SAN FRANCISCO BAY AREA HOUSING 4Q18: Starts Surge in 2018 – Even as Buyers Migrate Away from the Core in Search of Affordable Housing

  • 2018 New Home Starts are up 28% over 2017 levels; Closings are up 16% YoY
  • Housing starts in 4Q18 were 14% lower compared to 4Q17. Of the 11.5k annual new home starts, 60% were for attached product as affordability concerns heighten and densities continue being pushed.
  • Start activity continues to increase in the price tiers above $1 million; Homes priced under $800k represented nearly half the market in 2017, but only account for 32% of starts this past year.
  • Considering the barriers to development, this market will likely be perpetually undersupplied in terms of available lots.

Metrostudy’s 4Q18 survey of the San Francisco Bay Area housing market shows that annualized new home starts are up 28% in 2018 compared to the prior year. Through the first three quarters of the year, the start pace was on track for a 39% increase, though a sluggish fourth quarter dampened 2018 figures. Housing starts in 4Q18 were 13% lower compared to 4Q17. Of the 11.5k annual new home starts, 60% were for attached product as affordability concerns heighten and densities continue being pushed. New home closings also had a strong year, though not to the same extent as starts, as they were up 16% over 2017. Closings in the second half of 2018 were stronger than the same period in the year prior. The recent increase in inventory has helped boost sales throughout the Bay.

“Demand is still prevalent, albeit more so at affordable pricing that is difficult to deliver in most submarkets,” said Aaron Stubblefield, Regional Director of Metrostudy’s Northern California market. “The cost of home ownership has outpaced income growth for years. With prices well above peak prerecession levels, it is clear homeownership is not feasible for the many. Potential buyers have already started, and will continue, to migrate away from the Core Bay in search of affordable housing.”

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Home prices surged through the Spring of 2018, but have declined in the second half of the year as buyers pushback with affordability concerns and uncertainty tied to a volatile stock market. Our median “offer to build” base price for all homes is up 7% over the last year, to $897k. Price appreciation was rapid in the first half of 2018, followed by an abrupt slowdown in the summer months. Despite pricing still being strongly positive year-over year, the median base price has declined for two consecutive quarters.

Start activity continues to increase in the price tiers above $1 million as builders adjust pricing to rising costs associated to land, labor, and materials. Homes priced under $800k represented nearly half the market in 2017, but only account for 32% of starts this past year. Attainable homes for even upper income households are becoming increasingly scarce. As affordability concerns flourish throughout the region, Bay Area residents continue to look to other markets for housing, such as Sacramento and Reno.

Finished inventory of housing has been declining since 2016, though 4Q18 experienced a sizable uptick. Single family spec inventory increased by nearly 200 units over the past quarter, but is still down 3% from the year prior. Currently with 1,341 finished vacant homes (attached and detached combined), the market has 1.7 months of supply. Homes are often sold months prior to completion in many Bay Area submarkets. Overall, the Bay Area remains below equilibrium for housing inventory, but if detached FVI continues its rise quickly, it could raise concerns. Considering the barriers to development, this market will likely be perpetually undersupplied in terms of available lots.

The Bay Area economy is currently within an 8+ year run. While job growth has slowed, economic conditions in the region remain cautiously steady. Some Bay Area companies including Apple have voiced in recent weeks they intend to slow down hiring, which will directly affect job growth for 2019. Economic conditions remain solid and inventory levels are still low, though trends do appear to be shifting. Despite recent declines in pricing, affordability concerns are still very real. Metrostudy expects the market to be stable in 2019 as supply levels rise gradually and economic growth continues to decelerate.

For information contact:
Aaron Stubblefield  – 916-580-2019
astubblefield@metrostudy.com

About Metrostudy: Metrostudy is the leading provider of primary and secondary market information to the housing and related industries nationwide. Metrostudy provides research, data, analytics and consulting services to help builders, developers, lenders, suppliers, retailers, utilities and others make investment and business decisions every day. For more information, visit www.metrostudy.com

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