RENO HOUSING 4Q17: Surging Demand Pushes New Home Starts Way Up in the 4th Quarter – Market is at 2007 Levels and Employment is at Record Highs
- Quarterly new home starts in 4Q17 were up 124% vs 4Q16, pushing the annualized start pace up significantly
- Annual New Home Starts in the Reno market finished 2017 up 25% from 2016 levels. Annual closings were up 4% in 2017.
- The Reno market has slowly begun developing single family lots, but with lot absorption outpacing lot deliveries for more than five years, lot Inventory remains very low.
Metrostudy’s 4Q17 survey of the Reno housing market shows that annualized new home starts increased an impressive 25% in 2017 compared to 2016, finishing the year at 2,527. We believe the lack of finished lots, and longer construction times will cause the start pace to stabilize in 2018. Annual starts are an indicator of future new home closings, and annualized closings are 1,998, which is 4% higher than last year. Quarterly new home starts in the fourth quarter were up 124% vs 4Q16; pushing the annualized start pace up significantly. Demand remains very strong.
“The average base price for new homes in active projects increased 3% in 2017 to $449K,” said Greg Gross. “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 $400K and this quarter we are seeing starts continue to rise in the ranges above $400k. 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 18% 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 287% in Fernley, NV!”
With only 134 Finished Vacant Single Family homes, the market has less than 1 month of supply at current absorption pace. The number of Finished Vacant Homes remains near 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 49% 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 slowly begun developing single family lots, but with lot absorption outpacing lot deliveries for more than five years, lot Inventory remains very low. The greater Reno market has 3,668 Finished and Vacant single-family lots, which equates to 19-months of supply based on current start pace. Only 3 years ago we had 14 YEARS of lot supply! Washoe County has only 1,826 VDL; 12-months of supply. Now is the time to begin planning for future growth.
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 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. The Reno economy grew significantly in 2017, and total employment is at a RECORD HIGH. Data for 4Q17 again suggests the Reno new home market will continue strong gains through 2018. The annual rate of job creation remains impressive through the fourth quarter, with an exceptionally strong December.
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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