Posted in Austin Market | Posted on 08-09-2015 | Written by Metrostudy News
- 2Q15 New Home Starts are down 5% from 2Q14, mainly due to precipitation levels in May and June. Despite this, builders continue to report strong sales.
- We continue to see an affordability squeeze: Higher lot prices have led to a sustained drop in starts of homes priced under $200k
- Metrostudy expects a surge of activity in the third quarter as builders attempt to make up for lost weather days from the first half of the year.
AUGUST 2015 – Metrostudy’s 2Q15 survey of the housing market in Austin shows continuing strength despite the precipitation that inundated the months of May and June. While the Annual Starts pace ended the quarter at 11,333 homes, 2Q15 starts were 5% lower than the 2Q14. With demand strong, annual closings grew to 10,523 by the end of the second quarter, a 2.6% increase from the first quarter. 2Q15 closing were up 10% compared to 2Q14. Despite the inclement weather, builders continue to report strong sales through the second quarter. This will translate to a strong finish to 2015, if the weather continues to cooperate.
“Price increases over the past three years have affected affordability and forced buyers to the next submarket or to an existing home in many areas,” said Steve Plevak, Regional Director of Metrostudy’s Austin office. “Higher prices for the newest generation of lots have led to a sustained drop in starts of homes priced under $200,000. The $250,000 to $300,000 price range reported the strongest growth for the quarter. The $300,000 to $400,000 price range reported a slight decline in the second quarter 2015 compared to the same period in 2014. The $400,000 to $700,000 price ranges showed modest increases in starts while the $700,000 and above price-point saw a significant decline.”
The annualized pricing increases showed the smallest gains in the second quarter since the end of the recession. Prices increased the fastest for homes priced under $300,000 during the second quarter, as inventory of new and existing homes has fallen over the last year. Prices increased at the slowest rate for homes priced over $400,000 and showed the lowest increases at $500,000 and above.
New home inventory dipped 3% during the second quarter, due to a small decline in starts while closings grew during the quarter. Total SFD & TH inventory ended the quarter at approximately 6,000 homes. The inventory represents a 6.9-month supply, down approximately 5% from the first quarter. It is typical for the months of supply to be above 6- months when a market is expanding because starts will increase in response to stronger demand. The extended construction cycle is exaggerating this metric.
“New home inventory has remained healthy during the summer months and benefitted from the drop in starts due to the weather,” said Plevak. “This drop allowed the finished inventory ratios to drop back below an equilibrium level, which will aid in pricing power. Metrostudy will be monitoring the trends in finished inventory for signs of any softening in the market conditions in the coming quarters.”
Finished inventory decreased in the second quarter due to the inability to finish homes under construction and now sits at or below equilibrium in price points under $400,000. Finished inventory has begun to expand above $400,000 and has the most months of supply in the $500,000 and above price range. These numbers may slightly increase in the next two quarters but are unlikely to rise very far above equilibrium due to the majority of starts being tied to contracts written during the strong spring selling season. Total inventory remains very healthy at most price ranges and saw some slight retraction in the second quarter due to issues with starting homes in the damp weather. Inventory at the $400,000 and above price ranges continues to be slightly elevated and Metrostudy will monitor this trend.
Existing home sales grew 3% during the second quarter while average and median prices continued to increase. Inventory has increased as the spring selling season has ended and prices have appreciated to a level where more homeowners are willing to list their existing home. The continued appreciation of existing homes bodes well for homebuilders as prices will become more conducive to buyers including new homes in their search.
The remainder of 2015 will be marked by builders working through their existing backlog of sales from a strong spring and improved weather will allow them to catch up on starts from a damp beginning to the year. There will likely be a surge of activity in the third quarter as these builders attempt to make up for lost weather days from the first half of the year. Metrostudy will monitor the impact of the upcoming increase in interest rates to determine the effect on 2016.
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