AUSTIN HOUSING 1Q16: New Home Starts Rebound But High Prices & Lot Availability Could Constrain Continued Growth

  • Q16 Quarterly New Home Starts up 40.1% YoY & Quarterly Closings Up 18.5% YoY.
  • Affordability remains an issue as new and resale home pricing is expanding beyond the grasp of the average consumer – starts in the $400K to $500K price range increased 106% YoY and the market began to show signs of oversupply in price points above $400K.
  • Lot deliveries were up 61% from 4Q15, but the 7,200 lots currently under development are well below the current annual starts pace of nearly 12,600 new homes.

MAY 2016 – Metrostudy’s 1Q16 survey of the Austin housing market shows Annual new home starts ended the quarter at 12,590 homes, while 1Q16 quarterly starts were 40.1% higher than 1Q15 and 32.12% higher than 4Q15. Annual closings grew to 11,484 by the end of 1Q16, a 4.4% increase from 4Q15 and quarterly closings were up 18.5% compared to 1Q15.

“After a strong drop in the fourth quarter of 2015, starts rebounded dramatically in the first quarter of 2016 as builders began reporting strong sales in December and throughout the first three months of the year,” said Steve Plevak, Director of Metrostudy’s Austin market. “The Austin new home market has been marked by a consistent ‘start and stop’ pattern over the last several quarters. In 2015 builder sought to overcome challenges associated with weather delays and lot supply constraints. After a strong third quarter in 2015, there was a significant reduction in starts during 4Q. Now, the first quarter of 2016 capitalized on strong sales and lot availability to significant gains and then the solid growth in closings has allowed inventory levels to remain healthy as Austin heads into the 2016 spring selling season.”

Over the last several quarters, the issue of affordability in the Austin housing market has been one that Metrostudy has continually explored as new and resale home pricing was expanding beyond the grasp of the average consumer. With the exception of the $200K and below price range, all other price ranges experienced growth in starts in 1Q16.  While the under $200K price point continues to be difficult to achieve due to high land and material costs, the $200K to $250K price point has begun to emerge with strong YoY growth. The strong surge in starts in 1Q16 is reflected in the $200K to $250K price range as well as in the $250K to $300K range. In 1Q16, the $400K to $500K price range showed nearly 106% growth YoY in quarterly starts and any softening of the market at this price point could significantly affect not only that range but also those above it.

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In 1Q16, new home inventory saw a significant 6.9% increase QoQ and was up more significantly YoY by 18%. The ratio of finished vacant inventory to total inventory remained at a healthy level, but increased compared to the previous quarter and to 1Q15. Finished vacant inventory increased 12.3% to 2,250 finished vacant homes, representing a 2.4-month supply, as many builders look to have move-in ready product on the ground for the spring selling season. The level of finished vacant inventory was approximately 31%, reflecting a restricted market as a 35% ratio represents a market at equilibrium. This metric will continue to be monitored, as there are significantly more finished inventory homes available than in recent years.

New home inventory has remained healthy overall in 1Q16 but has begun to show some oversupply in price points above $400K. Metrostudy will continue to monitor these inventory levels as significant jumps were made in starts in some of these higher price ranges. Overall finished inventory is reaching the top of the equilibrium range at 2.4 months and all price points above $300K exceed this range. Metrostudy will continue to monitor this trend as many homes are under construction and a change in the overall economy could result in a number becoming finished vacant inventory.

Lot development activity rebounded in 1Q16 after very few lots were completed at the end of 2015. New lot deliveries during the first quarter were 0.5% lower than the 4Q14 but 61% higher than 4Q15. Despite this increase in development activity, the overall supply dropped to 19.3 months in 1Q16 down from 20.3 months in 4Q15. There were approximately 7,200 lots under construction in Austin in 1Q16, a significant drop compared to the 9,300 that were under development at the end of last year and well below the current annual starts pace of nearly 12,600 homes. As lot supply is already constrained across the market there must be an increase in development activity in order to avoid limiting growth in 2016.

“After slower activity to end the year in 2015, the Austin new home market responded by refocusing efforts on lower price points that in turn led to an increase in starts and closing activity,” said Plevak. “While this is a positive direction for overall housing growth, it will continue to put pressure on an already constrained lot supply that is especially constrained at the most active price points. Continued job growth in Austin will bring consistent demand to the housing markets but many potential buyers will still be forced into the multifamily market due to this lack of supply. Builders and developers must look to innovative product and locations in order to serve these buyers in 2016 and beyond.”

For information contact:
Stephen Plevak
splevak@metrostudy.com

About Metrostudy

Metrostudy is the leading provider of primary and secondary market information to the housing and related industries nationwide. Metrostudy provides research, data, analytics and consulting services to help builders, developers, lenders, suppliers, retailers, utilities and others make investment and business decisions every day. For more information, visit www.metrostudy.com

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