AUSTIN HOUSING 4Q16: Austin’s Hot Housing Market May Cool in 2017

  • Annual New Home Starts in Austin stand at 14,462 for 2016 – up 16% over 2015 levels. 4Q16 starts are up 39.1% over 4Q15.
  • Despite strong growth, the median new home base price in 2016 was $284,403 – only 1.7% higher than in 2015.
  • Builders continue to migrate towards more affordable product – with smaller homes, single-family condo regimes and attached product coming online, all developed in order to serve home shoppers who needor want to stay below $250k

Metrostudy’s 4Q16 survey of the Austin housing market shows that overall, 2016 was a very strong year for Austin’s new home industry. The fourth quarter ended with 14,462 annual starts, compared to 12,525 starts one year ago. The 3,794 starts during the fourth quarter is 39.1% higher than the fourth quarter of 2015 but actually 5.9% lower than 3Q16 (aligned with seasonal norms). With demand remaining strong, annual closings grew to 13,341 by the end of the fourth quarter, a 4.6% increase from the third quarter. Closings during the fourth quarter were up 21.3%, to 3,323, compared to the fourth quarter of 2015. Strong growth in closings has allowed inventory levels to remain somewhat constrained as Austin heads into the 2017 spring selling season.

“A predominant driver for starts and closings growth was builder migration toward more affordable product,” said Vaike O’Grady, Regional Director of Metrostudy’s Austin market. “During the course of the year, several new communities came online to target Millennial buyers and other shoppers constrained by income. In addition, builders de-featured or resized product in an effort to challenge land, labor and development costs, which continue to grow. The median new home base price (based on annual starts) in 2016 was $284,403, only 1.7% higher than the median price in 2015. We also saw a movement toward single-family condo regimes and attached product, both developed to serve home shoppers who needed or wanted to stay below $250,000.”

The $200,000 to $250,000 and $250,000 to $300,000 price points have been the strongest segments, making up 46% of annual starts in 2016. With the exception of the sub-$200,000 price range, all price ranges experienced growth in starts in the quarter. Here is the distribution of 2016 starts and closings:

screen-shot-2017-01-30-at-8-49-44-am

“Austin, along with Dallas, may have been named a “top city” for 2017 by the Urban Land Institute, but there is evidence that our beloved Texas heat is beginning to cool off just a bit,” said O’Grady. “As the year progressed, job creation slowed significantly. After the typical July downturn, job creation in the summer was virtually non-existent. Rebounds in October and November figures were encouraging, but we did not see the spurt in activity that we had the previous year. In fact, the Texas Workforce Commission (TWC) reported that we lost 1,100 jobs in December. As 2016 closed, Austin was growing at a 1.9 percent growth rate, compared to the scorching 4.7 percent rate during the same period last year.”

That said, strong consumer confidence and a robust office market is likely to feed new home demand for a while.  Low unemployment should also drive wage gains, which may offset increase interest rates.

Much of the activity took place in suburban and even rural locations as closer-in locations approach build-out. New home inventory remains generally constrained at 8,075 units or 7.3 Months of Supply (MOS) market-wide. (It is typical for the supply to be above the 6-month equilibrium level when a market is expanding because starts will increase in response to stronger demand.) An uptick in 4Q16 starts married with more homes already under construction may reflect significant spec activity to feed the demand for quick move-ins during the spring selling season.

While new home inventory has remained healthy overall, the situation is significantly softer in upper price ranges and in certain submarkets. As we look at Finished Vacant Inventory by price we see that price points above $350,000 are approaching equilibrium and could easily tip toward over-supply. The $400,000 to $500,000 price range in particular showed nearly 38% growth in quarterly starts year over year. While closings so far are keeping pace, any softening of the market at this price point could significantly affect not only that range but also those above it.

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

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 hanleywood.com.