HOUSTON HOUSING 4Q17: Impacts of Harvey Continue to Ripple through the Market; Houston Still #2 Market for New Home Starts – Second only to Dallas / Fort Worth

  • For 2017, Houston remains the #2 market in the country for new home starts, just behind Dallas/Fort Worth. For the calendar year there were 27,307 starts, up 5.8% over 2016 levels
  • New Home Starts continue strongest in the $200k-299k price band, while the greatest YoY growth was in the $300k-399k price range.
  • Fallout from Hurricane Harvey continues to impact the market: Production builders have reported longer production times largely attributed to drastic shortages in specialty labor particularly around drywall finishers, tile setters, and trim carpenters.
  • Harvey has also led to increased demand for Build On Your Lot (BOYL) Homes, 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, making them significantly less likely to flood in future flood events than their previous non-raised 1950’s or 1960’s home.

Metrostudy’s 4Q17 survey of the Houston housing market shows that in the fourth quarter, Houston has maintained its number two position behind Dallas / Fort Worth in terms of annual new home starts. Houston achieved 27,307 starts, representing a growth rate of 5.8%, or growth of 1,596 starts 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 ($300,000 and below). Metrostudy anticipates a more modest 3% to 4% annual year over year starts growth rate at the conclusion of calendar 2018.

Closings outpaced starts in 4Q17 for the first time since 1Q17. This is typical fourth quarter builder behavior as builders focus on closing homes to achieve their year-end business plan objectives. Focus on closings became even more imperative for builders in 4Q 2017 as cycle times expanded anywhere from four to eight weeks due to lack of certain specialty trades post-Harvey. Houston builders achieved 5,502 starts and 6,048 closings in 4Q17. Builders achieved 26,603 new home closings over the four quarters of 2017.

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 11.1%. 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 8.6% and 4.0% Y-O-Y starts growth respectively.

Screen Shot 2018-02-02 at 8.33.43 AM

“We continue to see impacts from Hurricane Harvey, and any discussion of Houston’s new home market and general economic conditions needs to acknowledge those,” said Lawrence Dean, Regional Director of Metrostudy’s Houston market. “Metrostudy does not anticipate any significant increase in new home sales demand generated by Harvey victims until 1Q18, as these potential future buyers focus on managing their damaged homes, temporary housing, insurance claims, and FEMA assistance.”

Builders and developers have reported the following operational and market impacts in the 120 days following Hurricane Harvey over the remainder of 2017:

  • 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: A small overall percentage of Houston area production builders offer a BOYL program. However, those who do have reported significant growth in demand for BOYL product after Hurricane Harvey. This is 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.

Quarterly lot deliveries were nearly identical to quarterly new home starts in both the second and third quarters of 2017. However, 4Q17 began to see a reassuringly growing delta between lots delivered and lots used, with 7,879 new lots being delivered while 5,502 new home starts occurred. This results in a slightly larger delta between new lots delivered and lots absorbed on an annual basis as well. Market-wide inventory of vacant developed lots (VDL) has increased slightly to 47,049 (up 2,377 from the previous quarter), or 20.7 Months of Supply.

In calendar 2017 82,491 total single family homes have sold on the MLS, 65,575 of which were true resales. Inventory of resale single family homes market wide has grown by 10% year over year with a current inventory of 19,025 true resale listings. This reflects 3.5 months of supply which is the lowest level seen in twelve months. MLS transactions of resale homes reflected a median price of $215,000 in December 2017, up 5% from one year ago.

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.