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Homebuyers Flock to Four Cities for Affordable Land and Growing Salaries

Spokane, Las Vegas, Charlotte and Orlando will be the hottest metros among affordability-seeking homebuyers in the coming decade

As expensive coastal metros struggle to find solutions to rising housing costs, homebuyers have begun looking to smaller more affordable metros where land is cheap and incomes are growing. Already, Spokane, Las Vegas, Charlotte and Orlando are attracting out-of-town homebuyers and, thanks to the low cost of acquiring and developing land for new home construction, each is poised to attract homebuyers for years to come. That makes these the four metros primed for growth over the next decade.

Spokane, Washington

Sales of new homes increased 37% in Spokane from Q4 of 2018 to Q4 of 2019 compared to only 5% growth in existing homes. The city is currently the most competitive housing market in the country with a Compete Score™ of 89. That’s in part thanks to significant homebuyer interest from out-of-towners—73% of Redfin searches for homes in Spokane come from homebuyers located outside the metro.

Conveniently, Spokane is well suited to absorb all of the potential new migrants. That’s because in Spokane land is cheap and therefore homebuilding is inexpensive. The cost of acquiring land to develop on is a major reason housing supply has lagged behind demand in big expensive cities. In Seattle, land comprises 42% of the value of the homes, but in Spokane, land comprises only 23% of the value of homes, making it harder for homebuilders to turn a profit on land in Seattle than in Spokane. Seattlites, who are used to a median home price of $570,000, will find Spokane homes extremely affordable, regardless of whether they are buying an existing home with a median price of $255,000 or a new home with a median price of $350,000.  

“Tons of people are moving in from the coasts because Spokane is more affordable and less crowded,” said Redfin market manager Michelle Kendrick. “Spokane has all of the basics you would want in a city, but at a great price. It feels like we are in a construction boom. A lot of the new construction is happening on the outskirts of the city, which contributes to our version of traffic. To people from out of town the traffic is nothing, but if you have lived here a long time you do notice it. Job growth has also been a draw for out-of-towners. We have a new Amazon distribution center, the airport is expanding, and the medical industry is big and growing.”

Las Vegas, Nevada

In Las Vegas, home sales are growing at the rapid pace of 15.7%, with 47% of homebuyer interest coming from outside the metro. The primary source of out-of-town homebuyers is Los Angeles, where the median home price is $650,000 and land comprises about 61% of home values. In Las Vegas, homebuyers can purchase an existing home for $285,000 or a new home for $388,000. With land comprising only 25% of home values in Las Vegas, new construction is a profitable investment for developers.

“Las Vegas is a pretty competitive market, and I see both new homes and existing homes receiving multiple offers,” said Redfin agent Carol Vandenberg. “I see plenty of buyers from Los Angeles. They are used to the sunshine and the two cities are so connected.”

Charlotte, North Carolina

In Charlotte, home sales are growing at an annual pace of 14.5%. With 40% of search activity coming from outside of the metro, Charlotte—where household incomes are growing 5% annually and jobs grew 2.9% in 2019, well above the national rate of 1.4%—will continue to attract job seekers. Charlotte is well positioned to absorb growth given that land comprises only 28% of home values on average in the metro. Notably, Charlotte is home to one of 2019’s hottest neighborhoods in the country (Wildwood), and that neighborhood has a new housing development under construction. 

Orlando, Florida

Jobs, median household income, home sales, and home prices have all been growing in Orlando. Inexpensive land—it comprises only 29% of home values—has also meant growth in new homes sales for the city. Sales of new homes increased 21% in Orlando from Q4 of 2018 to Q4 of 2019 compared to only 5% growth in existing homes. 

