HOUSTON HOUSING 1Q18: Moderately Priced Attainable Product Continues to Drive Growth; Low Delivery Numbers Raise Anxiety in an Already Tight Lot Market

  • For the twelve months ending in 1Q18, Houston remains the second highest volume new home market in the country, with just Dallas / Fort Worth achieving a greater number of starts.
  • The impacts of Hurricane Harvey continue to be felt in the market as shortages of specialty trade labor are adding 4-8 weeks to cycle times.
  • Annual new home starts volume continues to be greatest in the $200,000 to $299,999 price band. However, starts volume in the $300,000 to $399,999 band achieved the greatest year-over-year starts growth with an increase of 14.0%.
  • 1Q18 is the fifth quarter in a row of low lot delivery numbers relative to lot absorption. The Houston industry is anxious about the impact of announced and planned changes to land development regulations in an already lot tight market.

Metrostudy’s 1Q18 survey of Houston’s housing market shows that in the first quarter, Houston has maintained its number two position behind Dallas / Fort Worth in terms of annual new home starts. Houston achieved 27,675 starts, representing a growth rate of 7.5%, or growth of 1,927 starts year over year. Metrostudy continues to anticipate a more modest 3% to 4% annual year over year starts growth rate at the conclusion of calendar 2018. Volume growth in 2017 was driven by builders and developers increasingly offering a wider product offering including a greater share of more moderately priced attainable product ($300,000 and below). This growth dynamic continued in the first 90 days of 2018, and is expected to continue over the balance of 2018 and beyond.

Starts exceeded closings in both the first quarter of 2018 as well as the trailing twelve months ending in same. This trend was also observed for most of calendar year 2017 with the exception of the fourth quarter. In 4Q17 builders were focused on accomplishing (fiscal and calendar) year-end closings in a post Hurricane Harvey landscape of 4-8 week increased cycle times due to shortages of specialty trades including drywall finishers, trim carpenters, and highly skilled painters.

Annual new home starts volume continues to be greatest in the $200,000 to $299,999 price band. However, starts volume in the $300,000 to $399,999 price band achieved the greatest year-over-year starts growth with an increase of 14.0%. The sweet spot of the market in Houston continues to be in the $200,000 – $400,000 base price bands. With that said, the $400,000 to $499,999 and $500,000 to $599,000 base price bands have exhibited stabilized starts volume, achieving 8.7% and 0.9% Y-O-Y starts growth respectively. The market areas with the greatest year over year new home starts volume increases continue to be the Far North, Central, Northeast, and West Northwest Market Areas.

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In the first 90 days of 2018 16,544 total single family homes have sold on the MLS, 13,541 of which were true resales. Inventory of resale single family homes market wide is down 6% versus twelve months ago, with 16,935 properties currently on the market. This reflects 3.1 months of supply which is the lowest level seen in twelve months. MLS transactions of resale homes reflected a median price of $214,000 in March 2018, up 5% from one year ago.

“In the first quarter of 2018, the number of new lots delivered (5,130) significantly undershot the number of lots absorbed via new home starts (6,693),” said Lawrence Dean, Regional Director of Metrostudy’s Houston market. “This represents the fifth quarter in a row of low lot delivery numbers relative to lot absorption. The Houston industry is anxious about the impact of announced and planned changes to land development regulations by the City of Houston, Harris County, and suburban counties. The anxiety centers on the potential for delays in lot delivery due to these changes, in an already lot tight market.”

Builders have begun to report slight increases in sales of new homes to those whose homes flooded in Harvey since February 2018. These buyers have spent the last eight months focused on managing their damaged homes, temporary housing, insurance claims, and FEMA assistance and are just now able to move forward on purchasing new homes until this timeframe. Builders and developers have reported the following operational and market impacts in the months following Hurricane Harvey over the remainder of 2017 and year to date in 2018:

  • Increased Cycle Times: Production builders have reported cycle times increasing from four to eight weeks. These longer production times are largely attributed to drastic shortages in specialty labor particularly around drywall finishers, tile setters, and trim carpenters. This is due to greatly increased demand for these specialty trades rebuilding homes damaged by Harvey.
  • Little to No Impact on Materials: Builders have reported very little to no impact on building material pricing or availability due to the Harvey rebuilding effort. Impacts have largely been around specialty labor and not corresponding material availability.
  • Increased Demand for Build On Your Lot (BOYL) Homes: Production builders have reported significant growth in demand for BOYL product after Hurricane Harvey, focused heavily in the closer in, formerly first-ring suburban neighborhoods of Meyerland and western Memorial. These areas are within the 100 or 500 year floodplain, requiring new construction homes to be built on elevated (4’ to 6’) slabs. Families are choosing to construct these homes on their flooded lot or another flooded lot in these close in neighborhoods because these elevated new homes are significantly less likely to flood in future flood events than their previous non-raised 1950’s or 1960’s home.

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. To learn more 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; marquee trade shows and executive events; and strategic marketing solutions. To learn more, visit hanleywood.com.