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Extreme variances among markets and sub-markets identified.
WASHINGTON, D.C. (PRWEB) January 30, 2013
Metrostudy, the leading provider of primary and secondary market information to the housing and related industries nationwide, released today findings from a new study of markets across the country. The study, as detailed here by Brad Hunter, Chief Economist at Metrostudy, indicates extreme variances among markets and sub-markets, with some markets’ single-family production up 90 percent or more over a year ago.
Key findings include:
Starts of detached homes: Starts of detached homes rose by an impressive 46.9 percent, setting the rebound into a virtuous cycle and providing a much-needed boost to personal incomes, which in turn translate into still-higher demand for homes.
- Forces driving construction: It is important to understand the forces driving activity higher as well as those that are restraining gains in some areas. In some markets there are land constraints that work to the advantage of builders who have lot positions and ongoing projects in those submarkets, which keeps the number of head-on competitors low. Additionally, the builders that have lot positions in lot-constrained submarkets are able to push prices up more easily, with strong incentive to do so because 1) they can make more profit by selling homes at higher prices, and 2) they don’t want to run out of lots too quickly.
- Areas with largest percentage of gains in 2012: The largest gains are occurring in the hardest-hit bubble markets such as Las Vegas, Naples/Ft. Myers, and Atlanta. The largest gain were Las Vegas (+96%), Naples/Ft. Myers (+91.6%), Atlanta (+91.2%), Twin Cities (+75.0%), Denver (+74.4%), Raleigh-Durham (+68.3%), Nashville (+67.1%), Northern California (+64.9%), Chicago (+64.6%), Austin (+63.1%), and Phoenix (+61.3%). By contrast, Houston had one of the smallest percentage gains at 26.8 percent. Yet Houston emerges single-handedly as a major driver of the housing recovery nationally, having started 5,303 detached homes in the fourth quarter, compared with 1,426 homes in Las Vegas or the 550 started in Naples/Ft. Meyers.
- Bona fide demand: It is important to emphasize that increases in starts detailed above are a reflection of bona fide demand. Effectively, all of the homes being started are either sold or are needed to replace a recently-sold inventory unit.
- Fourth quarter pullback: Although the entire year was up, there was pullback in the fourth quarter in most markets. This stemmed from a combination of factors, including pre-election jitters and normal seasonal fluctuations, but also reflected higher prices of new homes. Facing lot scarcities in the best locations, builders are deliberately slowing down sales by raising prices. Even with higher prices, buyers are showing up at builders’ sales centers in increasing numbers.
- “A,” “B,” and “C” lots: Despite the high cost of “A” and “B” lots, builders are not going into the “C” locations yet, although it is likely they will do so in larger numbers soon. Starts in Pinal County (a “C” submarket of Phoenix) doubled during the last four quarters, but that county still builds fewer than 500 homes per year. When builders do go significantly below “C” level they will have to be prepared to compete once again with distressed-price homes. Even in those areas, builders will be able to sell. Recent surveys of homebuyers indicate that a large number of buyers prefer new homes to used homes, chiefly because they see a used home as being full of someone else’s problems. Also, a study by The National Association of Homebuilders (NAHB) shows that a buyer can pay 23 percent more for a new home than a used home, just based on the lower cost of ownership in terms of repairs, energy efficiency, etc. That said, there will be less pricing power in the more remote suburbs, and buyers will have more difficulty getting mortgages in those areas because a builder’s homes often fail to appraise in those areas.
- Challenges in the “C” areas: Builders will face some challenges in the “C” areas. To understand why, it is necessary to think separately about first-time homebuyer demand and move-up demand. So far during this housing recovery, the entry-level buyers have represented a very small portion of demand, and the move-up buyers (i.e., people with established jobs and savings) have been the largest component of demand. Once mortgage rates start to move higher, the people who are buying homes or refinancing right now will find it somewhat difficult or at least disadvantageous, to move.
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.
About Hanley Wood
Hanley Wood, LLC is the premier media, information and marketing services company serving the residential, commercial design and construction industries. Through its operating platforms, the company produces award-winning digital and print publications, e-Newsletters, websites, marquee trade shows and events, market intelligence data and custom marketing solutions. The company also is North America’s leading publisher of home plans.
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