TRIANGLE HOUSING 3Q18: Rising Prices May Be Impacting Buyer Traffic – Production in Affordable Price Points Slowly Squeezed
- Annual new home starts in the Triangle Raleigh-Durham area are up 5.5% YoY while annual closings are up 9.2% from 3Q17 levels
- Hurricane Florence – while not inflicting major damage on new home communities in the region – slowed or shut down most construction and buyer activity for a week this quarter
- The average base price for a new single family home under construction in the Triangle has been increasing and is up 6.4% YoY – in 3Q18, the average single family home cost $387,425.
- New attached unit starts grew to 2,662 units, a 17% year-over-year increase. Annual closings for Triangle-wide townhouses and condos year-over-year increased 26.5% as builders work to refill the pipeline of townhouse products.
Metrostudy’s 3Q18 survey of the Triangle homebuilding market shows that in the 12 months ending September 2018, construction had started on 12,570 new homes, or a 5.5% increase compared to the year prior. Annual closings, as of the third quarter, also picked up the pace with 9.2% more homes observed to be newly occupied compared to the year prior. For the quarter, however, construction activity with housing starts activity was flat with six fewer units started than the year prior, following a strong second quarter ramp up. Quarterly closings, or observed home sales, though, were more robust with sales up 11.8 percent compared to the same quarter the year prior.
“Overall, the economics of the Raleigh-Durham region remain strong – however builders in the third quarter were reporting signs of a slowdown in buyer traffic as home mortgage rates have started rise alongside continuing new home base price escalations,” said Amanda Hoyle, Regional Director of Metrostudy’s Triangle market. “Builders in the Triangle were also hit with a double whammy in mid-September when slow-moving Hurricane Florence moved ashore on Sept. 14 near Wilmington bringing heavy rain and wind across eastern and central North Carolina. While new home communities across most of the Raleigh-Durham region escaped major damage from the storm, the preparation and weather effects of the hurricane still slowed or shut down most builder business, construction activity and buyer traffic for nearly a week.”
The average base price for a single family home under construction in the Triangle has been increasing and is up 6.4% year-over-year. In 3Q18, the average single family home measured 2,758 square feet and cost $387,425, or $140.14 a square foot. The year prior, the average home was larger at 2,767 square feet with a base price of $361,538, or $135.62 a square foot. Production of affordable homes in the Triangle with a base price below $250,000 continues to decline as the costs of land, construction materials and labor increases. As of the third quarter, new homes priced under $250,000 encompassed about 25% of the total region’s market share, which compares to about 32 percent of the total market share a year ago. Homes with a base price between $400,000 and $499,000 led in market share growth accounting for about 14% of all closings, compared to a 12% market share the year prior.
The number of finished vacant units, or homes built speculatively without a pre-sale contract, represented about 24 percent of the construction inventory. That signals that the Triangle remains a supply-constrained market as homes are being sold as soon as construction is completed. Market share for all attached, for-sale housing product in the Triangle has been on a bit of a roller-coaster in the last year after dropping to a low 18.9% share of all new home starts in second quarter 2017 and rising back up to 21.2% market share in third quarter 2018. New attached unit starts grew to 2,662 units, a 17% year-over-year increase. Annual closings for Triangle-wide townhouses and condos year-over-year increased 26.5% as builders work to refill the pipeline of townhouse products.
Challenges facing the local housing market include growing pains among some understaffed municipalities that have created a bottleneck at the plan approval and inspections phases, forcing many builders to extend their timelines for completion. As available inventory of existing homes for sale has remained at an anemic 2-3 months of supply or less for the past four years, builders in the Triangle region have been boosting production of new homes to benefit from the increased demand.
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