RENO HOUSING 2Q17: With the Market at 2007 Levels, Builders Look for Affordable Land farther out in the Suburbs
- Annual new home starts through 2Q17 were 2,069, an increase of 7.6% compared to 2Q16
- Affordability limits are being tested within the region; Start activity has shifted into the price ranges above $300K as builders adjust pricing to offset increased land and construction costs. This quarter we are seeing starts rise to the $400-$499k range.
- While it is 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 527% in Fernley, NV!
Metrostudy’s 2Q17 survey of the Reno housing market shows that as the Summer of 2017 heats up, so does the Reno, Nevada new home market. Annual new home starts through 2Q17 were 2,069, an increase of 7.6% compared to 2Q16. We believe this increase is making up for a weaker first quarter due to inclement weather. Annual starts are an indicator of future new home closings, and annual closings are 1,928, which is 6% more than last year. Quarterly new home starts in the second quarter are down 3.6% from 2Q16. Again, this most likely due to labor constraints, and the fact that lot supply continues to shrink, not necessarily weakening demand.
“Our average “offer to build” base price for new homes in active projects stands at $427K, an increase of nearly 4% from one year ago,” said Greg Gross, Regional Director of Metrostudy’s Reno market. “While a seemingly modest price increase, 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 $300K as builders adjust pricing to offset increased land and construction costs. This quarter we are seeing starts rise to in the $400-$499 range below. Affordability remains a concern as home prices are rapidly increasing. Builders are trying to provide lower priced homes. Last year, 17% of all new home starts were under $300k; this year 18% were below $300k. While increasing 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 527% in Fernley, NV!”
With only 99 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 among lowest level since Metrostudy began tracking the Reno market in 2006, and has remained below 1 month for two years. However, the number of Under Construction homes has increased 12% 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.
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.
The Reno market has slowly begun developing single family lots, but with lot absorption outpacing lot deliveries for five years, lot Inventory remains very low. The greater Reno market has 4,467 Finished and Vacant single-family lots, which equates to 28-months of supply based on current start pace. Only 3 years ago we had 14 YEARS of lot supply! Washoe County has 2,445 VDL; 19-months of supply. Now is the time to begin planning for future growth.
We expect 2017 to be another strong year, forecasting 2,200 new home starts; this will be an 10% increase over 2016. 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 will force builders to pay more for future lots, which may pressure affordability which is already worrisome. Builder confidence in the market continues to remain strong as the market is at 2007 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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