RCLCO gives a mid-year update on the MPC landscape in the U.S.
By Gregg Logan and Karl Pischke
Home sales in the nation’s 50 top-selling master-planned communities (MPCs) exceeded expectations in the first half of 2021, with a pace that indicates the potential for a 12% increase at year’s end compared with 2020 (note that the communities within the Top-50 changes each year), and comes despite a tightening of new home inventory and reduced supply of components needed for new home construction. With 1,535 sales, Lakewood Ranch claims the top spot, representing a pace which indicates the potential for a 43% increase over its 2020 home sales by the end of the year.
The MPC Sector Looks Past the Pandemic Era as New Challenges Emerge for MPCs
Much can change in 365 days, and nowhere is that more apparent than with the concerns and projections of MPC Developers. In July 2020, RCLCO’s Mid-Year Top-Selling MPC report highlighted the state of a market clawing its way back from a historic slump in sales caused by a global pandemic. At that time, buyers that had deferred their home purchase decisions in March and April had begun returning to the market, but significant uncertainty still remained due to the continued presence of COVID-19.
Fast forward to July 2021, we are now experiencing challenges that are the diametrical opposite of early 2020. New home demand which began to surge back in mid-2020 has only accelerated, owing to the prolonged experience of pandemic lockdowns and working from home which has led consumers to seek additional space, coupled with historically low interest rates and demographic tailwinds as the large millennial generation enters peak family formation years and transitions toward single-family living.
However, surging demand has been met with shortages of new supply, both in terms of new home inventory as well as the supply of components necessary for new home construction, which has led to slowing in the home buying process in some places. Conversations with representatives of the Top-Selling MPCs indicated that builders are quickly running through lot allocations in many communities and, in some cases, they are capping monthly sales in order to ensure existing customer needs can be met. 7 out of 10 respondents in RCLCO’s Mid-Year 2021 Sentiment Survey indicated that rising construction costs were having an impact on the real estate market where they are active, with another 24% indicating a moderate impact.
Positive Outlook for the Second Half of a Strong Year of Sales
As noted early in this report, the sales pace set by this mid-year’s Top-50 MPCs indicates the potential to eclipse 2020 sales by over 12% at year’s end. We expect the demand for new homes to continue to be strong for the remaining months of 2021, which bodes well for MPC developers that can rise to meet that demand. This is a particularly important caveat, given the supply chain constraints that have been a significant challenge for builders in many communities. In fact, those communities in this year’s rankings that experienced a decline in sales have explicitly noted the cause as being related to a lack of new home inventory or the supplies their builders needed to deliver new homes, as opposed to a lack of demand.
Another issue moving forward is likely to be housing affordability, as the confluence of strong demand, limited supply and rising materials cost has led to significant increases in the price of new homes. While we expect that the current supply chain constraints will be gradually resolved over the next one to two years, helping to alleviate the limited supply and rising materials cost variables in the housing affordability equation above, it remains unclear how significantly this price appreciation will impact sales of the Top-50 MPCs moving forward.
What is clear, however, is that MPC developers that are able to mitigate affordability issues by refining their segmentation strategies to target a diverse array of market audiences through specific product and pricing programs will be the big winners in the Top-Selling Master-Planned Communities Report of 2021 to be released later this year.
View the full report here:
Gregg Logan is a Managing Director of RCLCO Real Estate Consultants. Karl Pischke is a Vice President of RCLCO Real Estate Consultants.