RENO HOUSING 1Q18: Affordability Limits are Tested as New Home Starts Surge
- Through 1Q18, Annual New Home Starts are up 51% YoY; Quarterly New Home Starts are up 76% over 1Q17 levels.
- Affordability limits are being tested in the region as the average base price for new homes stands at $469k – up 11% YoY
- Last year, 18% of all new home starts were under $300k; this year 10% were. While increasingly difficult to offer new homes priced under $300k, builders are seeking affordable land farther out into the suburbs
Metrostudy’s 1Q18 survey of the Reno housing market shows that annualized new home starts increased an impressive 51% in the first quarter compared to 2017; now at 2,809. We believe the lack of finished lots, and longer construction times may cause the start pace to stabilize in 2018. Annual starts are an indicator of future new home closings, and annualized closings are 2,074, which is 7% higher than last year. Quarterly new home starts in the first quarter were up 76% vs 1Q17; pushing the annualized start pace up significantly. Demand remains very strong.
“Our average “offer to build” base price for new homes in active projects stands at $469k, an increase of 11% from one year ago,” said Greg Gross, Regional Director of Metrostudy’s Reno market. “Builders are well aware that affordability limits are being tested within the region. Start activity has shifted over last year into the price ranges above $400K as builders adjust pricing to offset increased land and construction costs. Affordability remains a concern as home prices are rapidly increasing. Last year, 18% of all new home starts were under $300k; this year 10% were below $300k. While increasingly difficult to offer new homes priced under $300k, builders are seeking affordable land farther out into the suburbs. For example, Annual New Home starts have increased 164% in Fernley, NV!”
With only 84 Finished Homes, the market has less than 2 WEEKS of supply at current absorption pace. The number of Finished Vacant Homes remains at the lowest level since Metrostudy began tracking the Reno market in 2006, and has remained at or below 1 month for two years. However, the number of Under Construction homes did increase 102% since last year. This should have a positive impact on closings at the end of the year. The Reno market is not at immediate risk for over-supply.
The Reno market has been slow to develop enough lots to satisfy demand. Lot absorption has outpaced deliveries for more than five years. The greater Reno market has 3,249 Finished and Vacant single-family lots, which equates to 16- months of supply based on current start pace. Only 3 years ago we had 14 YEARS of lot supply! Washoe County has only 1,500 VDL; 8 – months of supply. Washoe County is at a critically low level of finished lots.
We expect 2018 to be another strong year, forecasting 3,000 new home starts; this will be a 2% increase over 2017. Both, lack of lot supply and affordability pressures, may hinder stronger new home growth. Over-supply of lots along with diminished demand has driven down lot prices and land values in the past, but the quickly shrinking supply has forced builders to pay significantly more for future land, which is has placed pressure affordability. Builder confidence in the market continues to remain strong as the market is at record levels. The new normal will be steady absorptions, increased construction costs and a tightened labor supply.
Greg Gross @ 916.231.9370
About Metrostudy: 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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