Metrostudy’s 2Q16 survey of the Austin housing market shows that builders continue to capitalize on strong sales and improved lot availability to show significant gains in starts. The annual starts pace ended 2Q16 at 13,423 homes, the highest volume in three years. Starts during the second quarter of 2016 are 17% higher than 2Q15 and 8% higher than 1Q16. With demand strong, annual closings grew to 12,117 at the close of 2Q16, a 5% increase from the previous quarter. Closings during the second quarter of 2016 were up 14% compared to 2Q15. After a slight decline in 4Q15, starts continued to rebound through the first quarter and into the second quarter of 2016 as builders began reporting stronger sales during the past six months. Strong growth in closings has allowed inventory levels to remain healthy as Austin heads into the 2016 summer season.
“After slower growth in 2015 due to lot constraints, the Austin new home market responded by increasing development activity and expanding lot inventory, especially in the under $400,000 price range. This in turn led to an increase in starts and closing activity in the first half of 2016,” said David Brown, Senior Vice President of Metrostudy. “While this is a positive direction for overall housing growth, there continues to be strong pressure on an already constrained lot supply, especially in the under $300,000 price range. Continued job growth in Austin will bring consistent demand to the housing market, but many potential buyers will still be forced into the multifamily and resale market due to this lack of supply. Builders and developers must look to innovative product and locations in order to serve these buyers in 2016 and beyond.”
Quarterly Starts by Price Range
Over the last several quarters, the issue of affordability in Austin has been one that Metrostudy has continually explored as new and resale home pricing was expanding beyond the grasp of many consumers. While the under $200k price point continues to be difficult to achieve due to rising land and material costs, the $200k-$300k price point has emerged with strong year to year growth. With the exception of the under $200k and the $500k and up price ranges, all other price ranges experienced positive growth in starts in the second quarter of 2016.
Austin’s healthy job growth and relative affordability, despite the increased prices, remain the primary reasons behind the strong demand for housing in the region. Austin has shown positive annual job growth since June of 2010 which has led to the unemployment rate dropping to 2.9%, one of the lowest rates in the U.S. New home inventory has increased at a moderate pace during the past year. Finished vacant experienced a 20% decrease down to 2.0 months of supply with a total unit count of 1,979 at close of 2Q16. Builders are closings homes as soon as the house is completed and ready to occupy. Our FV unit count is the lowest we have seen since the close of 3Q15.
Jobs Gained and Lost in the Austin Region 1996-2016
The latest tally of under construction units was the highest witnessed since 2007. Despite strong under construction unit volume, that tally still sits 17% lower than the under construction peak seen in 2Q06. Even though under construction units remain far from the historical peak, it continues to move in a positive direction. The increased units remaining in the under construction stage is indicative of the labor constraints leading to extended construction cycle times. With such a high number of units under construction, forecasting for starts and closings for the upcoming year will need to be watched very closely. With at least 5.0 months of supply in the under construction category the market is well positioned for 2016. However, expectations of large increases are not likely until the labor shortage is fully solved.
Lot supply continues to be the most constrained below the $400k price point. In order to achieve substantial growth in many high-demand submarkets, developers and builders will have to continue to deliver lots above the start pace to achieve equilibrium lot supplies.
Rising home prices due to increased construction costs, land and lot prices, and rising development costs have forced new home prices above levels that will maximize absorption. Relative affordability will continue to play as a strength for the Austin market in the near term. However, rapid price appreciation could eventually mean that the new home market will be unable to reach the largest pool of potential home buyers in the U.S.