HOUSTON HOUSING 3Q16: Strength, Growth and Affordability: Houston Still the 2nd Strongest Housing Market in the Country

  • Houston remains the second strongest new home market in the country, trailing only behind Dallas which saw a banner year through 3Q16
  • Builders and Developers are emphasizing affordability: Homes priced $300,000 and below achieved the greatest starts and closings volume, and many of the subdivisions that saw the greatest volume at least partially included more moderately priced new home product.
  • Metrostudy anticipates a total year over year 9% to 10% decline in Houston single family starts at the conclusion of 2016, followed by modest percentage gains in 2017 and 2018.

Metrostudy’s survey of the Houston housing market shows that in the third quarter, Houston has maintained its number two position behind Dallas / Fort Worth in terms of annual new home starts. Houston achieved 25,809 annual starts, representing a decline of 3,017 starts year over year. During this same period, Dallas / Fort Worth achieved 29,492 starts representing a banner year with an increase of 3,474 starts

“Houston’s housing market continues to prove to be resilient given the prolonged turbulence in upstream oil and gas and continued sub-optimal $40 to $45 USD / bbl crude oil prices,” said Lawrence Dean, Director of Metrostudy’s Houston Market. “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 experienced significant growth between Q2 2010 and Q2 2014, but have continued their general stabilization in starts growth over the past two years since then.”

Closings surpassed starts in the third quarter, continuing a trend that began in fourth quarter 2015. Builders closed 7,432 homes in Q3 2016, down just 1.4% from Q3 2015. Builders continue to report overall sales volume meeting or exceeding (generally) their 2016 annual business plans. However, Houston continues to experience a very competitive new home sales environment particularly in the northern submarkets and in the upper price points above $450,000.

This quarter, we see several key dynamics at play in the Houston housing market:

  • Continued Strong Market Appetite for Affordable Homes: Homes priced $300,000 and below achieved the greatest starts and closings volume, and many of the subdivisions that saw the greatest volume at least partially included more moderately priced new home product. This has not changed from the previous quarter, but is further evidenced by the strong quarter over quarter growth of both new home starts and closings in the $200,000 to $300,000 price band. This is resulting in:
  • Increased Emphasis on More Moderately Priced Homes by Builders and Developers: in order to satisfy this increasing demand, land developers are increasingly introducing narrower entry lot size programs to existing communities (typically 45’s or 50’s in communities that did not previously feature them). Similarly, builders are focusing on refining their 45’ and 50’ product and are beginning to even refocus on high quality 40’ lot product.
  • Strength in both Master Planned Communities and Well Executed Smaller Neighborhoods: The Houston market can be characterized by new home starts and closings strength both in large scale master planned communities and in the better executed, more value oriented stand-alone subdivisions. This points to both the typical “flight to quality” seen as Houston new home buyers gravitate towards MPCs in periods of economic instability as well as a strong interest in more moderately priced homes in high development quality smaller neighborhoods.

Lot deliveries continued to exceed starts in Q3, with 7,807 lots delivered compared to 5,754 home starts. The Houston market finished the Q3 2016 with 6,406 more lots delivered than homes over the previous 12 months. That takes the market inventory of VDLs to 45,413, a slight increase over last quarter but still within equilibrium levels at 21.1 months’ supply. Of the nine market areas defined by Metrostudy, only the Far North and Northwest submarkets are above equilibrium in terms of VDL supply, at 33.4 and 23.4 months of supply respectively. 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 are exhibiting an increase YTD in 2016. Given relatively low levels of additional replacement lots currently under development, Metrostudy projects five of the nine submarkets to still have a below equilibrium inventory of VDL one year from now in Q3 2017, with two others being right at equilibrium by Q3 2017, and only two (Far North and Northwest) exhibiting an inventory of VDL in excess of the 20-24 months of supply equilibrium.

“This is set against a stage of greatly reduced job growth in the Houston area,” said Dean. “Job growth is one of the single most important drivers of home demand, and Houston’s pace of job growth has fallen from one of the strongest in the nation to adding just 14,500 net additional jobs in the last twelve months. Various regional forecasters anticipate reaching late 2017 or 2018 before meaningful annual job growth is resumed. The housing market appears to have peaked this cycle in Q4 2014. Metrostudy anticipates a total year over year 9% to 10% decline in Houston single family starts at the conclusion of 2016, followed by modest percentage gains in 2017 and 2018.”

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.