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The COVID-19 pandemic remains an all-encompassing influence on the movements of the new-home market, and not only because case numbers began to rise again at the end of the summer. The lifestyle changes brought about by the virus have translated into major shifts in buyer preferences, ramping up the pace of new-home sales in the markets that meet buyers’ needs.

Even in instances where offices have reopened, many workers who once went in five days a week have been given the freedom to set their own in-office time, whether that means going back full time, maintaining a hybrid schedule, or going fully remote. As a result, many residents of expensive metro areas no longer need to pay more to live near their offices. Instead, they can comfortably live farther away from the urban core, or even in another part of the country altogether.

One thing the most successful post-COVID markets have in common is a strong draw for in-migration. A low cost of living is a huge plus for remote workers from more expensive locations who can retain their job and salary once they move. Strong employment growth appeals to new residents looking for local jobs, especially in smaller tech hubs where skills can transfer. Shopping, dining, and entertainment options provide the amenities newcomers are used to and still desire. Finally, since home prices are often lower in these new destinations than in gateway cities, high-wage earners can afford larger and more expensive homes than they ever could before.

However, high demand is not without its difficulties. Behind the scenes, even successful builders grapple with supply delays, material and labor shortages, and a rapidly shrinking lot inventory. As home availability contracts, so does affordability, especially as newcomers bid up prices. As a result, once-affordable homes in these booming markets are rising out of reach for local residents. The future success of a growing new-home market depends on the relationship between price and demand—how much buyers are willing to pay, how far from the city center they are willing to live, and whether builders can provide product that matches the needs of median-income buyers.

Zonda’s advisory team has selected five U.S. cities— Austin, Texas; Charlotte, North Carolina; Salt Lake City; Seattle; and Tampa, Florida—as markets of interest for new-home sales in 2022, based on performance, fundamentals, and challenges in 2021 and 2020. Read on for a closer look at each of the five metro markets, with commentary and insights from Zonda’s regional directors.

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Austin has historically been a top in-migration destination for residents as well as companies, including recent moves from big names in tech, including Tesla, Samsung, and Oracle. A friendly business climate, relatively low cost of living, and quality of life have served as appealing characteristics for residents moving from the West Coast.

“The COVID restrictions throughout Texas were much less severe than in other parts of the country,” says Bryan Glasshagel, senior vice president at Zonda Advisory. “With strong demand and new residents flush with equity from other markets moving into Austin, prices rapidly increased. Work-from-home and limited supply levels has continued to push growth out to new edges of the market. People are willing to look a little farther out if they aren’t commuting into an office five days a week.”

New-home starts have hit a record high, Glasshagel says, while supply levels are at record lows. New-home prices have risen 27% year over year, while existing home prices are up 26% over the same period. While over half of the market’s quarterly starts were priced below $300,000 in the third quarter of 2019, only 16% were priced below $300,000 in the third quarter of 2021.

This reflection is a top concern not only in Austin, but also in all of Texas, about new residents driving price appreciation and pricing out local buyers. “The entry-level segment of the market is evaporating,” Glasshagel says.

Supply issues are a game of whack-a-mole, with appliances, windows, doors, garage doors, and HVAC materials among the biggest struggles for builders. With the addition of disruptions related to government services and labor, homes are taking at least six to eight weeks longer to build in many cases.

In addition, as of the third quarter of 2021, Austin has only an 11.6-month supply of vacant developed lots—far below an equilibrium of 20 to 24 months. While lot deliveries are rising, they still lag annual start levels by about 10%, and Glasshagel doesn’t expect relief from constraints in the near term.

Moving forward, Glasshagel anticipates some level of normalization, as he does not believe supply will be able to keep pace with 25% to 30% YOY increases in start activity, or that 25% YOY price increases are sustainable in the long term.

“I think we will continue to see a strong interest in build-to-rent product as a reaction to rising prices,” he says. “As for advice for builders, I would encourage them to explore opportunities to grow their divisions by looking at opportunities in satellite locations—Marble Falls, Florence, Bell County, etc. I would also encourage exploring self-developing or co-developing communities in addition to buying retail lots to help them control their destiny a little more as it relates to access to lots. Last piece of advice: Be careful with land and lot prices and the assumptions it takes for those deals to pencil. Sometimes the best decision is a decision to pass.”

