AUSTIN HOUSING 2Q17: With Market at 2007 Levels, Affordability Issues May Hold Up Future Growth

  • The annual new home starts pace is up 19.5% YoY, while 2Q17 starts are up 31.7% from 2Q16 levels.
  • Total inventory levels are the highest we have ever seen, up 27.1% YoY.  Under construction inventory is also up 29.6% YoY, and there are more single family homes under construction than Metrostudy has ever recorded in this region.
  • Median base pricing remained relatively flat YoY at $287,440 vs. $281,075, despite builder reports of increased labor, permitting and materials costs.  This is likely reflective of a change in product mix with more homes below $300k hitting the market, and some softness at higher price points.

Metrostudy’s 2Q17 survey of the Austin housing market shows that for now, most Austin builders are enjoying the benefit of a market as hot as July in Texas. We closed out the second quarter with 4,198 recorded starts, 20.4% higher than the previous quarter and a whopping 31.7% increase Year Over Year (YOY). We’re now pacing at 15,459 annual starts, up nearly 19.5% YOY. The last time we topped 15,000 starts was in 1Q07.

Quarterly closings rose from 3,395 in 2Q16 to 3,672 in 2Q17, an increase of 8.2 percent YOY. The annual closings pace also grew, from 12,059 to 13,552, a 12.4% growth rate. While closings always lag starts, the nearly 2,000-unit gap between is two is the largest we’ve seen since 2006. This gap likely reflects large production builders making significant investments in spec inventory for the spring selling season. We’ll expect the closing pace to pick up in future quarters as those larger builders move inventory.

“Austin multifamily construction has likely peaked, with some banks unwilling to finance larger projects in the suburban locations and signs of rent concessions,” said Vaike O’Grady, Regional Director of Metrostudy’s Austin office. “According to the Pew Research Center, more U.S. households are renting than in 50 years. Those renters should be a target for future home sales, yet affordability issues may be holding them back. In the space of five years, the median home price in Austin increased by more than $70,000.  Median household income in Austin hovers around $68,000. Low interest rates are providing the means for the average Austin homebuyer to purchase. An increase in rates, combined with slowing job growth, could mean a significant downward shift in market demand.”

Screen Shot 2017-09-03 at 1.23.56 PM

As in prior quarters, the fuel for the market is in in the $200,000 to $300,000 price range. That segment generated 7,542 starts during the past 12 months, making up nearly half of the market. Much of the activity took place in suburban and even rural locales as closer-in locations approach build-out. As it had in 1Q17, Cedar Park/Leander West (CP/LW) edged out Pflugerville and Kyle/Buda for the top slot in starts this quarter. Those three areas made up nearly one-third of the starts in the Austin market.

The big story this quarter is increased supply. Builders are finally beginning to satisfy market demand. Under construction inventory in Austin hit record levels in 2Q17, at 6,218 units. Total inventory (models, finished vacant and under construction) is up 27.1 percent YOY to 8,964 units, the most we’ve ever seen in the market. That figure represents 7.9 MOS at the current closings pace. You’d have to go back ten years to see that much supply.

The supply of Vacant Developed Lots is up 10.4% YOY, from 21,948 to 24,237. However, due to the strong starts pace, supply actually dropped to 18.8 Months Of Supply (MOS) overall. Equilibrium is considered to 20-24 MOS, so the market overall is still under-supplied. In key locations and in lower price points, it’s very difficult to find finished lots. Developers are doing their best to accommodate. 2Q17 lot deliveries increased 28.8% YOY from 3,631 to 4,676, and the pace of annual deliveries is up 5.7%, from 16,769 to 17,725. This is the highest annual pace of lot deliveries ever recorded – the previous record was 17,452 as of 4Q06. The Austin residential market has been overheated for quite some time. Despite the summer’s blistering temperatures, we expect demand to cool slightly due to slowing job growth and increased supply.

For information contact:
Vaike O’Grady – 512-473-2250

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

About Hanley Wood
Hanley Wood is the premier information, media, event, and strategic marketing services company serving the residential, commercial design and construction industries. Utilizing the largest editorial- and analytics-driven construction market database, the company produces powerful market data and insights; award-winning publications, newsletters and websites; high-profile executive events; and strategic marketing solutions. To learn more, visit