Charlotte Housing Market 4Q15: Despite Lot Shortages, Charlotte New Home Market Growth Continues

  • 4Q15 New Home Starts are up 19.6% from 4Q14; Annual New Home Starts are up 13.4% YoY
  • While total inventory was up 16.5% from 4Q14, overall inventory of developed lots continued to decline – down 11.3% YoY – as the current pace of starts has been faster than the pace of lot development.
  • The Townhome market continued to grow: annual starts up 47% and closings up 39% YoY, and townhome lot deliveries increased 91% in 2015, still roughly 40% short of the current pace of demand.

FEBRUARY 2016 -Metrostudy’s 4Q15 survey of the Charlotte housing market shows that new home builders started construction on 2,457 homes, up 19.6% from 4Q14. Annual starts surveyed through the end of 4Q15 numbered 10,401, 13.4% higher than the 9,176 homes started in the same period a year ago. Quarterly closings – previously unoccupied new homes that now are occupied – totaled 2,523 units a 10.1% increase from 4Q14. Annual closings numbered 9,646 in 4Q15, 7.4% more than the 8,980 annual closings as of 4Q14.

“Charlotte continues to be the picture of strength when it comes to housing fundamentals: With continued job growth, declining unemployment, wage/income gains, and excellent in-migration rates, the area ranks among the top housing markets in the country,” said Jay Colvin, Director of Metrostudy’s Charlotte region. “South Carolina continues to be the largest contributor of new home activity, garnering over 26% market share in 2015, while notching 19% growth year to year. However, the fastest growing markets continue to be on the outskirts as lower land and lot prices, less municipal backlogs, and lower gas prices have provided opportunity for home prices to remain affordable, and are enabling a quicker pace of growth. Iredell County had a 67% gain in starts in 2015, Lincoln County saw 36% growth, and Gaston County experienced a 28% gain.”

Starts of new homes priced from $250,000 up to $349,999 were up 38.6% from 4Q14; demand was also up sharply in the segment, with 37% more closings than a year ago. After running a lot development deficit again this year (-457 units), this segment is the market’s most lot constrained with only an 18.4 months’ supply of developed lots. With only a 6.1 months’ supply of housing inventory, this is the most under-supplied price segment when factoring in both housing and lot supplies, at only a 24-month total supply. Given the tight supply market, growth in this segment will be predicated on sustained increases in lot development.

Total inventory – models, finished vacant unoccupied new homes, and new homes under construction – equaled 5,338 units in 4Q15, 16.5% above the 4,583 recorded in 4Q14. Under Construction inventory now stands at 3,821 homes (4.8-months’ supply), which is 28.8% higher than the 2,966 homes under construction in 4Q14. While total inventory is up, is has mostly been driven by the growth in under construction inventory, not ageing inventory for sale. Finished Vacant inventory now stands at 1,163 homes (1.4 months’ supply), 10% fewer finished units than observed in 4Q14. At the current closing pace, total inventory represents a 6.6-months’ supply of homes, below Charlotte’s 16-year average of 7.2- months’ supply.

The current pace of starts has been faster than the pace of lot development, and thus the overall inventory of developed lots continues to decline. The 21,427 vacant developed lots in the Charlotte market in 4Q15 represent a decrease of 2,745 lots from the 24,172 lots surveyed in 4Q14. At the current absorption rate, these lots represent a 24.7-months’ supply. Rowan and Stanly counties combined for 78 total starts in 2015, but have a VDL inventory of 2,072. Removing these excess lots (and the limited starts associated with them), would drop the overall market’s VDL months’ supply down to 22.5, within the 18—24 month historically healthy range. Over the last 4 quarters 7,656 new lots were developed in the Charlotte. While this is 20.6% more lots than were delivered in 2014, it is still nearly 3,000 lots short of what is needed to meet current demand. This deficit will need to be filled in order for the pace of growth to be maintained over a longer period of time.

Charlotte townhome builders started construction on 283 townhomes (THs) in 4Q15, 41% more than the number of THs started in 4Q14. In 4Q15, 279 THs closed, a 55% increase over 4Q14. Annual closings were 961, a 39% increase from the 692 units closed in 2014. The annual starts figure of 1,154 homes was 47% greater than the 785 observed through the end of 2014. Charlotte townhome inventory of 664 units in 4Q15 represents an 8.3-months’ supply. There were 101 finished vacant THs in 4Q15, a 23.5% decrease from the 4Q14 survey. These units represent 1.3 months-of-supply. In the quarter, 527 THs were under construction, a 71% increase from 4Q14 when 309 units were under construction. Based on the previous four quarter’s sales, current under construction inventory represents 6.6 months of supply. The 1,747 vacant developed lots available for TH product in 4Q15 represent an 18.2 months of supply, a decrease from the 4Q14 figure of 2,227 or 34 months of supply. TH lot deliveries increased 91% in 2015, but are still roughly 40% short of the current pace of demand.

“Charlotte’s tight supply market, and growing home values have played nicely into the hands of new home builder/developers and their capital partners. However, the challenges of production and infrastructure delays continue to result in supply constraints that will have an impact on the market’s ability to take advantage of these positives, at least to their full potential,” said Colvin. “The biggest points of concern remain in the overall health of the economy. Many headline risks to the overall economy have actually benefited real estate markets in the U.S. If this trend continues, then the housing market would take the place as the leader in a choppy or flagging U.S. economy. 2016 is an election year, so the unknowns get a kicker this year. In a vacuum the housing market looks to be primed for another good year in 2016. With that said the list of uncertainties are growing, and how those will impact home buying intentions will be the ultimate deciding factor. In our opinion the pros outweigh the cons, and we see the Charlotte market as healthy. We expect the market to increase construction volume while maintaining pricing power, albeit at a slightly more moderate pace than 2015.”

For information contact
Jay Colvin
919- 314-0420
jcolvin@metrostudy.com

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.