RALEIGH-DURHAM HOUSING 4Q16: Double-Digit Gains in Fourth Quarter; Continued Growth Expected in 2017
- 4Q16 Quarterly New Home Starts Up 15.3% & Quarterly Closings Up 9.4% YoY; Annual Starts Up 12.6% & Annual Closings Up 5% YoY.
- Homes priced between $300K and $399K continued to lead the market, up 39% YoY.
- In 2016, Triangle developers delivered 11.5% more lots than in 2015 – yet the current development timeline is significantly longer than normal due to major capacity constraints.
Metrostudy’s 4Q16 survey of the Triangle housing market shows that 2,568 new homes were started, up 15.3% from 4Q15. Quarterly closings – previously unoccupied new homes that now are occupied – totaled 2,729 units, a 9.4% increase from 4Q15. Annual starts surveyed through the end of 4Q16 numbered 11,102, 12.6% higher YoY and up 3.2% QoQ. Annual closings numbered 10,487 in 4Q16, 13.5% more than 4Q15 and 2.3% higher QoQ.
“The Triangle’s new home market finished 2016 off with a bang, with the fourth quarter delivering double digit year-over-year gains in quarterly starts, closings and lot deliveries,” said Jay Colvin, Director of Metrostudy’s Raleigh-Durham Triangle region. “These gains were realized in the face of a market with declining vacant developed lot inventories (down 6.4%), increased average closing prices (up 4%), continued labor shortages, and a 60 basis point spike in 30-year mortgages rates. Regarding pricing, we expect borrowing costs to increase by 50-75 basis points this year. At the high end of that rate increase estimate, it would take more than a 10% increase in median new home prices to negatively impact affordability. From a financial standpoint, this bodes well for builders operating near the center of the demand curve and below. For those that are building on the high end, we expect it to continue to offer challenges in the next few quarters.”
In 4Q16, homes priced between $300K and $399K lead the market, representing 28% of the overall market’s new production. This segment started 39% more homes than a year ago. The below-$199K price range, with housing inventory of 4.3-months’ supply and 15.2-months’ supply of lot inventory, has the lowest total supply number among any price segment in the Triangle. Starts in the $200K-$299K price range aren’t far behind in terms of shortages, with housing supply of 6-months, and 14.4-months’ supply of lots. The market for homes priced above $500K continues to be mixed, with production up 23% but closings were down 2% from last year’s total.
Total inventory of new homes in 4Q16 – models, finished vacant unoccupied new homes, and new homes under construction – numbered 6,018 units, 10.8% more than the amount observed in 4Q15. At the current annual closing pace, this level of inventory represents 6.9-months’ supply. Under Construction inventory stood at 4,093 homes (4.7-months’ supply), 14% higher than in 4Q15. Finished Vacant inventory numbered 1,651 homes, 6.1% greater than in 4Q15. The finished supply decreased to 1.9- months’ from 2-months’ a year ago. This level of inventory is considered to be healthy.
The 16,803 vacant developed lots in the Triangle in 4Q16 represents a decrease of 1,152 lots from the 17,955 lots surveyed in 4Q15. At the current absorption rate, these lots represent an 18.2-months’ supply, within the 18-24 months Metrostudy considers normal. Generally, the current development timeline is significantly longer than normal due to major capacity constraints on both the public and private side of the equation. Despite these constraints, new lot deliveries have grown rapidly in recent quarters as developers race to refill pipelines. In 4Q16, 2,272 new lots were delivered for home construction. Over the past four quarters, Triangle developers delivered 9,910 new lots, 11.5% higher than the previous year’s total.
“In the absence of a major economic or geopolitical event, we expect 2017 to continue the trends of 2016, characterized by strong housing demand with persistent supply constraints,” said Colvin. “Baby boomers and empty nesters continue to be a major portion of buyers, but Millennials and young families are now the largest buyer cohorts, and this shift is expected to incentivize builders to push geographical boundaries for affordability, while continuing to emphasize lifestyle driven product types.”
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