This year has presented many challenges for the home building industry—supply chain issues, inflation, skyrocketing interest rates, and slowing demand. The 2022 Local Leaders top five markets, which have maintained their positions for several years now, include Dallas-Fort Worth-Arlington, Texas; Houston-The Woodlands-Sugar Land, Texas; Atlanta-Sandy Springs-Alpharetta, Georgia; Phoenix-Mesa-Chandler, Arizona; and Austin-Round Rock-Georgetown, Texas.
While the top five Local Leaders maintained their spots this year, Zonda chief economist Ali Wolf says, “The housing market will likely look very different in 2023 compared with 2022, and that applies to our Local Leaders as well. Some of the markets that grew the most the fastest are going through a rebalancing where buyers and sellers are working to figure out where, in fact, the ‘market’ is today.”
Tampa-St. Petersburg-Clearwater, Florida, which jumped one spot to No. 7 from 2021; Charlotte-Concord-Gastonia, North Carolina-South Carolina, up one spot to No. 8; Orlando-Kissimmee-Sanford, Florida, down two spots to No. 9; and Riverside-San Bernardino-Ontario, California, No. 10 from No. 14, complete the top 10 markets.
Looking toward 2023, Wolf adds, “Longstanding migration trends and employment growth can provide a buffer in the medium term, but we expect softer sales activity for most of these markets in the new year.”
To close out 2022, BUILDER tapped Zonda’s Advisory team for details on how the leading markets are ending the year.
1. Dallas-Fort Worth-Arlington, Texas
While employment remains strong, the housing market has significantly slowed with new-home starts down 12% year over year, and monthly contract sales are near 2019 levels. Bryan Glasshagel, senior vice president, Zonda Advisory, says that new-home prices are moving lower considering base price reductions and incentives.
Up from $300,000 to $349,000, the most active price segment is $500,000 to $749,000. Glasshagel says inventory is something to keep an eye on as there are 32,200 new homes under construction and not yet closed, with at least 9,200 of those likely not under contract and that could become standing inventory. “This will lead to pricing pressure in some locations in the market. Lot deliveries are now well ahead of the start pace in the market,” says Glasshagel.
In many locations in 2023, undersupplied lot conditions will likely quickly come to end. “Our forecast is that starts will be down 20% in 2022 and roughly 25% in 2023,” according to Glasshagel Yet, the long-term outlook is still strongly positive, he adds. “Dallas-Fort Worth has attracted 176 company headquarters since 2010. Business and household migration are long-term tailwinds for the market.”
2. Houston-The Woodlands-Sugar Land, Texas
Compared with Dallas-Fort Worth and Austin, Houston’s combination of COVID-19 and weakness in the energy market has made the economic recovery weaker, Glasshagel explains. Employment growth has improved as oil prices moved higher. New-home starts are down 6% year over year, and monthly new-home contract sales are down near 2019 levels.
“While new-home price appreciation in Houston lagged other Texas markets (peaked at 19.1% year over year in May 2022), an increasing percentage of builders are lowering prices and/or increasing incentives. The most active price segment is $300,000 to $399,000, which is up from $200,000 to $299,000 a year ago,” Glasshagel says.
There are 20,000 new homes under construction and not yet closed, and the market remains lot supply constrained. Glasshagel says that it would take a 40% decline in starts for lot supply levels to reach an equilibrium.
“Our forecast is that starts will be down 8% in 2022 and roughly 20% in 2023. Like the rest of Texas, Houston will benefit over the long term from a friendly business climate and relatively low cost of living,” Glasshagel shares.
3. Atlanta-Sandy Springs-Alpharetta, Georgia
The rise in interest rates and economic uncertainly have notably slowed housing activity in the Atlanta metro area. Following nearly 25,000 closings in 2021, the market is on track (based on projections from third quarter data) for around 21,500 in 2022.
