Job growth increases demand in the home market, but not supply

Metrostudy’s 1Q14 field survey results of the Nashville market shows that demand for new housing is still going strong, but there may be some supply issues lurking in the shadows.

The region recorded 1,258 closings in the first quarter of 2014, up 30% year over year when closings reached 970 units in 1Q13. On an annual bases new home closings were up 27% year over year coming in at 5,486 units sold as of the end of the first quarter.

“There is no doubt that the tremendous job growth in Nashville, averaging over 3.2% for the past 3 years, is helping to push demand for housing even higher,” said Eugene James, Regional Director for Metrostudy, a national housing intelligence and consulting firm that maintains the most extensive primary database on residential construction in the US housing market.

“Strong job growth equates to rising consumer confidence and when people feel comfortable about their employment picture they feel more comfortable about making large ticket purchases like buying a new house,” said James.

Nashville’s job growth has started to attract some of the nation’s largest homebuilders, including D.R. Horton, Lennar Homes and Meritage Homes.

In recent months, Nashville-area homebuilders have announced plans for thousands of new single-family homes. Examples include more than 1,000 homes planned at Durham Farms in Hendersonville, 700 at the Carellton community in nearby Gallatin, 426 at Nichols Vale in Mt. Juliet and 250 at Summerlyn at Nolensville.

But buyers are still finding themselves having to wait for a house to be ready. The Metrostudy “boots on the ground” field research revealed that builders begin construction on an additional 1,477 units in the first quarter of 2014, up 36% from one year ago.

On an annual bases construction starts were up by 27% coming in at 6,029 new units in the past 12 months ending in March 2014. “Some may ask if this construction pace is too high but the answer would be no,” said James. In fact, the supply of new homes has been struggling to keep pace with buyer demand in almost every sub-market of Nashville.

The months supply for new houses that are 100% completely build and ready for occupancy has declined down to 1.8 months. A more normal level for the region would be between 2 and 2.5 months. “This means buyers may find it challenging to find a home ready for immediate occupancy, and it appears that new home inventory will remain rather tight thru-out the summer,” said James.

David McGowan, president of Regent Homes says James is right. “Currently, we have no finished inventory of homes that someone can move into within the next 90 days,” said McGowan, which builds single-family homes, townhomes and condos in the region.
“Basically, the employees that are being transferred into Nashville have very little inventory to buy. As soon as we get homes anywhere near finished, (they sell).”

Homebuilding activity hit a five-year high in June, with more than 2,300 homes under construction in the 11-county Nashville region, according to Market Graphics.

Still, that total is about half of the average number of homes that were being built at any given time between 2004 and 2008 — meaning the market has a long way to go to get back to pre-recession levels.