New Construction at Pre-Recession Levels
Inventory Still Historically Low
Courtesy of Smart Real Estate Data
By Geoff Smith
For the first time, new home construction closing numbers are competing with pre-recession levels. And it’s nowhere near enough.
According to numbers just released from Smart Real Estate Data, there was an estimated 5,566 new construction closings in the 2nd quarter of this year, and 10,182 closings in the first half of this year. These numbers are similar to numbers posted in the first half of 2008, which was right before the collapse.
And this trend doesn’t appear to be slowing down. In the 2nd quarter, 7,110 new home permits were issued – the most permits issued for a quarter since 3rd quarter of 2007. So clearly with all of this new construction going on, we must be flush with new homes on the market. Right? Wrong.
In most markets, it is hard to find and buy a house. Housing inventory is measured by the numbers of months it would take to sell out all existing listings with no new listings coming to market. Most experts agree that a healthy market is with 6 months of supply. At that mark, home values are increasing at a safe pace. With too much inventory, sellers are competing for limited buyers and home values can actually start to drop. With too little inventory, buyers are competing for limited houses and home values rise too fast. Right now, inventory is historically low at an average 3.29 months. It’s the lowest level since they’ve been recording this type of data. And that number is trending downward. Inventory averaged 3.63 months the same time last year.
And in keeping with the laws of supply and demand, the invisible hand has pushed home prices up an average of 5.6% over the last year. In some markets its less than that, and in others it’s much more.
You might think that since new construction pace is back to pre-recession levels, and inventory is still low, then resales are probably down. You might think that, but you’d be wrong. In the 2nd quarter of this year, the metro area set an all-time record for the most resale closings in a quarter with 25,992 closings. So why is inventory so low then?
Here is why: we are adding more new homebuyers to the market than homes being built. Over the last three years, according to the U.S. Census Bureau, the metro area’s population has grown by an average of just over 20,000 people per quarter, or about 7,000 people a month. Not all of those people need a home as families are included in those numbers, but add to those numbers the amount of first time homebuyers trying to move out of their parents’ basements and you have more new homebuyers than new homes coming to market. And this trend doesn’t look like it will be changing anytime soon. So that is leaving the door open for other types of housing to grow.
“All around Atlanta’s core are apartment buildings going up left-and-right,” said Mitchel Palm, Senior Associate with Smart Real Estate Data. “That is where a lot of these people moving to Atlanta are residing.”
Homebuilders are trying to do their part, but Palm says a lack of affordable, developable land, inflation on building materials, and a lack of skilled labor are sucking the wind out of their sails.
An interesting point that stuck out to me is that we are nearing peak levels of new residential construction, but our inventory is shrinking. The metro area has become massive. We are operating in much deeper waters than we were just 9 years ago. The city’s success is attracting people from all over the world.