Andrew Wilson, principal, Zonda Advisory, says, “It should be noted that this closings number may not fully demonstrate the shift in market conditions as a notable portion of closings are generated from previous years' sales. Somewhat further indicative of the late year slowdown, total sales through November suggest a year end tally of just under 17,000, down from 25,000 in 2021.”
Across most metro counties and price points, sales counts have diminished except for outlying locations like Jackson, Pickens, Rockdale, and Spalding and at price points between $400,000 and $600,000, emphasizing a continued flight for value and transition of a sales volume to the mid-market,” Wilson explains.
New-home prices continued to appreciate around 8% from the beginning of 2022 and 11.6% year over year but saw a modest first dip in November. “While the market has come to a late-year halt, fundamentals in Atlanta remain strong as the region continues to benefit from highly diversified and continually expanding economy, in-migration from more expensive West Coast and Northeastern markets, and a strong combination of value and lifestyle appeal when compared with much of the rest of the country,” Wilson says.
Up 12% year over year through third quarter, there’s an increasing pipeline of homes under construction and a substantial pipeline of future lots at around 27,000. “Atlanta continues to be recognized as a top metro in which to invest and live,” Wilson says. “This established reputation will be further enhanced by transformative developments in downtown and northern suburbs that will be catalytic and beneficial for nearby communities and the collective region. Accordingly, Atlanta should be poised to rebound from the current period of challenged economics and cautious sentiment.”
4. Phoenix-Mesa-Chandler, Arizona
With 23,100 new-home closings in 2021, Phoenix prices increased rapidly from the summer of 2020. While starting strong in the beginning of 2022 but beginning to slow in May, demand is noticeably lower in the second half of the year.
Steven Hensley, senior manager, Zonda Advisory, says that single-family permit levels have been falling six of the past seven months and new-home starts fell 15% from the second quarter to the third quarter. “Buyers and sellers are in a period of price discovery, which is leading to falling prices for both new and resale homes,” Hensley explains.
Earlier this year, Hensley mentioned that prospective buyers were beginning to have more options to choose from and were gaining more bargaining power, that remains true. Yet, with rising rates, local home builders have struggled with cancellations in recent months. “The cancellations are often leading to builders needing to sell a home multiple times before finding the right buyer,” Hensley says.
5. Austin-Round Rock-Georgetown, Texas
“Austin was at center stage nationally as the housing market rocketed higher in 2020 and 2021 and remains at center stage as one of the markets declining most sharply in 2022,” says Glasshagel.
Negative sentiment and affordability concerns have weighed heavily on the new-home market since the spring, but employment remains strong. New-home starts are down just 1% year over year; however, in the third quarter they were down 21% year over year. Monthly new-home contract sales have fallen well below 2019 levels.
In March, new-home price appreciation peaked at 26% year over year. Up from $300,000 to $349,000 a year ago, $500,000 to $749,000 is the most active price segment for the Austin market. To find a price/sales equilibrium, most builders are lowering prices and increasing incentives, Glasshagel says.
“Similar to other Texas markets, Austin has a record 18,500 homes under construction and not yet closed (up 33% year over year). With 5,400 or more of these homes likely moving toward standing inventory, there will be continued pricing pressure in the market,” Glasshagel says. “Outside of select locations, an oversupply of lots in the Austin market does not appear to be on the horizon. This should allow the market to rebound more quickly as once sentiment and interest rates improve.”
He forecasts that starts will be down roughly 13% in 2022 and 22% in 2023. “While the tech outlook is murky over the short term, the growing presence of companies like Tesla, Apple, Samsung, Oracle, Facebook, etc., are long-term tailwinds for the market.”
6. San Antonio-New Braunfels, Texas
The overall San Antonio economy continues to perform well, and job growth is heavily concentrated on lower-paying blue collar employment sectors, which makes the market much more sensitive to home prices, Glasshagel says.
Annual new-home starts are up 14% year over year, but new-home starts in the third quarter were down 20% year over year and monthly new-home contract sales have fallen below 2019 levels. Glasshagel says new-home price appreciation peaked at nearly 20% in April, and most builders are either lowering prices or keeping them flat while increasing incentives.
