AUSTIN HOUSING 1Q17: Affordability Concerns Cloud a Sunny Forecast; Builders Must Work to Convert Millennials from Renters to Owners
- Through 1Q17, Annual New Home Starts stand at 14,392, up almost 15% YoY.
- 47% of New Home Starts are in the $200k-$300k range, and Rising Prices may be tamping down growth: A recent Trulia study found that only 12.79% of teachers could afford to purchase a home here in Austin
- As of 1Q17, total new home inventory peaked at 8,385, its highest level ever.
- High rental rates also may preclude some would-be buyers from accumulating savings for a down payment. Though there is evidence that multifamily construction is on the wane, there is ample new-ish MF inventory out there, much of it in amenity-rich communities.
Metrostudy’s 1Q17 survey of the Austin housing market shows that we closed out the first quarter with 3,487 recorded starts, just 1.3% higher than 1Q16. However, significant lot deliveries and mild winter weather mean that we’re pacing at 14,392 annual starts, up nearly 15% year over year (YOY). Likewise quarterly closings aligned with last year’s figures: 3,079 in 1Q17 vs. 3,135 in 1Q16. With demand remaining strong, annual closings also grew to 13,268, 14.9% higher than the same period in 2016. Steady closing performance has allowed inventory levels to remain somewhat constrained as Austin heads deeper into the 2017 spring selling season. However, it’s worth noting that the gap between starts and closings is widening. This may indicate simply a delay in completions due to lengthening build times—or it may signal future concessions to move spec inventory.
As in the recent past, the $200,000 to $250,000 and $250,000 to $300,000 price points have been the strongest segments, making up 47% of annual starts as of 1Q17. Here is how the 1Q17 starts activity compared, as broken out by price:
“Affordability concerns are clouding this sunny forecast,” said Vaike O’Grady, Regional Director of Metrostudy’s Austin market. “Continued year-over-year increases in home prices are shrinking the local buyer pool, and builders are facing continued pressure on margins due to increased labor challenges and materials costs. Metrostudy’s head economist projects that, nationally, only 50 percent of consumers can afford to purchase the median priced new home. A recent Trulia study found that only 12.79% of teachers could afford to purchase a home here in Austin. We are at the point in which home pricing may be tamping down our potential.”
Much of the activity took place in suburban and even rural locales as closer-in locations approach buildout. Eight of the submarkets in the top 10 are expanding, with starts outpacing closings. Overall, demand is still quite strong; what’s being built is closing. In 2016, we hit a new record for annual lot deliveries: 17,211 lots were brought to market last year. With so many new lots on the ground, it was inevitable that new home inventory would “pop.” As of 1Q17, total new home inventory peaked at 8,385, its highest level ever. (If it feels like everywhere you look, there are sticks in the air, it’s because it’s true!) Despite this spike, the amount of Finished Vacant inventory in the market actually fell, from 2,213 a year ago to 2,077 this quarter. This reflects the continued strength in new home traffic and sales; many builders are reporting record-setting numbers for both.
In addition, almost half of the total inventory is base-priced between $200,000 and $299,000, where activity is strongest. Builders with homes in those price ranges are experiencing an average of 32 sales per model, compared to 17 sales per model for homes with base prices from $300,000 to $399,000. We can expect housing supply to continue to grow into the spring, given that another 4,758 lots were delivered in the first quarter.
“With all of the new home activity, we remain in a very competitive market overall,” said O’Grady. “It’s also helpful to remember that builders not only compete with each other, but with rentals – single family homes and apartments. Though there is evidence that multifamily (MF) construction is on the wane, there is ample new-ish MF inventory out there, much of it with features, amenities and services that appeal to today’s consumer. In addition, investor buyers are providing opportunities for renters to live in new homes in amenity-rich communities. High rental rates also may preclude some would-be buyers from accumulating savings for a down payment. Add in relatively high home prices, and it’s a good bet that there are a lot of folks sitting on the sideline, unwilling or unable to make the move to ownership.”
The Austin residential market is on pace to meet or exceed last year’s numbers, thanks to significant activity below $300,000. Smart developers and builders are finding the means to attract and convert these would-be buyers, many of whom are Millennials. After all, Millennials make up 35.7% of Austin’s population. While Boomers have the option of choosing to remodel and stay put (a business that is booming) or to downsize, Millennials are now forming households and overtaking the Boomers in terms of their propensity to purchase homes.
For information contact:
Vaike O’Grady – 512-473-2250
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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