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InSight 2q13

Metrostudy.com

Twin Cities Edition


InSight

Twin Cities Edition

2q13

The High Price of Equilibrium

Over the past several years, builders have gotten comfortable paying below market value for finished lots. Finished lot prices were as low as 5% to 6% of home values in some areas. Builders and developers wrote down lot costs and were able to dispose of them at less than the cost to develop. REO supply grew, and it seemed most builders were taking down lots from banks, not developers. As activity has jumped over the past several quarters, builders are scrambling to control lots that they previously were scared to put on their books. Developers and investors who have held out through the downturn are finally being rewarded for their patience. Developers in many markets are now getting 20% to 23% of finished home price from builders for lots in A and B locations. This may be hard to stomach for those who have become accustomed to paying $15,000 to $20,000 for lots in recent years, and are now forced to pay over $30,000 for a lot in the same community. The low supply of VDL’s over the past few quarters has been widely discussed, but there is still hesitation to acquire raw land. With the amount of lots on the ground over the past five years, the thought of developing more has seamed outrageous. However, as the months of supply returns to equilibrium (24 to 30 months) in most markets, the development process must be started now in order to have lots ready when existing communities and sections are built out. Over the next year, most builders’ focus will continue to shift from generating sales to securing land positions. Homebuilders will offer fewer incentives and options to gain market share, and focus more on controlling lots in the top submarkets. Sales managers may have been the hardest working bunch through the downturn, but that role may now be shifting to the acquisition and developments teams. The days of calling an asset manager and signing a contract to buy lots are coming to an end. It’s back to intensive research and due diligence, and taking a piece of dirt from LOI to finished lot.

Metrostudy experts produce the best-documented, most complete, and most comprehensive market studies available, completely customized to your needs.

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Market Demand Study: A professionally prepared report that incorporates all the research needed to develop a highly defensible forecast of absorptions for a residential project. This includes a look at the supply and demand in the market as a whole, competitive foreclosure supply, incomes, demographic mix, population projections, as well as a subjective evaluation of the area surrounding the subject property. This report provides comprehensive data on the key comparable projects and competitors, including their remaining lot supplies, and analyzes this information to reach insightful conclusions.


InSight

Twin Cities Edition

2q13

Twin Cities Economic Health Snapshot

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InSight 2q13

Twin Cities Edition

The

Twin Cities Annual New Home Starts growth occurring in the new home market is showing up across the broader US economy, helping improve overall economic conditions. Consumer confidence is improving and consumer spending will carry us through the end of the year. Strong fundamentals across the Twin Cities area have pushed new home construction up 50% over recent years. 2013 is setting up to be a very strong year for new homebuilders and the economy will likely be supported in part by growth in this industry. Across the Twin Cities, new and existing home sales are at their highest levels in years. Home prices have stabilized throughout the Metro area, and several top sub-markets are experiencing 10% - 15% increases in home prices. While we expect to see continued growth in new home sales throughout the year, our pace could be dampened by rising development and production costs heading into 2014. New Home Starts 2nd quarter 13’

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The rate of annual new home starts for singlefamily and townhome units across the Twin Cities area is 5,582 new units. This is an increase of 49% compared to 2012 and represents the highest annual starts pace since 2008. The new home market is continuing to show consistent growth with annual increases in new home demand occurring in each of the last two years. The jump in starts over the last twelve months is the result of homebuilders successfully acquiring both finished lots and raw land throughout top tier market areas. Builders re-tooled their products hitting the mark on pricing, and buyers have responded. Notably, the top 20 submarkets across the metro saw a rise in new home starts of over 36% compared to the first quarter of last year. While the rate of growth in new construction over the past twelve months was likely being held back by the lingering impacts of the stagnant economy, the next twelve months will present new challenges as lot and labor shortages will likely constrain the new home construction market.


InSight 2q13

There

Twin Cities Edition

are currently 22,882 vacant developed lots throughout the Twin Cities, representing a decline of 12% compared to last year. (10,812 vacant developed lots throughout the metro seven counties, a decline of 18.1% compared to last year). 2q13 represents the lowest supply number since early 2007. The recent increase in new home demand has created a run on desirable vacant developed lots located throughout the metro. Lot supplies across the seven county metro area are down to just 28.2 months, down below pre-housing boom figures. As activity continues to increase we will need to see substantial lot deliveries across the metro in order to meet demand. Lot pricing and availability is a concern throughout the top tier markets as land prices are quickly rising. Demand will start to push outward over the remainder of 2013 and 2014 into our second tier market areas. Builders are increasing their land supply and will be able to capitalize on the growth that will occur in the coming years. New Home Starts 2nd quarter 13’

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InSight 2q13

Spotlight on Washington County

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Twin Cities Edition


InSight

Twin Cities Edition

2q13

Spotlight on Top Selling Neighborhood Ridgestone is a development located in the city of Woodbury in Washington county. The city of Woodbury remains one of the top selling market areas across the Twin Cities representing almost 7% of all new home starts. Opened in late 2011 new home sales throughout Ridgestone are averaging approximately 2.8 sales per month over the past twelve months. As of 2q13 there were 36 homes closed and occupied, 13 under construction, 3 finished and vacant and 5 vacant developed lots. Based on new home starts over the past year Ridgestone has 1.8 months of lot supply remaining. An additional 25 homesites are planned for future release. For more information on this or any other new home development across the Twin Cities please contact Metrostudy.

metrosearch insight

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Metrosearch Insight puts one-touch property research on the map - and at your fingertips. Simply tap a county to view a comprehensive summary of residential new, resale, and foreclosure activity over time period, price range, transaction type, and more. Get further insight through the spotlights on new construction, foreclosure, and lending activity. The property analysis is combined with specific property lookup features in a touchpad-friendly application.


InSight

Twin Cities Edition

2q13

Metrostudy Twin Cities Market Metrostudy covers all of the Twin Cities MSA: a total of 13 counties, Our survey team drives over 10,000 miles and over 2,000 subdivisions every 90 days to provide you with the valuable information you need on future lots, vacant developed lots, homes under construction, and homes that have been completed.

Metrostudy is the leading provider of primary and secondary market information to the housing and related industries nationwide. In addition to providing information, the company is recognized for its consulting expertise on development, marketing and economic issues, and is a key source of research studies evaluating the feasibility of residential and commercial real estate projects. Services are offered through an extensive network of offices strategically located in major metropolitan areas throughout the country.

Twin Cities Office 路 5000 West 36th St. Suite 130 路 St. Louis Park, Minnesota 55416 路 952.426.0754 路

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Metrostudy insight 2q13 msp