TWIN CITIES HOUSING 4Q17: 2017 Finishes Strong – Activity Surges in the Attached Housing Market

  • Annual New Home Starts are up 27.6% over 2016 Levels – Annual Closings turned in the strongest performance since the recession, up 21% YoY
  • New attached for-sale housing product continues to surge ahead in this market, with new home starts growing 65.5% YoY but still remaining significantly underserved compared to pre-recession levels.
  • The Trend in Lot Supply is Worrisome as the Metro-7 area is holding 11,522 VDL translating to less than a 2-year supply of lots.

Metrostudy’s 4Q17 survey of the housing market in the Twin City MSA continues to show significant strength with annual new home starts rising to 7,935 at the end of 4Q17, up 27.6% YoY. The annual rate of starts marked the first time over 7,900 units since the Great Recession, rising each quarter since 2Q15, and adding over 1,700 units from 4Q16. Closing activity followed suit with annual growth in closings rising by 21% YoY again this quarter, closing 7,200 homes annually through 4Q17. Like the previous eight quarters, this was the strongest annual closings performance since coming out of the recession.

Falling back in line, quarterly housing activity saw a narrow margin between starts and closings with quarterly starts rising 39.5% y-o-y to 1,979 units in the fourth quarter of this year while quarterly closings were up 16.9% y-o-y to 1,940 units in 4Q17. The slight margin between quarterly starts and closings in the fourth quarter was 39 units, consistent with 3Q17 activity.

“Housing growth through 2017 has finished strong with solid economic factors in place,” said Mark Gianopulos, Regional Director of Metrostudy’s Twin Cities market. “Higher than anticipated job growth continues to push the new home market to post recession highs. We anticipate this demand for new construction homes to continue to through 2018. New home starts were up year over year in all 13 surveyed counties, there is no area in the Twin Cities market lagging behind in the fourth quarter.”

New attached for-sale housing product continues to surge ahead in this market, with new home starts growing 65.5% y-o-y but still remaining significantly underserved compared to pre-recession levels. Metrostudy anticipates attached development activity will continue to become a larger segment of the new home market through 2018. The housing market in the Twin Cities MSA remains strong, driven by solid economic factors in job growth, wage growth, unemployment and consumer confidence. We anticipate this trend to continue through 2018, however buffeted by rising land, labor and development costs.

The efficiency in the market is highlighted by the flat trending finished standing inventory and month’s supply even as construction starts rose significantly, up 27.6% through the year. The month’s supply remained unchanged in the fourth quarter at 1.2-months as standing inventory grew modestly, up 2.8% y-o-y in 4Q17. Demand for new homes is strong as buyers quickly purchase and occupy new units as they become available in the market. The supply of finished and vacant inventory has remained below 1.8-months through the last five years.

Quarterly lot delivery reached a post-recession high of 2,375 lots in the fourth quarter but the volume and month’s supply of VDL continued trending lower to 18,758 lots on the ground at a 28.4-month’s supply. This marks the second quarter the month’s supply of VLD is in equilibrium since the Great Recession. As the supply of VDL is in line with healthy expectations, it has fallen by 10-months y-o-y. A continued trend in this direction will lead to a critically low lot supply within three quarters. New lot deliveries must keep pace with starts in order for healthy growth to continue with minimum upward pressure on costs. Within the market, 61.4% of the VDL are located in the Metro-7 area, the seven core counties. The Metro-7 area is holding 11,522 VDL with 6,011 annual starts translating to less than a 2-year supply of lots.

With the significant growth in new jobs through 2017, Metrostudy is forecasting the rate of construction and closings to continue trending higher through 2018 while still keeping FV inventory levels in check, below a 3-months’ supply. Metrostudy is projecting double-digit growth will continue through 2018 with starts up by 15%-18% through the end of the year.

For information contact
Mark Gianopulos – mgianopulos@metrostudy.com
Tel: 773-824-2455

About Metrostudy  Metrostudy is the leading provider of primary and secondary market information to the housing and related industries nationwide. Metrostudy provides research, data, analytics and consulting services to help builders, developers, lenders, suppliers, retailers, utilities and others make investment and business decisions every day. For more information, visit 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; high-profile executive events; and strategic marketing solutions. To learn more, visit hanleywood.com.

 

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