SAN FRANCISCO BAY AREA HOUSING 1Q18: New Home Starts Surge – Prices Continue to Climb and Inventory is at the Highest Level Since 2005

  • 1Q18 New Home Starts are up 85% YoY; Annual New Home Starts are up 33% though the quarter.
  • The Bay Area market has seen a surge of attached product coming to market of the past few years. For example, permits for multi-family product makes up 66% of all new permits, compared to only 43% in 2005.
  • Our average base price for new Single Family detached homes is up 1% over a year ago to $1.02M – the average price for Attached homes is $900K, an increase of 6%
  • The supply of homes priced under $500k is dwindling. In this quarter, 44% of new home starts are priced above $1 million

Metrostudy’s 1Q18 survey of the San Francisco Bay Area housing market shows a surge in new home starts: quarterly starts are up 85% YoY while annualized new home starts are up 33% through the year ending March 2018.  The impressive increase in new home starts has been led primarily by attached product such as condominiums and townhomes.  The Bay Area market has seen a surge of attached product coming to market of the past few years.  For example, permits for multi-family product makes up 66% of all new permits, compared to only 43% in 2005.  Closings continue their moderating trend from the last two years, most likely due to lack of available inventory and increased construction times. Annual closings are up only 2% YoY while quarterly closings are up 14% compared to 1Q17.

“Annual starts have been outpacing closings since 1Q13, and as a result, total inventory levels that were once below equilibrium remain at the highest level since 2005,” said Greg Gross, Regional Director of Metrostudy’s Northern California market. “Over the past year, total new home inventory has increased 33%. Our average “offer to build” base price for new Single Family detached homes is UP 1% over a year ago to, $1.02M as builders have realized higher land and construction costs, plus strong demand. The average price for Attached homes is $900K, an increase of 6%.”

Start activity continues to increase in the price ranges above $900K as builders adjust pricing based on increased demand and higher lot costs. The supply of homes priced under $500k is dwindling. In this quarter, 44% of new home starts are priced above $1 million. At this point the Sacramento market is more attractive where 62% of the starts are under $500K vs. only 7% in the Bay Area.

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Finished inventory of housing has been steadily declining over the past year; yet with 1,269 Finished Vacant homes, the market has only 1.8 months of supply. There are 538 Single Family Detached finished vacant homes, a 1.4-month supply. The inventory level of Attached product is 731 finished and vacant units, a 2.5-month supply and another 6,425 units under construction. Overall, the market remains below equilibrium for housing inventory.

Metrostudy is tracking 104,770 future Single Family lots in the Bay Area and 11,825 are currently in a stage of development. Considering the barriers to development, the market continues to face a lot shortage. More importantly, “affordable” lot shortage.

The Bay Area economy has experienced an exceptional run. While job growth has slowed. Housing demand is strong and the general economic condition in the region is strong. Demand is stabilizing, prices have increased rapidly, and affordability limits are being pushed in almost all sub-markets. Given the above, Metrostudy does not expect the housing market to necessarily weaken, but experience more of a stable, moderate period of supply and demand into 2018 as the economy continues to settle and the market reacts to the rapid increase in home prices. The East Contra Costa, Solano, Sacramento and Stockton regions will likely benefit from the expanding Bay Area economy, as homebuyers seek more affordable homes outside of the core Bay area.

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.