The Triangle town house market, which hit rock bottom in 2011, continues to make a strong comeback as a recovering housing market and rising land costs make it an attractive alternative for buyers and builders.
There were 1,741 town houses started in the Triangle last year, up 6 percent from 2012 and 62 percent from when the market bottomed out in the second quarter of 2011, according to Metrostudy, a research firm that tracks Triangle housing trends.
“They’re just blowing through their inventory because there’s so much demand for it,” said Jay Colvin, Metrostudy’s regional director for the Triangle and the Triad.
Colvin said town houses have become attractive for builders as land prices have risen and companies seek to increase the density of their projects to make the economics work. Builders are also having trouble replenishing their pipeline of town house lots; the Triangle has just over a 23-month supply of such lots available.
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“They’re running into the same problem the single-family guys are: Where do we have developed lots?” Colvin said. “They’re really tightly constrained.”
Divorces boost demand
The town house market is also benefiting from the slow but steady rise in single-family home prices in some areas of the Triangle. Sales of new town houses have been particularly brisk in southeast Durham, as well as Cary and Morrisville, where land prices are high and young professionals are finding town houses to be a more affordable option when seeking to live near Research Triangle Park.
There were 955 town house sales last year in Cary, Apex and Morrisville, according to Triangle Multiple Listing Services. That was up from just 287 in 2012. In Durham County, town house sales were up 35 percent last year.
Another factor helping drive demand for town houses is an uptick in divorces, Colvin said.
“When the economy starts to pick up, you usually have more divorces,” he said. “They stay married during hard times; the economy picks up, and they feel like they can go on their own, and they get divorced. Single, divorced women usually move into town homes.”
The town house market in the Triangle is dominated by a handful of builders. Standard Pacific Homes, Dan Ryan Builders and Lennar Homes account for about 43 percent of all new construction, according to Metrostudy. Add in M/I Homes and Ashton Woods Homes and the group’s market share is nearly 60 percent.
Concern over interest rates
Ed Kristensen, M/I’s division president in the Triangle, said about 30 percent of the company’s more than 400 sales here last year were town houses. That’s just slightly above the sales breakdown between single-family houses and town houses for the entire Triangle market.
M/I’s town houses vary in price from the mid-$200,000s, in places such as Cary and Morrisville, to as much as the mid-$300,000s for its newest community, Grove at Fallon Park. That community, in the Five Points neighborhood inside Raleigh’s Beltline, includes 83 town houses.
Kristensen said M/I doesn’t build low-end starter homes, which makes its town house product the entry point to reaching buyers. The challenge, he said, is that land is becoming harder to find and more costly to acquire when you do find it. The entitlement process for getting projects approved in many Triangle municipalities is also becoming harder and more drawn out.
“We’ve all been blessed because interest rates have been so low (that) affordability in that sense has really been aided,” Kristensen said. “But if rates pop up, and you get a double whammy of increased land, labor costs … and then the rates go up. That’s a bad mix.”