ALBUQUERQUE HOUSING 1Q18: Tight Lot Supply & Rising Costs Deplete the Pool of Entry Level Buyers
- Quarterly new home starts are flat year over year, while annual starts through 1Q18 are down 8.7% from 1Q17 levels
- This decline is likely representative of the current constraints within the market; tight lot supply, a fragile economy, and price sensitivity among buyers
- Rising prices are likely to deplete the pool of entry level buyers: In 1Q17, the % share of homes started in the higher ($250k+) price range was 53%, but now, one year later that % share has risen to 62%.
According to Metrostudy’s quarterly survey, Albuquerque started 412 homes in 1Q18, which is down slightly from the 432 starts in 1Q17. However when we remove the attached product from this total, starts stayed relatively flat. There were 407 single-family detached starts in the first quarter of 2018, and 408 SFD starts in the first quarter of 2017. Annual starts for 1Q18 (detached and attached) were 1,530, which is a drop of 8.7% YoY. This decline is likely representative of the current constraints within the market; tight lot supply, a fragile economy, and price sensitivity among buyers. Metrostudy also observed a decline in closings in 1Q18. In 1Q18 there were 370 closings, down 5% from 1Q17. Annually, the closings for 1Q18 were 1,566, lower than the 1Q17 annual closings of 1,673; a decline of 6.4%.
“The strong existing home market provides evidence that the demand for housing is still out there, but builders should still be price sensitive in order to draw in a larger buyer pool within the market,” said John Covert, Regional Director of Metrostudy’s Albuquerque market. “Of the homes started in the Albuquerque market, a greater majority are now in the $250,000+ base price range. In 1Q17, the % share of homes started in the higher ($250k+) price range was 53%, but now, one year later that % share has risen to 62%. Increasing costs – land, labor, and materials – are certainly contributing to the higher prices, and there is demand from move-up and move-down buyers in the market for homes in these higher price points, but these cost increases are likely to deplete the pool of potential entry-level buyers.”
Finished and vacant (FV) inventory for single family detached homes still remains low in the Albuquerque market. Metrostudy considers equilibrium for FV inventory at 2.0-2.5 months of supply, and as of 1Q18 there were only 191 units of FV inventory or 1.6 months of supply. This is a good measure of the health of the housing market, and with lower finished and vacant inventory, there is less risk of overbuilding.
In 2018, builders continue to face hurdles in the Albuquerque market; tight lot supply, rising costs, slow economic recovery and now Albuquerque’s new IDO, which will affect the planning and zoning of residential neighborhoods going forward. Now more than ever, builders need to be strategic when determining where and what to build, not to mention at what price point. Employment and wage growth, while improving, are still low compared to other markets nationally. And while there is evidence of housing demand from the existing home market, income growth remains low relative to housing cost, which may suppress substantial increases in housing starts in 2018. New Mexico still has one of the highest unemployment rates in the country, second only to Alaska.
As active listings have decreased for both single family detached and single-family attached homes in the Albuquerque resale market, prices continue to increase. The Greater Albuquerque Association of Realtors (GAAR) reported in March of 2018 that the median detached home price rose 5.6% to $198,000 as compared to March of 2017, when the median home price was $187,500. The average detached price increased 9% to $242,532. Days on market for SFD listings decreased from 55 to 53 days. Active listings for all products have fallen to their lowest levels since 2006, to 2,886 listings. As a result of these lower inventory levels, and rising resale prices, traffic to model homes should increase, as buyers look to new home construction for other options when purchasing a home.
For information contact:
John Covert – 720.493.2020 x 201
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
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