The latest national data on residential construction from the U.S. Census Bureau tell a good-news, bad-news kind of story. Let’s start with the good news: Building permits have increased 11.2 percent from March 2013 to March 2014. Housing completions are also up — by 7.7 percent over the same period. And new home prices rose 12.6 percent from March 2013 to March 2014 to $290,000, the highest ever recorded, according to the National Association of Home Builders’ analysis of Census data.

Construction Zone

A national and local look at the new construction market.

By Gayle Bennett

The latest national data on residential construction from the U.S. Census Bureau tell a good-news, bad-news kind of story. Let’s start with the good news: Building permits have increased 11.2 percent from March 2013 to March 2014. Housing completions are also up — by 7.7 percent over the same period. And new home prices rose 12.6 percent from March 2013 to March 2014 to $290,000, the highest ever recorded, according to the National Association of Home Builders’ analysis of Census data.

Now the bad news: Housing starts are down by 6 percent year over year in March. New residential sales decreased 13.3 percent year over year in March to their lowest level since July 2013, and they are down 14.5 percent from February to March of this year.

But, as any agent knows, real estate is a local game. National data can perfectly match a particular market or be 180-degrees different. The Residential Specialist talked to CRSs in four different markets across the country. While the specifics on starts, sales and supply of new construction markets differ, what their clients are looking for in a new home does not: An open floor plan, a granite and stainless steel kitchen and a luxurious master bathroom stood out in all regions.

Condo Market Hot in San Francisco

The new construction in San Francisco is mainly condo buildings. And while many a crane currently lines the city’s skyline, most of those buildings will be rentals. “A lot of the financing is coming from pension funds, and they don’t want to get in the condo sales game because they got burned last time in the Great Recession,” says Kevin Birmingham, CRS, with Park North Real Estate Group in San Francisco.

This low supply and the general high demand in San Francisco means the new construction market is very hot. “Right now there are only four projects being actively marketed,” Birmingham says of condo buildings in the city. The largest is 114 units in the Mission District. “It’s going to be sold-out before it’s finished at the beginning of next year,” he says. “They sold 20 units their first day.”

All condo construction in San Francisco is luxury units, with top-of-the-line appliances and finishes standard, he says. New condos sell for a little over $1,000 per square foot, a 10 percent rise from last year, and the median price is currently $1,150,000.

In the zone New home sales for the last five years. There was a 5.3 month supply of new houses at the end of April 2014.
2009	374,000
2010	321,000
2011	306,000
2012	368,000
2013	431,000

Birmingham says that working new construction in San Francisco requires developing good contacts with the sales staff at the companies that represent the developers. He says these companies will put only a “sprinkling” of units in the MLS to drive up demand — and price. “Developers will raise prices on a whim, and you really have to stay in touch with that.”

While there’s not enough inventory now, Birmingham says that’s not going to improve anytime soon. “Everything in the pipeline is being built, and a bunch of new units are coming on next year. But there’s a shortage of inventory in years to come,” a fact he attributes to San Francisco’s particularly cumbersome planning process.

A Growing Market in Utah County

Utah County, home of Orem and Provo, is a growing area. “We’ve had such a strong economic situation here,” says Sheralyn Bennett, CRS, with Prudential Utah Elite in Orem, Utah. She lists software company Adobe and skin care company Nu Skin as two expanding businesses in the area.

Not surprisingly, that employment growth has led to an increase in new construction over the last few years. Bennett says the builder she works with is selling homes as they are built. “There’s not much standing inventory,” she says.

Compared to five years ago, that’s a big change — as is the price. In 2009, “the cheapest single-family home you could build would sell for $150,000. Now it’s about $210,000,” she says, referring to a three-bedroom, two-bath home.

For the last two years, housing starts have increased, though at an increasingly lower rate, a trend she expects to continue this year. In 2013, housing starts increased 8 percent over 2012. In 2012, they rose 13 percent over 2011.

In addition to an open floor plan, she says many of her buyers also want a three-car garage, and, lately, a huge shower in the master bath, but not a tub.

