SACRAMENTO HOUSING 4Q17: New Home Starts at the Highest Levels since 2008; 4Q17 is the 11th Consecutive Quarter with more than 1,000 Starts

  • New Home Starts in 2017 are at the highest level since 2008, with annual starts up 18% over 2016 levels. Closings were also up 18% YoY.
  • The average price for new homes is up 2% regionwide over a year ago to $514k as start activity has shifted into the price ranges above $400k. In the fourth quarter, only 4% of new homes started had a base price under $300k.
  • We expect 2018 to end with 7,000 new home starts for the year. Sacramento and the Stockton regions continue to benefit from the expanding Bay Area economy, as homebuyers seek more affordable homes outside of the Bay area.

Metrostudy’s 4Q17 survey of the Sacramento housing market shows that for 2017, annual housing starts were at the highest level since 2008, up 18% compared to 2016. Closings were also up 18%. Quarterly new home starts are up 18% compared to 3Q16, and quarterly closings were up 22%. In fact, 4Q17 marked 11 consecutive quarters with more than 1,000 starts.

“Annual starts have been outpacing closings since 2Q12, which is indicative of continued strong demand, said Greg Gross, Regional Director of Metrostudy’s Northern California market. “The average “offer to build” base price for new homes is up 2% regionwide over a year ago to $514K as builders continue to grapple with increased land, construction and labor costs.  Start activity has shifted over last year into the price ranges above $400K as builders adjust pricing to offset increased construction costs. Affordability is a concern in most markets, and Sacramento is no exception. In the fourth quarter, only 4% of new homes started had a base price under $300k.”

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Finished inventory has steadily decreased over the past year. With only 482 Finished Vacant homes, the market now has just 1 month of supply. When the number of homes under construction is factored in, the market has about 8 months of supply. Well within equilibrium. The number of homes under construction in 4Q17 is 18% higher than in 4Q16, so we expect closings to increase. Overall, inventories are manageable, if not too low.

Metrostudy expects demand to remain steady over the next year. However, interest rate increases and daunting fee and construction cost increases will add to worsening affordability which may point to lower production and closings in the broader Sacramento market. Fortunately, the market has the unique ability to attract buyers from the Bay Area.

While general economic conditions are favorable, there is some concern regarding the slowing of job growth. As mentioned earlier, this is most likely due to lack of qualified labor. The lack of affordable lot supply and rapid price increases, are all factors, which may cause new homebuyers to rethink their home-buying decisions during the next year. The Sacramento unemployment rate has dropped to 3.8%, while the state average is 4.2%. At 5% unemployment rate, a market is generally considered to be at Full Employment. Sacramento has an extremely low rate, which may hinder higher rates of employment growth.

Given the above, Metrostudy does not expect the housing market to fall, but another steady year as the economy continues grow modestly. We expect 2018 to end with 7,000 new home starts for the year barring any substantial global economic crisis. Sacramento and the Stockton regions continue to benefit from the expanding Bay Area economy, as some homebuyers may seek more affordable homes outside of the Bay area, but stronger local job growth and in-migration and of course, greater lot supply will be needed to increase housing demand substantially.

Greg Gross @ 916.231.9370
Email: ggross@metrostudy.com

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

About Hanley Wood: Hanley Wood is the premier information, media, event, and strategic marketing services company serving the residential, commercial design and construction industries. Utilizing the largest editorial- and analytics-driven construction market database, the company produces powerful market data and insights; award-winning publications, newsletters and websites; marquee trade shows and executive events; and strategic marketing solutions. To learn more, visit hanleywood.com.