Metrostudy released results of its 2Q14 survey of the Jacksonville housing market, which showed slowing new home construction since the second half of 2013. In the Jacksonville Market (Clay, Duval, Nassau, and St. Johns counties), 1,274 single-family units were started in 2Q14, down 11.8% from 2Q13’s rate of 1,444 units. Despite this drop compared to last year’s second quarter, the annual starts rate compared to last year increased by 14.7% to 5,376 annual starts.
Single-family quarterly closings totaled 1,342 units, 6.4% higher than the same quarter last year. The annual closings rate (past 4 quarters) totaled 5,217 units, 29.0% above the rate recorded a year ago. Quarterly closings in the Jacksonville market continued the upward trend, although new construction activity slowed slightly from the first quarter. The flat trend in recent quarters’ starts rate was echoed by many of the major markets in the southeast United States. With the growth in retail home pricing over the past year and the lowering of FHA lending limits, we expect uneven growth in new home construction over the next few quarters.
“Slowing housing growth can reflect weakness in demand, a lack of supply, or a bit of both,” says Anthony Crocco, Regional Director of Metrostudy’s Jacksonville/Orlando region. “At this point in the cycle we believe it is both. Quarterly lot deliveries are still running behind quarterly new home construction rates, meaning we are burning thru lots much faster than we are delivering them.”
Weakness in demand is primarily due to pricing. Strong new home construction activity for the past 15-18 months has spurred increases in retail pricing, often at a rate near the peak of the boom. Pricing has also been impacted by increasing lot costs, for both progressive lot takedowns and replacement projects. New home pricing continues to increase in most locations. As a result, the higher price bands are starting to see strong growth. Builders are generally holding the line on prices, although base price increases seem to be slowing and a few more concessions are being offered.
“This quarter showed a continuation of the trend of builders abandoning the lower-priced market, as starts for units priced under $150k declined 35% from 2Q13,” said Crocco. “We are seeing a burst of activity at the higher end segment, with starts for units priced over $400k up 114% from 2Q13. The implications of this for the future of the market are significant.”
Total single-family inventory, comprised of units under construction, finished vacant units and models, equaled 2,698 units on the ground at the end of the second quarter, a 6.2 months of supply. Overall, housing inventories increased by 6.1% compared to last year.
This quarter, 806 lots were delivered to the Jacksonville market, a 47.6% increase from 546 lots delivered in the same quarter last year. Vacant developed lot inventory stands at 15,430 lots, a decrease of 11.3% compared to 17,403 lots last year. Based upon the annual starts rate, this lot inventory represents 34.4 months of supply, a decrease of 10.1 months from last year.
Overall housing inventory levels have dropped slightly over the past two quarters. However, the level of finished inventory has grown slightly. With starts having slowed, we do not expect the finished supply to increase significantly.
Vacant lot inventories have been generally declining, and the increase in construction starts has caused the ratio of months of supply to drop below 3 years. However, there are an increasing number of lots being delivered to the market and in the development process, so we expect lot inventory ratios to continue to flatten.
Like any market, buyers must get used to the sticker shock of rapidly escalated prices. To continue to increase construction activity builders must help the consumer accept the pricing growth, and many builders are through the use of incentives.