The end of the starter home and the entry-level new home buyer is already up for debate, but Texas strengthens the argument that both affordability around big metros is shrinking, and that the move-up buyer is supporting builders in many high cost markets—for now, at least. If you flashback to 2012, new homes priced under $200,000 were peppered throughout Texas, even in big markets like Houston and Dallas which were most resilient to the Recession. Texas markets catered to a wide range of buyers, from the entry-level starter homes, to luxury McMansions. Over the last few years, however, the numbers tell a different story. Lot supply in “A” and “B” locations around the state have tightened and demand has risen, thanks to robust job growth and rising rents that have pushed more buyers into the new home landscape. As demand peaks and supply stays low, however, builders have begun relying largely to the move-up and luxury buyers, in order to balance out high costs. 


The Houston market saw a 7.3% increase in new home starts in the fourth-quarter compared to 4Q13 and quarterly starts in Dallas-Fort Worth rose by about 1,000 units between 4Q13 and 4Q14. Meanwhile Austin maintained consistent quarterly starts year-over-year and the annual single-family starts rate in San Antonio rose 10.2% in the fourth-quarter. Deliveries of vacant lots in Houston began to catch up with absorption and new home supply increased by 13% in the fourth-quarter; possibly a good sign for continued supply and affordability in 2015. This was not the case in other cities, however, where constrained supply threatened inventory of new homes under $200,000. In San Antonio, the number of entry-level priced homes dropped 8% in 2014. In Austin, share of new homes under 200k in the Market dropped by 16% in 2014 and homes priced under $200,000 continue to close-in on zero in Dallas where the median closing price for new homes was the highest among the Texas markets in the fourth-quarter at $282,500. The median closing price for new homes appreciated in all four markets between the first and fourth quarters, and the price per square foot median also continued to rise.

The lone exception in the Lone Star State to the starter home squeeze is in the Rio Grande Valley (RGV). The RGV is also an outlier among the Texas markets, having climbed out of the Recession much more slowly than the big dogs, but also more steadily. The Brownsville and McAllen MSAs finished a lukewarm year with just over 200 closings in the fourth-quarter, and annual starts down 7% year-over-year. Despite job growth, unemployment remains higher than the national average in the RGV, which at least provides the opportunity for continued affordability that aforementioned markets lack (the median new home closing price stayed between $125,000 and $155,000 in 2014). While the economic landscape is quite different in this market, steady growth and lower prices give the smaller market areas in South Texas an advantage to target millennial and entry-level buyers.

Looking ahead, the Texas new home market is set up for a strong year. The pace of starts and sales are up overall, with the caveat that low lot supply may shrink inventory and push price points ahead of demand. This will be especially troublesome if the decline in oil prices impacts the Texas economy greatly this year. If tightened supply and only high-end demand dominate the 2015 landscape, the already growing scarcity of starter homes may multiply in the bigger metros. Even if the state does see a fall to the entry-level buyer, as long as job growth and high demand continue, the new home market will still be biggest in Texas. 

See fourth quarter metrics for Austin, Dallas, Houston, and San Antonio markets individually on the next four pages.