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Increased Pricing, Construction Costs and Location Affect Increases

Recent reports from Metrostudy housing report showed new construction increased in some of the country’s major metropolitan areas during the first quarter of this year. Much of this increase appears to be driven by increased housing demands and decreased supply. However, higher prices, rising construction costs and proximity to where consumers want to be are impacting just how much of an increase can be realized.

For example, new-home starts in the Dallas-Fort Worth region weren’t as high. Although this market continues to be the number one area for new home starts in the country, this growth is being hampered by rapidly increasing home prices. The study states that new home starts below $200,000 are almost nonexistent–with only 8 percent of new home construction below this price point, compared to 62 percent some 10 years ago. The study attributes steep land prices as well as increases in lot development, labor and material appear to the increased pricing. Additionally, lengthier timeframes for the zoning and platting of raw, unentitled land are also affecting costs–expanding exponentially from 6 months in 2010 to between 18 to 24 months today. As a result, new housing starts were up only 1.7 percent in this quarter compared to last year at the same time. Even so, first quarter 2017 home closings increased by 14.3 percent over the same period last year. And total inventory has dropped to 7.4 months of supply, .7 months lower than in the first quarter of 2016.

Paige Shipp, Director of Metrostudy’s Dallas-Fort Worth region, says, builders are working to build more affordable housing as prospective buyers purchase homes with standard features in their preferred locations and forego upgrades.

“The current ‘sweet spot’ for new home pricing is less than $400,000. Yet, if cost increases persist, it may be difficult to build under that price in the next few years,” Shipp stated.

However, new home construction in the Chicagoland area is at its highest level since this latest recession. During the first quarter of 2017, new home starts were up 41.2 percent versus the same time last year. Almost three-fourths of this new-home growth was concentrated in four counties: Cook, Will, Kane, and Lake County, Indiana. New-home closings were also up for the same timeframe, increasing 5 percent from 1,138 to 1,204. This increase comes as the supply and volume of finished and vacant units as well as the supply and volume of lots continue to decline in those counties. The study states that the supply for lots in the Chicago market has dropped from more than 250 months in the third quarter of 2011 to a current level of 71 months. Even so the overall market shows an oversupply of lots–primarily located in outlying subdivisions.

According to Mark Gianopulos, Regional Director of Metrostudy’s Midwest markets most of the growth or activity seen is in Chicago’s core counties. These individuals want to be closer to their jobs and the vibrancy of existing communities.

“It’s a different paradigm than it was before the recession. People are not moving to a less, expensive house in the outlying areas,” Gianopulos says. “As a result, probably 95 percent of the vacant developed lots are in the collar (outlying) counties.”

Housing starts for the Northern Virginia housing market were up during first quarter of this year, with a 6 percent increase over the first quarter of 2016. Much of this is being attributed to the increased construction of condominiums within the Fairfax/Arlington and Spotsylvania area. New home starts the first quarter of this year in the Fairfax/Arlington area increased 76 percent over the previous year. New starts in Spotsylvania increased 48 percent during the first quarter of 2017 over the same period one year ago. New-home inventory levels have decreased by 5 percent compared to one year ago, indicating a high demand for new homes. The report states the current inventory of these homes would last about 1.5 months, based on the pace of annual closings. These factors combined with job growth, a low resale supply indicate solid growth for Northern Virginia this year.

About Author: Tamarind Phinisee

Tamarind is a professional business and features writer whose specialty is helping to tell a company or business owner’s story. Her most recent experience includes CMS Administration where she uploaded and maintained assets, did layout and design of the website and provided training and assistance when needed.
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