PHILADELPHIA HOUSING 4Q18: Low Lot Supply & Affordability Slow Growth in New Home Activity

  • 4Q18 New Quarterly Home Starts Up 1.2% YoY; Annual Starts Down 2% YoY.
  • Quarterly Closings Down 6.8% YoY; Annual Closings Up 1.2%.
  • Lack of supply held back volume in the region, but home prices reached a ceiling where affordability took center stage as the biggest contributor to the market slow-down in 2018.
  • Delaware’s new home market has continued to grow, benefiting from the state’s tax advantages compared to neighboring states impacted by effects the new tax reform bill.

Metrostudy’s 4Q18 survey of the Philadelphia region’s housing market shows 2,603 new home starts in the quarter, a decrease of 6.5% from 3Q18 and a 1.2% increase from 4Q17. Annual starts numbered 10,905 ending 4Q18, a slight increase of 0.3% from last quarter’s pace and down by 2% from the same quarter last year. Quarterly closings decreased by 8.2% QoQ and were down 6.8% YoY. Annual new home closings numbered 10,834, a 1.2% increase YoY.

“The Philadelphia Region’s new home activity remains burdened by low lot supply in the overall market, particularly in prime locations that builders are most actively building, and builders have started looking outside of areas where they are comfortable,” said Quita Syhapanya, Director of Metrostudy’s Philadelphia market. “While lack of supply has held back volume, the reality is that home prices have reached a ceiling where affordability is taking center stage as the biggest contributor to a slow-down in the market. The rise in mortgage rates is the partner in crime to affordability, driving up cost for potential home buyers and setting in the reality for current homeowners who have refinanced when the rates were at all-time lows to be locked into their rates when no additional resale inventory will come to market. Demand for homes has been strong. The problem is supply is low and prices have reached a tipping point slowing down the market.”

In 4Q18, the median closing price for a new home in the Philadelphia region was $374,800, down by 0.3% from the prior quarter and up by 1.2% compared to 4Q17. The median closings price for a single-family home ended 4Q18 at $418,200, a 4.4% increase from the prior quarter and an increase of 6.8% from the same quarter last year.

Total housing inventory (model homes, under construction units and finished vacant homes) for the Philadelphia region was 4,987 units, a decrease of 1.5% QoQ. Finished vacant inventory increased to 2,164 from the 2,073 in 3Q18. Housing inventory increased 2.3% YoY, standing at 8.5 months, which is in equilibrium range for all product types. Detached housing-only inventory on the other hand sits at 5.7 months, which is on the under supplied side of equilibrium.

Submarket Commentary:

  • The Philadelphia MSA had 1,314 starts for 4Q18, down 6.9% from 3Q18 and up 3.8% YoY. Annual pace of starts came in at 5,644, up 0.9% from last quarter and down 2.8% YoY. Quarterly closings for the MSA came in at 1,391, down 11% QoQ and down 8.7% YoY. Annual closings came in at 5,623 for 4Q18, 0.4% YoY.
  • South Jersey saw annual starts decreased to 1,046, down 4.9% from 4Q17. Annual closings came in at 1,091, down 5% YoY. The South Jersey new home construction market continues to be a challenge and lag the rest of the region in terms of activity. Within the Philadelphia Region the South Jersey market is the only market where the nationals are less than 50% of the closings activity. National builders only account for 43% of the activity, which has suppressed the market.
  • The state of Delaware saw the annual pace of starts up 0.1% over 4Q17 and annual closings ended 4Q18 up 13.7% YoY. The Delaware new home construction market has continued to experience growth with the advantage that Delaware has over other states with low income taxes, property taxes and no sales tax. The biggest advantage that might be seen is the effects the new tax reform bill will have on its neighboring states with the cap on local, state and property taxes that will surely effect buyers and especially retirees who are looking for an alternative home outside of PA, NJ, and NY.
  • The Philadelphia Metro area saw annual starts decrease 2.8% YoY and annual closings pace ticked downward by 4.8% YoY. New home starts ended the quarter at 3,776 and annual closings came in at 3,589. The Philadelphia Metro market is the most active market outside of Delaware in regards to new home construction activity. Many builders in this market are struggling to find viable land/lot opportunities to expand growth as this is the most attractive market, but has the least amount of viable buildable lots and land opportunities.

For information contact
Quita Syhapanya
215.893.9890 x231
qsyhapanya@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

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