Metrostudy’s 1Q14 survey of the Houston market revealed that housing continued to surge in the first quarter, and prices are rising quickly for both new and resale homes. Builders started construction on 7,146 new homes this quarter, the fastest pace since the third quarter of last year. “These numbers represent a year-over-year gain of 9%,” said David Jarvis, Regional Director of Metrostudy’s Houston Market. “Houston hasn’t seen this many new homes started in the first quarter of the year since 2007.”
On an annualized basis, starts stand at 28,930, 14% above 1Q13, and the strongest rolling four quarters since 3Q08. The growth in the pace of starts continues to follow a measured linear trajectory as lot supply constraints have prevented Houston builders from ramping up construction more quickly.
While annual starts have outpaced annual closings since 2012, closings have increased steadily over the last eleven quarters. In the first quarter, area builders closed 6,553 new homes, bringing the annualized total to 26,463. This level of activity represents a 2.8% increase from prior quarter, and a 15% gain from a year ago.
“During the expansion phase of a housing recovery we expect to continue to see closings lag behind starts activity given the timeline of home construction and sales,” said Jarvis. “The current annualized rate of new home closings is the largest since the first quarter of 2009 when builders were still liquidating their inventory as quickly as possible. Needless to say, the sales occurring today are of a much healthier nature.”
Job growth is one of the single most important drivers of home demand, and Houston’s pace of job growth is one of the highest in the nation. While not as strong as last year, the general consensus seems to be that job growth in the Houston MSA will continue at a healthy pace throughout the rest of 2014. Another important driver for new home demand is the extremely tight inventory of resale homes available on the market. Historically low resale inventory levels seem to be pushing would-be resale buyers into the new home market.
Moving forward, lot availability will continue to be a key factor for the growth of the Houston housing market. Due to builder demand for more lots, most, if not all, lots being brought to market have a buyer before they’re completed. Therefore, a number of publicly-traded builders and large, privately-owned builders have begun aggressively accumulating land and developing lots for their own use as a defensive posture.
Tight supplies of available housing historically lead to home price appreciation, and prices in Houston are rising quickly in both new and resale homes. On top of this, builders are coping with an overall increase in the real cost of building a new home in the market. Builders currently face fierce competition for a limited number of available lots to build on in suitable locations. In addition, builders are paying higher costs for materials and facing shortages in labor. These factors have contributed to a bottleneck which has limited growth in starts and has extended delivery times. Other factors contributing to the increase in median home prices are fewer distressed sales and higher volumes of sales in the move-up market.
“Increased land and input costs are subsequently being passed down to consumers, as tight inventories have increased builders’ bargaining power and allowed them to raise prices,” said Jarvis. “Consumers have little choice but to pay these higher prices or continue to rent at ever increasing rates, as inventories in both the new home and resale markets are quite thin. The result of all these factors is strong appreciation in home values, which Houston has already been observing as median closing prices for resales in Houston are up over 17% since last year and new sales are up 13%.”
For information contact: david jarvis @ 713-622-9909 x132
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.
Learn more about markets featured in this article: Houston, TX.