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Following a spate of uncertainty in spring 2020, demand in Charlotte’s new construction market surged over the rest of the year. While permits and starts are up, builders and developers have been left to play catch-up on land acquisition, entitlements, development, and home building, a process that continues to this day.

COVID-19 was a direct driver of in-migration from the Northeast for Charlotte, according to Zonda Advisory vice president Shaun McCutcheon, especially in spring 2020 when New York and New Jersey were hardest hit by cases and hospitalizations. Many urban professionals moved directly to Charlotte—especially those in the banking industry, as many banks have a major presence there, including the Wells Fargo headquarters. Others bought homes in Northeast and Mid-Atlantic suburbs, and the sellers—many of them retirees—relocated south for a lower cost of living.

McCutcheon attributes the market’s popularity to its “Goldilocks” environment: The climate “is not too hot or too cold,” home prices are less expensive than in other markets, and the location offers proximity to the coast but lies out of reach of hurricanes.

However, as in many other markets, an influx of higher-income buyers has led to a rise in home prices and shrinking affordability for locals. “Median incomes are $69,000, close to the national figure,” McCutcheon says.

While high material prices are not as much of a concern in this environment, as cost increases have not impacted sales, material availability has led to construction delays and a drop in closings. Among the most scarce of building materials is land supply, which sits at an all-time low in a market with few large land development opportunities to begin with. In lieu of large master-planned communities, Charlotte’s development sites are generally smaller, accommodating 50 to 100 homes. “With that kind of community size, builders are slow-playing their lot releases, either due to land development construction delays, intentionally slowing down sales to allow construction teams to catch up, as well as to keep home prices higher,” McCutcheon says.

Despite these hurdles, McCutcheon is confident that the market’s strong fundamentals will continue to carry demand. “I’m bullish on 2022 and 2023,” he says. “Job growth will likely be solid, and retirees will continue to move here. Affordability will continue to be addressed—product will likely get smaller, lots will get smaller or go to attached, and builders will explore farther out locations. My advice for home builders would be to continue to pursue deals in counties that desperately need more supply—Cabarrus, Iredell, Lincoln, York and Lancaster counties especially. We’ve seen a drastic drop in active community counts in these areas.”

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Salt Lake City

A crush of new-home demand has pushed annual new-home starts up 25% from the third quarter of 2020 alone—and, according to Eric Allen, regional director for Salt Lake City at Zonda, builders are having a hard time keeping up. Finished vacant home inventory has fallen 35% over the past year, and less than one month of finished vacant home supply remains. As a result, many builders have gone to building only spec homes, not releasing them until they are nearly complete.

Much like Charlotte and Tampa, one of the biggest drivers of demand is the ability for households who had once been tied to more expensive markets to work from anywhere, alongside a net increase of 73,600 local jobs over the past 12 months. “These individuals are fleeing more expensive and highly taxed markets for the quality of life in the Greater Salt Lake market. We have much less traffic here and recreation opportunities extremely close,” Allen says.

However, the median price of a single-family detached home has risen 13% over the past year, up to $465,000. “I have heard builders state that 40% to 50% of their buyers over the past year are from out of state,” says Allen. “We see many people selling their very expensive home in California, back East, or in the Pacific Northwest, and they bring all that equity here and pay cash for a $700,000-plus home, which has had a significant impact on pricing.”

Lumber, drywall, and concrete are among the most pressing material issues, though Allen notes that materials affected seem to “change on a weekly basis.” Lot inventory is strained both by a slow entitlement process at the city level and by elevated demand; currently only 10.8 months of inventory remain in the entire Greater Salt Lake market, down from an equilibrium of 18 to 24 months. For homes under $400,000, lot supply is even tighter, at only 4.9 months.

While Allen doesn’t anticipate any major shifts in 2022, he expects inventory levels to rise as home price increases push potential buyers out of the home market. “They just can’t afford to purchase, especially for the entry-level home buyer,” he says. “I would suggest looking at developing more different product, particularly for attached housing. The market will need more attainable housing product. Lot supply may increase slightly, but I don’t see the levels growing outside of equilibrium, but we will definitely need more lots. We will also see more builders and developers looking at more rural areas of the market, mostly in search of more affordable land.”