Bennett says she calls on specific skills to serve her new-construction clients, which make up about half of her client base. “You have to sell people on something they can’t see. You have to give them an idea of what they could do in their home — paint them a picture,” she says.

Because of this, she estimates that it takes her new construction clients three to four additional weeks to pull the trigger on a sale. Therefore, she says, “You need more patience.”

Selling at a Comfortable Pace in Huntsville, Alabama

Like Utah County, Huntsville, Alabama’s economy is doing quite well. The Redstone Arsenal U.S. army base is there, and NASA and Boeing are major employers in the area.

In terms of real estate, “We’re in a hot area here,” says Monica Sanford, CRS, with Woodland Homes of Huntsville, who works exclusively in the new construction market. “Two years ago, we were negotiating on contracts.” But today, “This is the price of the home, and we are doing little negotiation to close the sale.”

According to The Huntsville Development Review, annual construction and real estate data from the city’s Long-Range Planning Division, 1,702 residential building permits were issued in Huntsville in 2013, a 5.1 percent decrease from 2012. Sanford says the inventory is balanced at about six to eight months.

Interestingly, right now Sanford sees good demand on homes in the upper range of $500,000 and in the lower range of $200,000, but not as much activity in the middle. “I’d say that the $350,000 range is my slowest market. Typically in the past, that $350,000 was the most robust.” She theorizes this is because those who bought in the $200,000s over the past few years haven’t been able to move up because they haven’t seen much appreciation. She sees prices increasing this year, so she anticipates more sales in this range.

Her builder is known for “highly decorative” master bathrooms, complete with pillars and vaulted ceilings. “People love their jetted tubs, but they love them even more when you put them up on a platform and drop them in and tile it out,” she says.

Her advice for agents looking to move into the new construction market is to learn about your builder’s construction and design specifics — and how to sell them. “There are builders out there that use substandard material and practices. They will meet code requirements but not manufacturer recommendations, which would be higher than the code requirements. If you know the differences between those, you can outsell your competition.”

A Future Shortage in Suburban Philly?

David Caracausa, CRS, with Coldwell Banker Premier Properties, services the suburban Philadelphia market of Montgomery and Bucks counties. He says the new construction market has been getting stronger over the last three years, particularly because there’s a shortage of resales inventory available for $500,000 and lower. “That shortage is pushing more activity to new construction where there is available selection,” he says.

According to the 2013 Annual Summary: Subdivision, Land Development and Zoning Activity by the Montgomery County Planning Commission, the amount of land proposed in 2013 for residential use (828 acres) was almost three times the 2012 total and the largest acreage total seen since 2007.

Taking inventory The number of months supply of new homes has declined over the past the five years, from 8.0 months in 2009 to 5.1 months in 2013.
2009	8 months
2010	7 months
2011	5.3 months
2012	4.5 months
2013	5.1 months

New construction in Caracausa’s area comes in the form of townhouses. Beyond open floor plans and less formal living areas, his clients are looking for sun rooms, breakfast bars and second-floor laundry rooms.

Location is also key. “Buyers of all ages want to be close to a town hub.” The downtown districts in many of the boroughs in his area, like Ambler and Lansdale, are being revitalized with shopping, entertainment and dining options. “The communities I’ve marketed that are close to these downtown districts have been extremely successful.”

Caracausa, whose business is split 50-50 between resales and new construction, says patience and nurturing are even more essential in the new construction market. “Normally a buyer is going to visit one, two or three new-home communities,” he says. “We look at how responsive they are to our follow-up after the initial visit,” and he carefully tracks those who return for a second look.

He says the market is currently balanced for new townhouse and carriage home offerings; however, there is a shortfall of new single-family detached homes. “Single-family detached new-home communities typically fuel the demand in the move-up buyer marketplace,” he says. “As the market conditions continue to improve, existing homeowners are going to demand new single-family detached-home communities as a choice in the marketplace.”

Gayle Bennett is a writer and editor based in Washington, D.C.

Detailed data about the most popular characteristics of newly built homes is available at the census website.