Tampa Bay’s housing market is looking strong for 2018, but changes are expected, as the market evolves, according to experts featured at the 2018 Economic Forecast meeting presented by the Tampa Bay Builders Association.
Buck Horne, vice president for equity research, housing and real estate for Raymond James, presented an analysis featuring three key findings during the Feb. 6 meeting at Tampa.
The first involves a deluge of new apartments expected soon.
“We see what we’re calling a wall of new supply in multifamily rental apartments, which is going to be delivering into the front half of 2018, and it could spill into the back half of ‘18, as well,” said Horne, who specializes in the housing and real estate sectors.
“In the latter half of last year, we were doing our data digging and what we found were just surprising levels — how widespread pervasive construction delays started to mount.
“Labor shortages, permitting issues, entitlement delays — all of it really started to mount. And, we saw an incredible backing up of supply in multifamily that was supposed to deliver last year, which is now scheduled to deliver this year,” he said.
The scheduled new supply in 2018 could be as much as 50 percent higher than either 2017 or 2016, according to figures on one of Horne’s charts.
“We think it’s going to start to affect multifamily rental markets, mainly in the big urban core coastal cities — that’s where it’s going to be most acutely felt. But, it’s in a lot of places. It’s not just New York and San Francisco and L.A., although those are the worst.
“But, you’re going to see it in Charlotte. You’ll see it in Nashville. You’ll see it in Tampa, in the second and third quarters, as well,” he said.
There has also been a shift within the composition of household formation, which has started to tilt to the single-family side, said Horne, who has been a regular guest on CNBC, offering insight into the housing sector, and has also been widely quoted in major media outlets, such as Bloomberg and The Wall Street Journal.
“Last year was the first in 10 that we saw multifamily renter households actually decline, rather than growing. We saw accelerations in new single-family household formation,” Horne said.
Dearth of homes for sale
As the spring selling season begins, there’s a historically tight inventory, Horne said.
Listed inventory for sale, as measured as a percentage of total housing stock, is at its lowest recorded level in more than 30 years, according to Raymond James data.
Horne also observed: “We’ve got reliable data going back to the late 1980s, and we haven’t seen anything like this. Anything that’s even affordable and that’s in reasonably good condition gets snapped up very quickly.”
When it comes to housing starts, Horne said, “we’re looking for basically good, but not great, growth. We’re forecasting another year at a low double-digit growth in single-family housing starts and new home sales.
“But, you’ll see we are projecting that multifamily starts will begin to come down. We think that’s a function of the supply issues that are coming this year, as well as possibly some demand that starts to tail off,” he said. He also expects rent levels to begin to stall.
Horne also expects to see growth in single-family housing, both owner-occupied and rental.
There are a lot of factors at play, he said, but he noted: “We are seeing evidence that the push into single-family and away from multifamily is beginning to gain some momentum,” Horne said.
Older millennials are beginning to make the move from apartments into single-family dwellings, he added.
One of the fastest-growing housing types in America is the single-family renter household, Horne said.
“We’ve also got for the first time, in a long time, real household income growth: 2016 household income got up to about a little over $59,000.
“That is driving some better demand, but it’s also driving higher and higher household prices,” he said.
Concerns about affordability
“The cost to build a new single-family house just is relentlessly going higher,” Horne said.
“The under-$200,000 single-family house is becoming an extinct species. It’s harder and harder to build, unless you go way out to the periphery, to actually make that math work.
To build the same house as five years ago, it’s 36 percent more today, he said.
Most of that was labor and lot costs, but rising material costs now are compounding cost issues, he added.
“The point is, it’s not going to get any better anytime soon,” Horne predicted.
“We know there’s a tremendous amount of pent-up demand for entry level, but increasingly fewer and fewer — particularly smaller builders — are able to meet the cost required to build at that price point.
“You’re finding the larger builders, who can get the efficiencies and the scales needed to build in high volumes and production efficiencies, that can acquire the land in large enough chunks and develop it, those are the guys that are soaking up that entry land demand.
“The smaller guys — it’s harder and harder to compete for that entry-level buyer,” Horne said.
Lesley Deutch, a principal for John Burns Real Estate Consulting, said the affordability issue is her greatest worry.
While Tampa is one of the most affordable markets in the state, it is getting more expensive to buy a house, she said.
In Tampa, there’s a two months’ supply of resale housing inventory, she said.
“So, that’s really driving people to the new home market, and we expect to drive up prices of resale homes,” she said.
Deutch offered a forecast for 2018 for Tampa’s housing market.
She expects employment to be up by 2 percent, adding 26,600 jobs. She expects income to increase by 5 percent.
She’s projecting total construction activity to rise by nearly 12 percent, up to 20,000 permits.
Most of that growth will be in the single-family sector, she said.
She expects the median price of new homes to increase by 4.3 percent.
“(It’s) not a booming, doubling of growth, but a very, very strong growth market. One of the strongest, actually, in Florida,” Deutch said.
John Burns Real Estate Consulting is based in California. The company spends a substantial amount of time looking at demographics across the country, and doing consumer research.
Its research reveals a high demand for communities that allow residents to walk to destinations, such as restaurants, grocery stores and coffee shops, Deutch said.
“I think that having housing that’s close to something walkable — people will pay a premium for it because that’s what they’re looking for,” she said.
She also sees a shift coming for Tampa’s housing market.
“It’s going to be a different world over the next 10 years,” she said, as households grow substantially in the 65-plus age category (+142,000), grow modestly in the 25 to 44 age group (+14,000), as they decline in the 45 to 64 age group (-14,000). The 45 to 64 age group is typically the move-up buyer.
“So, where is the opportunity here? It’s really a different strategy than we’ve been using in the past. It’s a different buyer. It’s a young buyer and an older buyer,” Deutch said.
Buck Horne, vice president for equity research, housing and real estate for Raymond James & Associates, and Lesley Deutch, principal for John Burns Real Estate Consulting shared their insights at the Tampa Bay Builders Association’s 2018 Economic Forecast breakfast.
Here are some of Buck Horne’s key points:
- A supply surge in multifamily could disrupt rent pricing.
- Apartment occupancy has been falling noticeably on a year-to-year basis.
- Investors should shift their focus more significantly in favor of single-family homes.
- Inflation-adjusted median household income in the United States hit a new record high of $59,039 in 2016, breaking a previous high mark set in 1999.
- The cost to build a like-kind single family home has increased 36 percent over the past 5.5 years.
- Luxury markets continue to grow. New home sales priced above $750,000 was the strongest growth category in 2017, increasing 32 percent, year on year.
- Listed housing inventory for sale, both new and resale, as measured as a percentage of total housing stock, is at the lowest recorded levels in 30 years.
Here are some of Lesley Deutch’s key points:
- Median housing resale price in Tampa market is expected to be up 7.6 percent in 2018.
- Single-family permits in Tampa market are expected to be up 11 percent in 2018.
- Tampa’s employment is expected to be up 2 percent, which is more than 26,600 jobs.
- There’s a two-month supply of resale inventory, which is virtually none.
- Tampa is ranked No. 2 in the United States for people moving into the area, based on U-Haul truck rental pricing.
- A consumer preferences survey by John Burns Real Estate Consulting reveals that three community features important to buyers are safety, location and street appeal.
- The John Burns survey also shows that important home features are design, price and function.
- The vast majority (84 percent) of buyers desire a detached, single-family home, and 62 percent expect to pay $250,000 to $450,000 for it.
Published February 28, 2018