AUSTIN HOUSING 4Q18: New Home Starts at Highest Level since 2006 – Lack of Attainable Product May Force Potential Buyers into the Rental Market
- Austin’s 2018 New Home Starts are at their highest level since 2006 – while quarterly starts are up 3% from 4Q17 numbers.
- Annual closings rose in 2018, up 9% from 2017. 4Q18 closings hit 3,696, down 9% from 3Q18 but essentially flat with the 4Q17.
- Performance continues to be tightly tied to price segment, with 53% of starts base-priced between $201,000 and $299,000.
- Builders are challenged to provide enough attainable product. When mortgage rates spiked in November, sales fell off significantly. While job growth will likely prompt more newcomers to the City, without enough attainable product they may be forced to rent.
Metrostudy’s 4Q18 survey of the Austin housing market show that new home starts were flat in 2018, with 16,424 annual starts recorded, compared to 16,136 in 2017. This is the highest number of starts recorded in this cycle and the second-highest starts year on record; the Austin starts peak occurred in 2006 with 17,784 starts. Fourth-quarter starts totaled 3,528, up 3% from 4Q17, but dropping significantly (by 21%) from the 3Q18 start pace of 4,471. Rainy October weather likely played a key role in delaying starts during the early part of the fourth quarter. Annual closings rose to 16,160 in 2018, up 9% from 14,814 in 2017. Fourth- quarter closings hit 3,696, down 9% from 3Q18 but essentially flat with the 4Q17 figure of 3,735.
“The starts pace has been moderating for about two years now; not due to lack of demand but rather challenges with supply and pricing,” said Vaike O’Grady, Regional Director of Metrostudy’s Austin market. “Relatively clear weather in late fall generally allowed builders to hit their annual closing numbers. We continue to see an alignment between annual starts and closings—an indicator of a healthy market—though 4Q18 closings outpaced starts for the second year in a row.”
Performance continues to be tightly tied to price segment, with 53% of starts base-priced between $201,000 and $299,000. However, all segments performed well in 2018, with closings outpacing starts in every other segment as well. Total housing inventory, which includes model homes, homes under construction, and finished vacant homes, reached 11,075 units at the end of 2018, the third highest quarterly count on record. That figure represents a 2% increase YOY though it is a slight (1%) decrease from 3Q18. Total inventory represents 8.2 months of supply, essentially flat from 3Q18 but down from 8.8 MOS a year ago.
According to the Austin Board of Realtors, the Austin residential market ended 2018 with record gross home sales volume, despite median single-family home values that hovered around $300,000 for most of the year. However, Austin did not experience the same “pop” in December sales that it saw a year ago. In fact, December existing home sales dropped 11 percent YOY, and median home prices actually softened. It bears remembering that MLS sales are really closings; those contracts actually happened 30-60 days prior. During that timeframe, Austin was experiencing record-setting rainfall, not to mention an uptick in mortgage interest rates.
The strong local economy, and the anticipated delivery of nearly 7,000 lots by spring, means Austin is relatively well-positioned for growth. But that’s assuming developers and builders can continue to provide enough attainable product. When mortgage rates spiked in November, sales fell off significantly. While job growth will likely prompt more newcomers to the City, without enough attainable product they may be forced to rent.
Builders added 42 models in the fourth quarter, growing the model count from 580 to 622. Under Construction inventory dropped 5% from third quarter figures to 7,452 units but increased 2% YOY. The amount of inventory that was Finished Vacant jumped 3% YOY, from 2,926 to 3,001 units, the highest number in this cycle. Given the strong closing pace, however, we are still at a lean 2.2 MOS for Finished Vacant supply. However, if demand declines, Austin could be at risk for overbuilding.
Lastly, Austin is part of a larger national economy that is facing slowing worldwide growth, impacts from tariff disputes, and reverberations from the Federal government shutdown. The resulting psychological damage—including national headlines trumpeting a housing slump– may hold Austin back from its full potential in 2019. Still, Texas is known for its independence, and Austin even more so. Despite national headlines that prompt handwringing over the pending slowdown, the economy in Austin just keeps doing its own thing. While the national economy is likely to slow in 2019, the impact on Austin should be offset by strong local fundamentals.
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 www.metrostudy.com
About Hanley Wood: Hanley Wood is the premier company serving the information, media, and marketing needs of the residential, commercial design and construction industry. Utilizing the largest analytics and editorially driven Construction Industry Database – powered by Metrostudy – the company provides business intelligence and data-driven services. The company produces award-winning media, high-profile executive events, and strategic marketing solutions. To learn more, visit hanleywood.com.