in this article: San Francisco, CA.