HOUSTON HOUSING 2Q18: Still the #2 Market for New Home Starts – Builders Move Towards Smaller Lots to Continue to Deliver Affordable Product

  • Through 2Q18, Houston is still the #2 market for housing starts, trailing only the Dallas / Ft. Worth region;
  • Annual new home starts are up 6.8% from 2Q17 levels, with growth greatest in the $200k to $299k price band (up 14.3% YoY);
  • We are seeing builders increasingly looking for smaller lot sizes – moving from 50’ lots to 40’ and 45’ lots – as they look for ways to continue to deliver attainable product for buyers;
  • The elevated number of apartment complexes under construction is partially due to increased occupancy rates due to leases consummated by residents whose primary homes flooded in Hurricane Harvey.

Metrostudy’s 2Q18 survey of the Houston housing market shows that the region remains the second highest volume new home market in the country, with just Dallas/ Fort Worth achieving a greater number of starts over the trailing twelve months. Houston saw 28,942 new home starts, representing a growth rate of 6.8% year over year.

“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 at $300,000 and below,” said Lawrence Dean, Regional Director of Metrostudy’s Houston office.  “This growth dynamic continues within the first six months of 2018, and is expected to continue over the balance of 2018 and beyond. Metrostudy anticipates a slightly more modest 5% to 6% annual year over year starts growth rate at the conclusion of calendar 2018.”

Annual new home starts volume continues to be greatest in the $200,000 to $299,999 price band. Year over year starts volume saw the greatest increase in the $200,000 to $299,999 price band (up 14.3%) and the $300,000 to $399,999 price band (up 12.0%). The sweet spot of the market in Houston continues to be in the $200,000 – $400,000 base price bands.

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Starts exceeded closings in both the second 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.

“Fifty (50’) foot wide lots continue to see the greatest volume of new home starts in Houston,” said Dean. “However, the lot size programs seeing the greatest year over year volume growth in starts are 40’s and 45’s. Developers of large MPCs as well as smaller subdivisions focused heavily on expanding their product lineups by rolling out 45’ programs in 2016 and early 2017. Over the last half of 2017 and thus far in 2018 developers and builders have focused on expanding to even more attainably priced product on 40’ lots.”

Currently 10,619 new apartment units are under construction in 41 complexes. This number of new complexes under construction has remained constant over both quarters of 2018. However, 41 complexes under construction represents an increase over the volume that was observed in 2017. The elevated number of complexes under construction is partially due to increased occupancy rates due to leases consummated by residents whose primary homes flooded in Hurricane Harvey. Most of these new tenants are not expected to remain apartment renters beyond a twelve to eighteen month timeframe. However, improved job growth in the region and stabilizing oil pricing are providing a less temporary improvement to market fundamentals.

In the first six months of 2018, 40,169 total single family homes have sold on the MLS, 33,042 of which were true resales. Inventory of resale single family homes market wide is down 4% versus twelve months ago, with 21,234 properties currently on the market. This reflects 3.9 months of supply. MLS transactions of resale homes reflected a median price of $224,000 in June 2018, up 5% from one year ago.

In the second quarter of 2018, the number of new lots delivered (8,798) very closely mirrored the number of lots absorbed by starting homes on them (8,890). This condition has improved versus first quarter during which 1,563 fewer new lots were delivered than were absorbed. The Houston industry is still anxious about lot supply and the volume of new subdivision developments in the pipeline.

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.