Austin Texas Lake Front
Austin Texas Lake Front

Metrostudy, a housing information and consulting firm, reported that the quarterly survey of the Austin market revealed a 17% increase in new home starts compared to 3Q13. Metrostudy’s survey recorded 3,123 new detached home starts in the third-quarter of 2014, a 17% increase from 3Q13’s total. Austin builders started 10,205 new homes in the last twelve months, representing a 9% increase year-over-year. Area builders closed 2,454 new homes in the third-quarter, 2% more than the third-quarter of 2013. Over the last four quarters, builders have closed 9,307 new homes, a 9% increase over the prior four quarters.

“The Austin market has experienced a strong year thus far but momentum has started to slow as builders and home buyers are starting to feel the pinch of higher costs and home prices.” said Randall Allsup, regional director for Metrostudy’s Austin market. “Demand for new homes remains strong, especially in areas that can produce entry level product priced below $200,000. In order to meet the demand of today’s buyer, the market continues to move into new submarkets and is introducing new product offerings.”

“Lot inventory remains a hot topic as lot supply remains tight in the most active sub-markets around Austin. Facing labor shortages and swamped municipalities Austin developers have delivered 10,106 lots in the past twelve months, which is just short of keeping pace with a market that has absorbed 10,205 vacant lots that time. Developers are doing all they can to deliver lots to a market that is desperate for them,” says Allsup. The 2,810 lots delivered in the third-quarter is the third quarter in a row in which there have been more than 2,500 lots delivered in a single quarter, but despite this surge in development activity the total lot supply has shrunk to 14,414, down 2.5% compared to the second-quarter. With regards to supply and demand, the relative lot supply in Austin is now 16.9 months, well below the 20 months considered equilibrium in the Austin market. “The lot shortage and rapid cost and home price increases go hand-in-hand,” adds Allsup, “and unless there is consistent quarter-over-quarter and year-over-year lot delivery exceeding lot absorption there will be little relief to be found bar another economic downturn.”

With rapidly rising prices in what is considered a hot market, Metrostudy is keeping a close eye on housing inventory levels as this has historically been a very good indicator of the health of the market. As of the third-quarter there are 1,285 finished vacant units in the Austin market, up 9% compared to one year ago. Though up from last year, this finished inventory equates to a 1.7 months of supply, which indicates a sellers’ market. The number of new homes under construction rose 20% compared to a year ago and the 3,922 homes under construction is the highest total we have seen since the peak of the market in 2006. The number of new homes under construction can either be an early indicator of future closings, but also may harbor higher levels of inventory and a softer market. Time will tell whether this indicator is a positive or a negative.

Allsup concludes, “the fundamentals of housing demand, primarily job and population growth, remain strong. Yet in the face of rapidly rising prices, tight lot availability, and increased competition many of our builder clients are feeling squeezed in a market which by all accounts is a healthy one.”