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In the first stages of the “pandemic market,” home prices skyrocketed in the Seattle metro and existing inventory was quickly sold—with the exception of condos downtown and luxury homes priced at over $2 million. These two markets caught up later in 2020, and, with no seasonal slowdown in sales, the market continued to heat up, reaching its highest point in the first quarter of 2021 with “torrid demand, a frenzy of bidding wars, and steep price increases,” according to Mark Zawistoski, Zonda regional director for the Pacific Northwest.

“Sales took a bit of a dip by summer when compared to 2020, but this was largely due to builders metering their own sales to keep up with the growing backlog, while navigating the morass of supply chain disruptions and labor shortages,” Zawistoski explains. “Traffic and demand marginally cooled in the last couple of months, and we finally saw a bit of the seasonality dip missing in 2020. This is not to say the market has gone soft—it’s still every bit a seller’s market, and demand is still here.”

All of Puget Sound’s counties have seen at least a 25% increase in home prices since the start of the pandemic, and Seattle has consistently placed within the top three of Case-Shiller’s metro level price appreciation index.

Unlike Sun Belt and Mountain markets, Seattle did not experience in-migration at a large scale. However, as Seattle was already a very expensive market, the advent of work-from-home allowed many of the city’s tech workers to leave the urban core to find housing in outlying counties. As a result, home prices have risen rapidly, and entry-level buyers have been pushed even farther afield.

“Affordability is in full-blown crisis mode,” Zawistoski says. “It’s very hard for younger families and those in professions less affluent than tech/life sciences here in Seattle.”

While the market has cooled in a relative sense, inventory and lot supply remain critically low, driven by material shortages, a lack of space, and permitting issues in local jurisdictions. In Zawistoski’s view, builders’ best chances lie at the outer edges of the Seattle market, even in places once considered “a bridge too far.”

“My advice to home builders is to continue expanding to the outer cores of the Seattle market, especially to Kitsap County to the west, and Whatcom/Skagit counties to the north,” he says. “Townhomes are becoming more popular in traditionally rural and less dense markets. City of Seattle proper is a mess and holds very little appeal for most builders, with the exception of some high-rise developers. Bellevue and the Eastside are clearly the winners in this COVID (and post-COVID) market, and those areas will continue to lead the region in job growth.”

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The annual start pace for the Tampa market rose by 30% over an 18-month span starting just before the COVID-19 pandemic, up from 13,094 units over the 12 months ending Dec. 31, 2019, to 17,046 over the 12 months ending June 30, 2021.

In December 2019, the average selling price of a new home in Tampa was $338,000. By June 2021, this had risen to $392,000, up 16% over that period. Over 2021 alone, new-home list prices have risen over 20%. Across new and resale homes alike, the Florida Association of Realtors reports a 25% increase in the median home price in Tampa over the past 12 months, and the median days to contract for a listed home has shortened to five days.

“Migration is coming from all regions of the U.S., with the majority coming from the Northeast and Mid-Atlantic,” says Tony Polito, Zonda regional director for Central Florida/Tampa. “These are markets that are more expensive than Florida, so buyers are replacing their sold home with a cheaper alternative in Tampa. It also means they see as affordable what locals perceive as high priced. The sheer demand from migratory growth coupled with limited supply has driven prices to record levels for both new homes and resale homes.”

Tampa’s primary counties, Hillsborough and Pasco, had a combined 15.4 months of lot supply as of Dec. 31, 2019. Over the course of the pandemic, supply has contracted to 10.1 months as of June 30, 2021. According to Polito, Tampa’s equilibrium is between 24 and 30 months of supply.

The biggest supply issues include appliances, doors, lumber, and windows—to the point where the lead time for windows now exceeds the typical build time, and builders must order windows before they pour the slab.

“The biggest issue is the lack of cost certainty. Many builders won’t price a home until it is near completion,” Polito says.

Despite this, Polito holds the same view of Tampa’s market strength for 2022 as he did for 2019—that Tampa is “bouncing along” at the top of the market.

“We can see a viable scenario where start pace increases due to demand still exceeding supply,” Polito says. “We can also see a scenario where demand falls due to high prices, especially if interest rates increase. The hyper demand that manifested during the pandemic is waning, and the traditional model of job growth driving housing demand will return.”

In the long term, baby boomers remain the strongest drivers of housing demand in Tampa, and Polito expects they will continue to do so until they have all reached retirement age.

“The last boomers turn 65 on Dec. 31, 2029,” Polito says. “Demand will remain robust for the balance of this decade.”