New home lot supply drops to cycle lows
Jun 26, 2019
Housing Trends
The US housing market sold 246,500 fewer homes in 2019 compared to 2018 year-to-date. The decline stems from slowing existing home sales, but the new home market looks different today compared to last year as well.
Due to fundamental differences in metros across the country, using average sales rates may not always be the best measure of relative strength. For example, historically one would expect top markets in California to outperform the Midwest based on local dynamics alone. However, in 2019, one can learn as much about the metros in the top 10 as the ones missing. See graph below.
Las Vegas, the top market for domestic net migration last year and the third best metro in the US for growth in high-income jobs over the past five years, happens to also have the highest per community new home sales rate in the country. Las Vegas was the third best-performing last year when the market’s average sales rate per community was 6% higher than today.
In Las Vegas, builders will generally target 3.0 to 4.0 sales a month per community. Currently, 40% of the active communities in Las Vegas are selling above 4.0 sales per month. The average price of these better-performing communities is $320,000, which is 60% lower than the projects selling below the 4.0 mark. This suggests elasticity remains in this market and price is a compelling factor. Richmond American and KB Home currently represent 65% of the top 20 best-selling communities.
J.T. Schwartz, Meyers Research, Director, Advisory
Austin, Dallas, and Charlotte are new to the top 10 highest sales rate list for 2019 due to increases in local sales rates as well as declines in pace for some other markets. On the supply side, Austin, Dallas, and Charlotte issued 7.8, 6.4, and 4.8 permits per every 1,000 resident in 2018, far above the 3.6 average for the country. The nuances of local markets can artificially push the average sales rate higher or lower. For example:
The year-to-date sales rate of top markets in California faltered considerably year-over-year, down double-digits in Riverside, Los Angeles, San Jose, and San Francisco. For these markets, communities are usually targeting an average of 3.5 to 4.5 sales each month, but the averages are under 3.0 and some communities are still offering incentives.
In San Jose, for example, 28% of the active communities are selling above 4.5 sales. Unlike Las Vegas and Dallas where there is a clear favorability towards the lowest price, location is a dominant driver for San Jose. The average price of the best-selling communities in San Jose is 7% above the rest of the market, while the average home size is 20% smaller.