Currently, the most active price segment in the market is homes priced from $300,000 to $349,000, up from $250,000 to $299,000 a year ago. There are 14,500 under construction and not yet closed (up 42% year over year) that could lead to at least 4,200 homes in future standing inventory, which would continue to result in pricing pressure.
Glasshagel mentions that lot supply is something to watch as lots continue to be delivered at record levels. “The market has been undersupplied the last couple of years, but that will likely change as we move into 2023 (likely moving toward balanced lot supply conditions). The biggest short-term headwind is going to be affordability.” He forecasts starts will be down roughly 8% in 2022 and 20% in 2023.
7. Tampa-St. Petersburg-Clearwater, Florida
Like most markets, because of affordability and buyer confidence issues, Tampa new-home sales have slowed in the second half of 2022. “Continued price appreciation combined with rising interest rates have hurt the first-time home buyers the most, and we are seeing a significant uptick in quick move-in inventory in the more attainable submarkets,” says Kristine Smale, senior vice president, Zonda Advisory.
Within the market, Smale says that communities closer to the urban core are continuing to sell homes but at a slower pace than the first half of the year. “Migration to Tampa continues from wealthier areas around the country, which is maintaining prices from significant declines,” she explains. “Builders report that the 55+ buyer remains strong.”
8. Charlotte-Concord-Gastonia, North Carolina-South Carolina
The new-home market is faring relatively well at the close of 2022, Shaun McCutcheon, vice president, Zonda Advisory, says. Directly tied to the rising interest rates over the past six months, the red-hot sales of 2021 and early 2022 are over.
“Sales rates per project have been cut in half from their peak levels; while pricing is holding on, it has been generally flat over the past six months despite the rising rates,” McCutcheon shares. “Builders are increasingly offering larger incentives toward closing costs or rate buydowns but are holding off on decreasing prices for the most part.”
McCutcheon expects continued challenges in the first quarter of 2023 as many spec homes that started in mid-2022 will be completed (at the same time). “Once that ‘temporary glut’ is worked through, I expect sales and pricing to stabilize and even improve in the second half of 2023,” he says.
9. Orlando-Kissimmee-Sanford, Florida
In Orlando, the new-home market has somewhat normalized, and sales rates are back to pre-pandemic 2019 levels, Smale reports.
“Builders are focused on preserving their backlog given the large number of homes under construction, and starts activity is declining. There is an increase in quick move-in inventory in the more affordable submarkets, and builders are offering significant price cuts and mortgage rate buydowns to manage the monthly payment for a first-time home buyer,” she says.
While migration trends to Orlando continue, it has moderated somewhat, Smale adds. With caution for the new year, she says, “Builders are very selective about acquiring new land, and infill opportunities appear to be the most desirable for the short term.”
10. Riverside-San Bernardino-Ontario, California
On the other side of the country, the Riverside-San Bernardino-Ontario market has seen annual starts down 7.6% from the third quarter of 2021. Starts are expected to compress further in 2023. With the Inland Empire’s population expected to grow, the market’s retail and tourism continue to recover; new versus resale closing price gap is correcting; and construction materials and lumber prices have decreased in 2022.
“New detached base pricing has fallen 3% since the peak with more compression expected,” Evan Forrest, vice president, Zonda Advisory, says. Homes under construction increased 0.7%, and quick move-in homes have been decreasing, a decline of 6.5% from August’s peak. Both lot supply and months of stock have stayed well below equilibrium, Forrest notes.
For the draw of 2022, low sales are expected as sales per project is returning to 2015 to 2017 levels. While the short-term outlook is challenging, Forrest shares that the long term remains positive. Looking toward the new year, Forrest says, “Now is the time to rethink, replan, reengage, and reposition.”
View the full Local Leaders list for 2022, including the top 10 builders in each of the markets.