RENO HOUSING 4Q18: New Home Starts End 2018 Even with 2017 Numbers – Out-of-State Demand Pushing Starts into Higher Price Points
- Metrostudy’s survey of the Reno market shows that 2018 new home starts were almost identical to 2017 levels.
- Housing starts continue to surge into higher pricing tiers as builders push prices to offset increased land and labor costs. The median new home base price in the Reno CSA was $425k in 4Q18, nearly 13% above the year prior.
- Land prices continue to rise in Reno, creating pressures on builders to deliver affordable product.
- Despite rising prices, we expect a continued influx of demand from California, particularly from the Bay Area where exorbitant prices are pushing households from the region in droves.
Metrostudy’s 4Q18 survey of the Reno housing market shows that despite a strong beginning to the year, new home starts for 2018 ended nearly at an identical level to 2017, with 2,529 homes. The fourth quarter of 2018 had a modest 529 housing starts, compared to nearly 900 starts in 4Q17. A limited supply of finished lots and longer construction times has likely dampened the Reno start pace in recent months. 2018 did finish with an uptick in new home closings at 2,247, reflecting a 12% increase from 2017. A higher number of starts relative to closings is an indicator of a growing market, which continues to be the case in Reno, though the gap is nearing closer to a balanced market.
Housing starts continue to surge into higher pricing tiers as builders push prices to offset increased land and labor costs. The median new home base price in the Reno CSA was $425k in 4Q2018, nearly $50k (or 13%) above the year prior. The $300k-$400k price range continues to be the largest category for homes reflecting 33% of new home construction. That being said, the $400k- $500k is quickly growing, up from 22% to 30% of the market in the past year. Homes with base pricing of $500k or more have nearly doubled as a proportion of the market up to 25%. Some builders are seeking less expensive land in more outlying areas (e.g., Fernley) or increasing the density of product in efforts to address affordability concerns.
“Reno demand should remain high in the near-term,” said Aaron Stubblefield, Regional Director of Metrostudy’s Reno and Northern California market. “Land prices continue to rise in Reno, creating difficulty on builders to pencil affordable product. Increased home values paired with rising mortgage rates – though down in recent weeks – has put a strain on buyers seeking entry-level product. We expect a continued influx of demand from California, particularly from the Bay Area where exorbitant prices are pushing households from the region in droves.”
Finished vacant inventory has increased to 188 homes, the highest level this market has experienced since 2014. Despite nearly tripling over the last two quarters (from historically low levels), the amount of standing inventory available still only represents a single month of supply. The Reno market is not in danger of being oversupplied in the near-term, though continued increases to FVI should be closely monitored going forward. Demand continues to be strong for new housing and the relative increase to standing inventory could positively affect closings for the beginning of 2019.
The unemployment rate has trended down since 2011 and is currently at an all-time low of 3.3%. Finding skilled labor is a large issue for Reno employers. Cement masons, operating engineers, and roofers are among some of the most undersupplied labor types in this market. An unemployment rate of 5% represents a fully employed market and the lack of available workers will certainly put upward pressure on incomes in the coming years.
Economic conditions have been tremendous in Reno and will continue to support income growth. Despite the healthy local market, a slowing national economy, lack of lot supply and growing affordability concerns may hinder new home growth in 2019. The Reno economy continues to grow at a strong pace through the end of 2018. Job growth remains hot as the Reno MSA has sustained over six and a half consecutive years of strong job creation.
For information contact:
Aaron Stubblefield – 916-580-2019
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