Metro Average Land Share of Home Value Median Sale Price Growth Homes Sales Growth  Median Household Income Growth  Job Growth  Percent of Searches from Outside the Metro Median Sale Price – New Construction Median Sale Price – Existing City Compete Score™ 
Spokane, WA 23% 14.2% 5.5% 4.7% 1.7% 73% $350,000 $255,000 85
Las Vegas, NV 25% 6.5% 15.7% 3.5% 2.4% 47% $388,000 $285,000 60
Charlotte, NC 28% 9.1% 14.5% 5.1% 2.9% 40% $325,000 $248,000 66
Orlando, FL 29% 7.0% 14.7% 5.4% 3.2% 51% $316,000 $250,000 75

Methodology

The top four U.S. booming real estate markets were selected based on the criteria that average share of land value be less than 30%, home price growth be more than 4%, home sales growth be greater than 4%, and percent of searches from outside the metro be at least 40%. Redfin analyzed 78 metros across the United states. 

Average share of land value is calculated from the accessed land and home values in the 2017 property tax assessment files. Sale price growth and home sale growth is from January 2019 to January 2020 and is seasonally adjusted. Household income growth is from 2017 to 2018. Job growth is from December 2018 to December 2019. Median sale price of new construction and existing homes is from Q4 2019. Compete Score™ is for Q4 2019.

Source: Redfin Blog

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New-Home Sales Surge in the Fourth Quarter as Inventory Tumbles, Prices Flatten

Sales of new homes are up the most since 2017, but new-home construction is lagging in the markets that need it the most.

New-home sales rose 8.8% year over year in the fourth quarter, the biggest gain in more than two years and the third-consecutive quarter of increases, driving continued depletion of inventory in the market.

New-home supply slid 11.1% year over year, the biggest inventory drop since at least 2012 and the third-straight quarter of declines.

National sale prices of new homes slipped 0.3% year over year to a median of $369,900 in the fourth quarter. That marks the smallest drop out of the past three-consecutive quarters of declines. But even though the national median price was flat from last year, many more affordable markets, including Greensboro, NC, saw prices rise.

Meanwhile, existing-home prices rose 6%, sales increased 5.8% (the largest gain in three years) and inventory slipped 14.2% (the biggest slide since 2013).

“The market has seen a mismatch between where new construction of homes are needed the most and where new homes are being built, and that’s because builders are focused on areas where they can cheaply acquire and develop land,” Redfin chief economist Daryl Fairweather said. For example, expensive cities like San Francisco have seen a decline in building permits, while construction is booming in places like Raleigh, NC and El Paso, TX, which are already quite affordable.

“The only way to solve this mismatch between where people need homes and where homes are being built is for people to move to where the homes are, and that’s already happening,” said Fairweather. “Looking ahead, permits have increased thanks to low interest rates, so even though inventory is down, there’s hope for the future given that permits are up so significantly.”

One region with a particularly large swell in building permits is Little Rock, AR, which saw a more than 200% increase in the fourth quarter.

“New-home construction in West Little Rock and surrounding cities has been surging. The area has a lot of rural space, so there’s plenty of room for expansion. Plus, it’s affordable to build here compared to other parts of the country,” said local Redfin team manager Bonnie Nixon. “One trend we’re seeing is developers demolishing older homes and rebuilding more modern ones.”


National new-home construction trends in the fourth quarter:

  • New-home sales increased annually in 62 of the 88 metros tracked by Redfin.
  • For all types of residential construction, building permits climbed 12.2% year over year, which was down from the three-month period ending in October, but the biggest quarterly increase since December 2015. For single-family homes, building permits rose 9.8%, up from 3% last quarter. 
  • Building permits per 10,000 people rose 11.3%, up from 9% last quarter.
  • For new homes, the median price per square foot was $173, up 1.9% from the year before. For existing homes, it was $176, up 4% annually.
  • The typical new home was on the market for 90 days before going under contract, down from 94 days the year before. The typical existing home spent 44 days on the market, down from 45 in December 2018. 
  • New listings of newly built homes were up 1.9%, while new listings of existing homes were down 4.8%, the most since at least 2012. 

Metro-level highlights for new-home construction in the fourth quarter:

Source: Redfin Blog