AUSTIN HOUSING 3Q17: A City Struggles to Provide Housing for the “Missing Middle” as Labor Shortages Threaten Future Affordable Growth
- New Home Starts are at Decade Highs: Through 3Q17 we are at 16,719 Annual Starts, Up 19.1% YoY.
- Hurricane Harvey will exacerbate the ongoing Labor Shortage in the Construction Industry: In a recent Metrostudy survey, more than 70% of respondents in Austin, Dallas and San Antonio said that Hurricane Harvey will affect their ability to find labor.
- As in prior quarters, the fuel for the market is in in the $200,000 to $300,000 price range, a segment that generated 8,000 starts during the past 12 months, making up nearly half of the market. We are seeing more builders add “value” lines and smaller product in an effort to capture market share.
Metrostudy’s 3Q17 survey of the Austin housing market shows that builders are starting more homes than they have in a decade. We’re now pacing at 16,719 annual starts, up 19.1% YoY. It was prior to the Great Recession when Austin last added more than 16,000 annual starts. (The peak: 18,406 in 3Q06.) Our survey team recorded 4,586 starts in the third quarter, 4% higher than the previous quarter and a 12.5% increase YOY. The third quarter has become the busiest season of the year to start spec inventory. With longer construction timelines due to the tight labor market and permitting delays, production builders are starting homes in the late summer in order to have them move-in ready the following spring.
Quarterly closings also rose, though not quite as dramatically. We recorded 4,107 closings in 3Q17, compared to 3,592 one year ago. The annual closings pace increased from 13,229 in 3Q16 to 14,263 this quarter, a 7.8% growth rate. As expected, the closing pace is picking up steam as the spec inventory built in the spring converts. Starts and closings continue to be concentrated in submarkets associated with major commuting routes.
“Most builders have been facing a labor shortage for a significant period of time, and that shortage has been exacerbated by Federal immigration policy changes,” said Vaike O’Grady, Regional Director of Metrostudy’s Austin market. “The impact of the recent Texas hurricane is likely to add to the challenge of finding qualified labor willing to perform development and construction work at a reasonable price. In a recent Metrostudy survey, more than 70% of respondents in Austin, Dallas and San Antonio said that Hurricane Harvey will affect their ability to find labor. Moreover, more than 85% of the respondents said that they expect that the hurricane will affect the price and availability of materials. That is tough news for a city that is struggling with how to provide housing for the “missing middle.” Builders report that margins are being squeezed not only by increased labor and materials costs, but also due to permitting delays and added costs because of increased municipal regulation. That makes it hard to keep consumer prices down.”
Yet consumers continue to buy homes. This summer marks the first time ever that over $1 billion in home sales was recorded for six straight months (March-August). What’s more, Austin hit a new record for $1.483 billion in sales in June alone—and hit a record high median price of $305,000. September marks the first month that home sales dipped slightly below 2016 and 2015 figures. The median price for all home sales also slipped down to $289,000 in September, while inventory remained steady at 3 Months of Supply (MOS). The Austin Board of Realtors report that Average Days on Market in the Austin area grew to 53 days in September. Whether this is a blip or the beginning of a softening remains to be seen.
“As in prior quarters, the fuel for the market is in in the $200,000 to $300,000 price range,” said O’Grady. “That segment generated 8,000 starts during the past 12 months, making up nearly half of the market. Starts outpaced closings across every price band. Builders who primarily serve buyers in the sub- $300,000 segment are reaping the rewards of market demand. In fact, the top two Austin builders, D.R. Horton and KB Home, contributed one third of annual home closings with starting prices set below $299,999. We are seeing more builders add “value” lines and smaller product in an effort to capture market share.”
The supply of Vacant Developed Lots increased from 22,068 in 3Q16 to 24,356 in 3Q17, an increase of 10.4% YOY. However, due to the strong starts pace, supply actually dropped to 17.5 MOS overall. Yet performance varies significantly according to price band. Lot supply for homes priced between $200,000 and $399,000 ranges from 11 to 14.5 MOS and is thus significantly constrained.
Developers are doing their best to add more supply. Once again, we hit a new record in 3Q17: annual lot deliveries totaled 19,007, the highest ever. Builders reported solid sales numbers in September, evidence that our meandering along the peak continues. Growing supply in the $200,000 to $300,000 price point should help to satisfy current demand, as buyers seem willing to locate further outside the City.
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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