By DON FENLEY
Updated with D.R. Horton’s Q2 sales. The firm is on track to increase closing by 57,000 this year with lower-priced homes. The firm isn’t building in Kingsport, but its Sullivan County venture is a big part of the evolving changes in the area’s new home market.
Permit pulls for new single-family homes in Kingsport were down 60.9% compared to the first six months of last year. You can blame the unusually wet weather for the first half of this year, higher material costs and a labor shortage for much of the slow down.
But there’s another wrinkle in the mid-year new home numbers. Some builders are shifting their focus to include the demand for smaller, less expensive home.
During the first half of this year, there were 18 permits for new single-family homes, one doublewide, and four duplexes. During the same period last year, there were 46 permits for a single-family home.
The single-family median market price so far this year is $244,800, down $10,842 from last year.
The median square footage for those new home this year was 1,865 down 299 sq. ft. from the first half of last year.
Smaller, less expensive new homes is a shift from previous years because builders are stretching their focus from higher-priced home for move-up buyers to meet the increasing demand by first-time buyers and empty-nesters scaling back for retirement. Although the demand for new home has increased and builders have ramped up production, the new home industry is performing at barely half of its pre-recession capacity.
But builders are eager to cash-in on the new demand but meeting the price-point expectations and remaining profitable is a challenge when lot and land prices are high and going higher.
Much of the challenge for less expensive new home is being met with patio home and smaller lots.
But that doesn’t mean all of the Kingsport new homes fit into the median price and size envelope. There were three permits for homes with a construction cost of $300,000 or more and one of them went a little over the half-million-dollar mark.
Travis Patterson recently said that he has basically divided his business in half. One half focuses on the demand for patio homes and the smaller, single-level homes on smaller lots. The other half continues its focus on a custom and luxury home market.
Orth Homes has followed a similar pattern and is currently focusing its efforts on the available lots on the last portion of the Edinburgh Development that remains undeveloped.
Another sign of the market demand and shift can be seen in the nation’s largest homebuilder – D.R. Horton – entering the Sullivan County market. The extent of that change should be evident with the regional new home permits trends report is released.
Horton – and several other large builders – have moved into the submarkets nationwide to take advantage of increased demand that isn’t being met by local builders and the economies of scale large builders can employ to maximize profitability.
That economy of scale includes a national supply chain and crews plus it’s not clear what Horton will be building and whether the homes will be on an economy, normal, custom or luxury materials and finishing model. A safe bet is on the economy and normal.
It’s doubtful that Horton will become a fixture in the local market. Look for them to develop what they can then ease out of the market as the new inventory takes the edge off demand. But their efforts will knock the edge off the new home demand and boost inventory in both the new and existing home markets. That’s a big deal because the existing home market has less than a four-month supply of homes for sales. New listings are slowly increasing, but new approved contracts all but wipe any of they advantage out every month.
According to a Dallas Morning News report, Horton reported its home closings soared 13% in the second quarter. The company is on pace to close 57,000 homes this fiscal year. That would top its pre-recession and housing market crash total.
Horton, which has a market value of $17 billion, has also seen its stock roar back. One of the key components of the company’s run is it ramped up construction of lower-priced homes that appeals to first-time buyers and empty nesters.
Last year there Kingsport saw 87 new home permits pulled, down from 100 in 2017. The median market price was $252,000, down $24,000 from 2017.
2017 was the best recent year with 100 new permits and a median market price of $276,000. But that median was $24,000 less than the year before when there were 88 permits pulled.
Categories: REAL ESTATE