HOUSTON HOUSING 1Q17: A Market Settling into Equilibrium – Solid Growth Expected

  • Houston remains the second strongest new home market in the country, behind only the Dallas-Ft. Worth region.
  • YoY, Annual new home starts are down 6.4% over 1Q16 levels – from 27,578 to 25,789
  • We are seeing the strongest volume of new home starts in the $200k-$300k price ranges, with starts stabilizing at the higher price points.

Metrostudy’s 1Q17 survey of the Houston housing market shows that Houston remains the second highest volume new home market in the country, with just Dallas/ Fort Worth showing a greater number of starts over the trailing twelve months. Houston achieved 25,789 starts, representing a decline of 1,789 starts year over year. Metrostudy anticipates a total year over year 3% to 4% increase in Houston single family starts at the conclusion of 2017 followed by a more robust 7% to 9% increase at the end of 2018.

“Houston continues to experience a very competitive new home sales environment although builders have begun to succeed at selling through previously built up spec home inventory,” said Lawrence Dean, Regional Director of Metrostudy’s Houston market. “Closings surpassed starts in the fourth quarter, continuing a trend that began in fourth quarter 2015. Builders closed 6,567 homes in 1Q 2017, down 3.8% from 1Q 2016. Builders have generally expressed being pleased with their overall sales volume in 2017 but did report margin suppression at the higher price points.”

Annual new home starts volume continues to be greatest in the $200,000 to $299,999 price band. Starts volume in the $300,000 to $399,999, $400,000 to $499,999, and $500,000 to $799,999 price bands have continued the general stabilization trend we have seen in the past two years.

Houston’s resale market closed on 80,917 single-family homes over the trailing twelve months ending 1Q 2017. This is consistent with the 80,926 single family homes closed during the trailing twelve month period ending 1Q 2016.  Inventory of resale single family homes market wide has remained constant year over year. Currently there is an inventory of 23,657 true resale listings which is consistent with inventory levels seen one year ago. This reflects 3.5 months of supply, well below the six-month mark considered a healthy equilibrium level.

MLS transactions of resale homes reflected a median price of $221,607 in February 2017, up a 2.4% from one year ago. This particular month reflects a departure from most of the last twenty-four-month period during which average annual appreciation rates were generally in the 3.5% to 6.5% range.

Currently 10,730 new apartment units are under construction in 44 complexes. Most of these complexes are scheduled to open year’s end. Notably, one year ago nearly twice as many apartment complexes were under construction across the market.

The percentage of all homes in inventory that are finished vacant has remained above the 35% equilibrium threshold identified by Metrostudy for most of the last twelve months. The current percentage of all homes in inventory that are Finished Vacant is currently 38.6%. Overall, Finished Vacant Homes in inventory stand at a 2.6 months of supply condition as of the first quarter. This is still less than the 3.0 months of supply identified by Metrostudy as equilibrium.

Lot deliveries continued to exceed starts in Q1, with 7,203 lots delivered compared to 6,433 home starts. The Houston market finished the Q1 2017 with 3,893 more lots delivered than homes over the previous 12 months. That takes the market inventory of VDLs to 47,093, a slight increase over last quarter but still within equilibrium levels at 21.9 months’ supply. Of the nine market areas defined by Metrostudy, only the Far North market area is above equilibrium in terms of VDL supply, at 38.9 months of supply. VDL supply that supports homes priced $399K and below is relatively tight while VDL months of supply supporting all higher home price bands exceeds equilibrium.

Delays in lot deliveries kept the market in balance below equilibrium levels through 2015. Lot inventories exhibited an increase in 2016 peaking in 2Q2016. Given relatively low levels of additional replacement lots currently under development, Metrostudy projects most of the nine market areas to remain at or below equilibrium in terms of VDL inventory for the next twenty-four months

For information contact:
Lawrence Dean – 713-817-0218
ldean@metrostudy.com

About Metrostudy

Metrostudy, a Hanley Wood company, is the leading provider of primary and secondary market information to the housing and related industries nationwide.  Established in 1975 in Houston, Metrostudy provides research, data, analytics and consulting services that help builders, developers, lenders, suppliers, retailers, utilities and others make investment and business decisions every day.  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; marquee trade shows and executive events; and strategic marketing solutions. To learn more, visit hanleywood.com.