Lack of Supply Drives Prices Way Up

Posted by on Jan 27, 2017 in Blog | No Comments

New homes in California are now $300,000 more expensive than in Florida and Texas.

When supply doesn’t meet demand, prices go up. To illustrate this, we divided an area’s population by the number of actively selling new home communities and compared this population / new home community calculation to the median new home price. The results are clear:

  • Affordable homes: Many of the most affordable new home markets in the country such as Houston, Orlando, and Las Vegas have less than 10,000 people per new home community. The median new home price in these markets is $291,000.
  • Expensive homes: Conversely, the most expensive new home markets in the country such as San Jose, Los Angeles, and Fort Lauderdale have more than 30,000 people per new home project.

When Supply Does Not Meet Demand, Prices Go Up

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California has three of the five most undersupplied markets in the country relative to the number of active new home communities per person: San Jose, San Diego, and Los Angeles. With only one new home community for every 125,000 people, Los Angeles is by far the most undersupplied market in the country. In contrast, the eight best-supplied markets in the country all have at least one new home community for every 6,900 people (on average), including Austin and Raleigh-Durham, which both have one new community for about every 4,500 people. Excluding the most undersupplied markets (30,000+ people per community), the national average is about 14,000 people per new home community.

Los Angeles currently has only 82 actively selling new home communities and a median new home price of $577,000 (which includes a high proportion of “lower-priced” condo projects that brings the median price down). In contrast, the market with the highest number of active communities—Houston—has 955 active communities and a median new home price of just $286,000. (And that’s mostly single-family detached homes.)

The entire state of California has just 1,040* actively selling new home communities, or about one project for every 27,300 people. Compare that to 1,708* communities in Florida (one community per every 7,600 people) and 2,766* communities in Texas (one community per every 6,700 people). With such a severe undersupply of new homes, it’s no wonder that the median new home price in California today is $593,000 compared to $290,000 in Florida and $293,000 in Texas.

In California, where entitlement costs, building fees, and construction costs are among the highest in the country, builders find it very challenging to build homes under $350,000. Thus, many of the most creative land plan and floor plan ideas come out of California and eventually get exported to other markets.

Post Credit: Pete Reeb, Principal / John Burns Real Estate Consulting