TRIANGLE HOUSING 4Q17: 2017 Delivered Solid Starts Growth; Continued Growth in 2018 Remains Linked to Economy & Jobs
- 4Q17 Annual New Home Starts Up 9.1% & Quarterly Starts Up 8% YoY; Annual Closings Up 5.4% & Quarterly Closings Up 4.4% YoY
- The widening gap between starts and closings could pinch builders accustomed to keeping a tighter inventory of quick move-in homes and offer potential buyers more options.
- Despite constraints, new lot development has been significant in 2017 as construction progress has been aided by dry weather and steady, growing buyer demand: total new home inventory was up 18% and lot deliveries up 50% YoY.
Metrostudy’s 4Q17 survey of the Triangle region housing market – which encompasses both the Raleigh-Cary and Durham-Chapel Hill MSAs – shows that new home starts grew 9.1% YoY as Triangle homebuilders pushed new lot and unit development across the region. The Triangle market finished with 2,820 new starts for the quarter, 8% more housing starts than were observed by Metrostudy field surveyors in 4Q16. Annual starts totaled 12,128, in line with the market’s equilibrium level of about 12,000 new starts a year. New home closings totaled 2,844 units for the fourth quarter, a 4.4% increase YoY. Annual closings totaled 11,060 units, a 5.4% increase over 4Q16.
“Growth in 2017 wasn’t quite as robust as 2016, when starts grew 12.6%, but it was a respectable finish and our forecasts are similar for 2018,” said Amanda Hoyle, Regional Director for Metrostudy’s Raleigh market. “The pace of new home sales growth was also about equal to the pace of existing home sales in the Triangle in 2017, despite a near drought of inventory of existing home listings for the past two years, but new home closings didn’t keep quite the same pace. A delta is beginning to widen between starts and closings that could pinch builders accustomed to keeping a tighter inventory of quick move-in homes but also offering potential buyers many more options from which to choose.”
Production of homes in the Triangle priced below $250K continues to decline as the costs of land, construction materials and labor increases. As of the fourth quarter, the Triangle region had only 5.1 months of inventory supply for units priced under $200K, and 40% of that inventory was in Johnston County. Homes priced between $250,000 and $299,999 led the market in terms of production growth rate encompassing 20.2% of the market share in the fourth quarter, a full percentage point higher than the previous quarter. Starts in the $400,000 to $499,999 price range gained 0.5% additional market share in the fourth quarter. Inventory in the $350,000 to $399,000 range declined to 6.5 months of supply in the fourth quarter compared to an inventory level of 7.2 months of supply that was available in the third quarter. The $500,000 and over market has been seeing stronger demand with annual closings up 30% from 2016.
Triangle builders have been pushing to grow the market’s total inventory of new homes as the available inventory of existing homes for sale in the region has remained at an anemic 3 months of supply or less for the past two years – below the 6 months of supply considered equilibrium. Total new home inventory in 4Q17 was flat compared to the prior quarter with 7,142 units in inventory, up 18% over 4Q16 and representing 7.7-months of supply, a slight decline from 7.9 months of supply in 3Q17. There were 4,909 units under construction, up 19% from 4Q16 and representing 5.3-months of supply. The number of Finished Vacant units stood at 1,908 homes, 15% higher than 4Q16 and 18% higher than 3Q17. The finished vacant inventory level bumped up to 2.1 months of supply, which is considered a healthy level.
The 18,902 vacant developed lots in the Triangle in 4Q17 was up 16% from 4Q16, representing an 18.7-months’ supply, in line with the 18-24 months’ range Metrostudy considers to be normal. In high-demand submarkets such as Southwest Wake County, however, the development timeline can be significantly longer due to zoning, entitlement and inspection constraints.
Despite constraints, new lot development has been significant in 2017 as construction progress has been aided by dry weather and steady, growing buyer demand. Over the past four quarters Triangle developers delivered 14,788 new lots, a 50% increase over the previous year’s total. Lot development at this rate is needed for the market to see production gains.
“Most economists are still pretty bullish about the Triangle’s economic growth opportunities for 2018, and so are the homebuilders in the region counting on the consistency of job and population growth to drive their own bottom line,” said Hoyle. “North Carolina added 82,500 more jobs to its income base in 2017, a 1.9% increase over 2016 and around 26% of those new jobs were created by companies based in the Raleigh-Cary and Durham-Chapel Hill metro areas that encompass the Triangle region. As long as good jobs keep coming, so will the prospects for the Triangle new home market.”
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