SAN FRANCISCO BAY AREA HOUSING 4Q16: Affordability Limits are being pushed – Lot Shortages inhibit future growth

  • Annual New Home Starts in the San Francisco Bay Area are down 8% from 2015 Levels
  • Prices continue to soar: Start activity has increased in the price ranges
above $800K as builders adjust pricing based on increased demand and higher lot costs; 26% of new home starts this quarter are priced above $1 million
  • While job growth is strong in the Bay Area, the overall cost of home ownership is outpacing household income growth in most areas. With prices at or above peak pricing in most sub-markets, buyers may begin to rethink their home-buying decisions and decide to rent or move out of the area.

Metrostudy’s 4Q16 survey of the San Francisco Bay Area’s housing market shows that annualized new home starts in 2016 are down 8% compared to 2015, while closings are up 6%.  Quarterly new home starts were down 28% while closings are down 6% compared to 4Q15. Annual starts have been outpacing closings since 1Q13, resulting in total inventory levels that were once below equilibrium remaining at the highest level since 2009. By the end of 2013, the annual start pace had significantly outpaced the annual closing pace mostly due to Condominium starts. Over the past year, total new home inventory has risen 4.5%.

“Our average base price for new
Single Family detached homes is up 9% over a
year ago to $884K as builders have realized
higher land and construction costs, plus strong demand,” said Greg Gross, Director of Metrostudy’s Northern California market. “The average price for attached homes is $865K; an increase of 2% YoY.  Start activity has increased in the price ranges
above $800K as builders adjust pricing based on increased demand and higher lot costs. More
slightly affordable projects opened during the fourth quarter. However, 26% of new home starts this quarter are priced above $1 million. At this point the Sacramento market is more attractive where 67% of the starts are under $500K vs. 21% in the Bay Area.”

The San Francisco Bay Area market has enjoyed robust economic conditions for six years. Job growth may have slowed recently from the highs experienced during the second half of 2015, but still remains among the best in the nation. However, there are challenges on the horizon that may slow housing starts in 2017.

Lot delivery in the Bay Area has slowed in 2016 compared to 2015. Only 4,542 new lots were delivered over the past year, 22% fewer than in 2015. Months of supply decreased slightly, now at 15 months. Considering the barriers to development, the market continues to face a lot shortage. More importantly, a more affordable lot shortage

Metrostudy expects demand to remain steady through 2017. While job growth is strong in the Bay Area, the overall cost of home ownership is outpacing household income growth in most areas. With prices at or above peak pricing in most sub-markets, buyers may begin to rethink their home-buying decisions and decide to rent or move out of the area.

Given the above, Metrostudy does not expect the housing market to necessarily weaken, but experience more of a stable, slightly lower period of supply and demand through 2017 as the economy continues to improve and the market adjusts to the rapid increase in home prices. The East Contra Costa, Solano, Sacramento and Stockton regions will likely benefit from the expanding Bay Area economy, as homebuyers seek more affordable homes outside of the core Bay area.

Greg Gross @ 916.231.9370
Email: ggross@metrostudy.com

About Metrostudy

Metrostudy, a Hanley Wood company, is the leading provider of primary and secondary market information to the housing and related industries nationwide. Established in 1975 in Houston, Metrostudy provides research, data, analytics and consulting services that help builders, developers, lenders, suppliers, retailers, utilities and others make investment and business decisions every day. www.metrostudy.com

About Hanley Wood

Hanley Wood is the premier information, media, event, and strategic marketing services company serving the residential, commercial design and construction industries. Utilizing the largest editorial- and analytics-driven construction market database, the company produces powerful market data and insights; award-winning publications, newsletters and websites; marquee trade shows and executive events; and strategic marketing solutions. To learn more, visit hanleywood.com.

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