RENO HOUSING 2Q16: A Changing Housing Market: Lack of Lot Supply and Affordability Pressures may hinder Future Growth
- Annual new home starts through 2Q16 were 1,890, an increase of 1% over 2Q15 and the highest level since 2Q08.
- Quarterly new home starts in the second quarter were 18% lower than in 2Q15, mostly due to the fact that lot supply remains low, and some builders are still rather cautious.
- Affordability remains a concern: Last year, 26% of all new home starts were under $300k; this year only 15% were priced below $300k.
Metrostudy’s 2Q16 survey of the Reno housing market shows that 2016 is proving to be a significantly stronger year than 2015 across all economic indicators. Annual new home starts through 2Q16 were 1,890, an increase of 5.1% over 2Q15 and the highest level since 2Q08. Annual starts are an indicator of future new home closings, and annual closings are 1,853, up 13.1% from last year. Quarterly new home starts in the second quarter were 18% lower than in 1Q15, mostly due to the fact that lot supply remains low, and some builders are still rather cautious.
“Metrostudy forecasted 1,800 new home starts in 2015, and the actual number was 1,863,” said Greg Gross, Regional Director of Metrostudy’s Reno market. “We expect 2016 to be another strong year, forecasting 2,200 new home starts; this will be an 18% increase over 2015. Both lack of lot supply and affordability pressures may hinder stronger new home growth.”
Our average “offer to build” base price for new homes in active projects increased to $419K, up about 8% from one year ago. The average price has been increasing steadily since 2012. Start activity has shifted over last year into the price ranges above $300K as builders adjust pricing to offset increased land and construction costs. This quarter we are seeing starts continue to shrink in the range below $300K. Affordability remains a concern as home prices are rapidly increasing. Builders are trying to provide lower priced homes. Last year, 26% of all new home starts were under $300k; this year only 15% were priced below $300k.
Over-supply of lots along with diminished demand has driven down lot prices and land values in the past, but the quickly shrinking supply will force builders to pay more for future lots, which may pressure affordability which is already worrisome. Resale inventory continues to recede. With fewer, bank-owned and short sales dominating the market, prices continue to increase. New home inventory receded significantly this year, and builders are feeling more confident to start more homes, but are careful not over-speculate.
Nevada is once again among the top relocation destinations, and more companies are beginning to consider Nevada. The Tesla factory construction is in full swing and has re-energized economic development for the state. Electric automobile manufacturer Faraday future has recently selected North Las Vegas as the site for their manufacturing facility. All of which is helping to solidify Nevada as a worthy consideration for the “Tech Industry”.
With only 122 Finished Vacant Single Family homes, the market still has less than 1 month of supply at current absorption pace. The number of Finished Vacant Homes is at the lowest level since Metrostudy began tracking the Reno market in 2006. Finished Vacant SFD Homes make up less than 1% of total housing inventory, which is far below what we consider equilibrium. However, the number of Under Construction homes has decreased 7% since last year. This may have an impact on closings as supply continues to be extremely tight. The Reno market is not at immediate risk for over-supply.
For information contact:
Greg Gross @ 916-231-9370
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