SAN FRANCISCO BAY AREA HOUSING 4Q17: Growth Continues Despite Record Housing Prices – Inventory at Highest Levels since 2009

  • In 2017, Annual New Home Starts were up 10% over 2016, while annual closings were up only 0.1%. Quarterly new home starts are down 6% while closings are down 11% compared to 4Q16.
  • Total New Home Inventory increased last year by 13%, as Annual starts have been outpacing closings since 1Q13.
  • Our average “offer to build” base price for new Single Family detached homes is up 18% over a year ago to, $1.01M while the average price for Attached homes is $900K, an increase of 6%.
  • 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.

Metrostudy’s 4Q17 survey of the San Francisco Bay Area housing market shows that annual new home starts in 2017 are up 10% compared to 2016, while closings are up only 0.1%. Closings have actually slowed over the past two quarters. Quarterly new home starts are down 6% while closings are down 11% compared to 4Q16.

“Annual starts have been outpacing closings since 1Q13,” said Greg Gross, Regional Director of Metrostudy’s Northern California market. “As a result, total inventory levels that were once below equilibrium remain at the highest level since 2009. By the end of 2013, the annual start pace had significantly outpaced the annual closing pace mostly due to Condominium starts. Over the past year, total new home inventory has increased 13%.”

Our average “offer to build” base price for new Single Family detached homes is up 18% over a year ago to, $1.01M 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 $800K as builders adjust pricing based on increased demand and higher lot costs. The supply of homes priced under $500k is dwindling. In the fourth quarter, 24% of new home starts are priced above $1 million. At this point the Sacramento market is more attractive where 65% of the starts are under $500K vs. 5% in the Bay Area.

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Finished inventory of housing has been steadily declining over the past year; yet with 1,683 Finished Vacant homes, the market has only 2.5 months of supply. There are 656 Single Family Detached finished vacant homes, a 1.8-month supply. The inventory level of Attached product is 1,027 finished and vacant units, a 3.5-month supply and another 4,749 units under construction. Overall, the market remains below equilibrium for housing inventory.

Metrostudy is tracking 101,374 future Single Family lots in the Bay Area and 11,397 are currently in a stage of development. After a rainy first quarter, new lot development increased significantly over the last half of the year. Considering the barriers to development, the market continues to face a lot shortage. More importantly, “affordable” lot shortage.

Metrostudy expects demand to remain steady through 2018. But can this demand afford a new home? The overall cost of home ownership is outpacing household income growth in most areas. With prices at or above peak pricing in most sub-markets, buyers may begin to rethink their home-buying decisions and decide to rent or move out of the area. Buyers will calculate the cost of commuting and will factor in those costs when they decide where, or if to purchase a new home.

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.