From October to November, new home and building lot demand levels changed marginally, resting at an average score of 5 and 6, respectively, on our 10-point scale. A typical seasonal slowdown has affected many markets, and buyer traffic is expected to increase after the holiday season. Some regional directors report weakening demand due to pricing growth, which may continue to have an adverse effect on new-home demand in the coming months (most significantly in the San Diego, Las Vegas, Houston, Salt Lake City, Denver, and Jacksonville, Fla., markets).
While there are no major changes to report at the macro level in November, regional directors from the five markets highlighted in our infographic identify significant game-changing advantages or impediments that could have a lasting impact on building and purchasing activity for years to come.
Demand in Reno has been fairly mediocre compared with Metrostudy’s other markets, averaging a score of 7 for new-home demand, and 5 for new building lots over the past eight months. In early September, it was announced that Reno would be the site for Tesla’s gigantic, $5 billion gigafactory, expected to be completed in 2017. The effect the gigafactory will have on the region’s economy will be tremendous. More than 22,000 jobs are expected to be created by the factory—6,500 directly from Tesla, and an additional 16,000 in the region indirectly. A tax break bill requires that half of the factory’s permanent employees be Nevada residents, as well as half of the construction workers tasked with building the structure. Empty housing left over from when the real estate bubble burst will fill, and demand for new housing will likely increase ten-fold.
A Lot (and a Lack of) Lots
In Sacramento (included in the Northern California market), the government finally will release its hold on a building moratorium in the Natomas, possibly as soon as September 2015. Federal flood protection authorities put the moratorium into effect in 2008, throttling any potential housing growth and putting 7,000 acres of land in gridlock. The North Natomas were the fastest-growing area in the city before the ban went into effect, due to its proximity to jobs downtown and fairly affordable price tag for homes. According to city officials, about 25 percent of land zoned for residential use (enough for as many as 8,000 homes), and 90 percent of land zoned for commercial use is still undeveloped. Builders are champing at the bit to start developing in the area, and only good things can be expected once the shackles come off.
Things aren’t so sunny in the Southern California market, however, where lot shortages are coming to a head and putting “additional pressure on builders to entice buyers to an infill product and/or a more remote location,” according to Metrostudy regional director Dennis Handler. Although future inventory is available and demand for quality lots is high (SoCal received a lot demand score of 8 in November), cost is weighing heavily on builders. Despite steady job growth, new-home prices continue limits of affordability for buyers as well, keeping them out of the new-home market and pushing them to resale.
Albuquerque could be a come-back kid in 2015, as two large developments should entice buyers to enter the market, and increase demand for new homes (something that hasn’t been seen since in this market since the start of our index). Most significant of the two is Del Webb’s Mirehaven development, an active adult community expected to deliver 538 homes in the affordable price range of $229,900 to $304,990. Mirehaven will be Del Webb’s first age-restricted community in Albuquerque; the company hopes it can capitalize on the attractiveness of the city to retiring baby boomers from other states. The gated community is nearly 300 acres, adjacent to the Petroglyph National Monument, close to the airport, and rich with amenities—sounds like a win.
Retirees have flocked to the Sarasota market for years, but the sheer volume of snowbirds expected to enter the market in the coming years puts the Sarasota-Bradenton market on our watch list. From 1954 to 1964, the birth rate rested at 4 million annually (compared with 3.6 million in 1950), so builders expect baby boomers to enter the market in droves over the next five years, and expect levels to remain high for a decade. If boomers truly do enter the market steadily in the next decade, the Sarasota market will be set (until it runs out of lots, that is).
In early December, the National Association of Realtors (NAR) analyzed data in 100 metro areas with lower state taxes and stable job markets to determine which regions are likely to see a big boost from the boomer generation, with both Albuquerque and Sarasota making the top 10 list. The NAR took many metrics into account, including 2011–13 migration patterns, housing inventory, housing affordability, and cost of living, which bolsters the predictions of Metrostudy regional directors.
Onward and Upward
We’re confident that Reno, Sacramento, Albuquerque, and Sarasota will experience notable (and positive) change in the coming years, but heightened demand also comes with kickback for both builders and buyers. As builder activity increases in these markets, it will be important to track how demand impacts land and new-home prices as the affordable price tag, most notably in Albuquerque and Reno, is a big draw for potential buyers. Builders with interest in these game-changing markets better be ready to storm the court.