Posted in Austin Market | Posted on 02-06-2015 | Written by Metrostudy News
- Annualized New Home Starts are up 13.7% over 4Q13
- Affordable housing options continue to erode – Starts under $200k are down almost 25% since 4Q12
- Builders will need to come up with creative planning and product design that allows for a more affordably priced product, or diversify geographically into lower priced regions
February 2015: The count of the quarterly numbers from Metrostudy’s survey shows the Austin market finished the year on a high note, exceeding expectations in the process. The annual rate of new single-family housing starts generated by builders is 13.7% above last year’s 4Q13 level, an increase of 1,284 units. The annual rate of starts as of 4Q14 is 10,686 units, which is up 500 units from last quarter. Metrostudy’s 4Q14 survey recorded 2,627 housing starts in the Austin area, up 23.5% compared to the number of starts in the fourth quarter of 2013. In addition, Metrostudy’s research indicates there were 2,364 new home closings in the Austin market in the most recent quarter, a 4.0% increase compared to 4Q13. The annual rate of new home closings as of 4Q14 stood at 9,370 a 5.2% increase compared to the 4Q13 rate of 8,911 and up 1.0% from the 3Q14 pace.
“The evaluation of new home activity by price range shows that affordability in Austin continues to erode with the market share of new home starts priced below $200,000 dropping 16% in the past year,” said Randall Allsup, Regional Director of Metrostudy’s Austin market. “New construction activity priced between $200,000 and $300,000, the largest segment of new homes being built, has seen its market share climb from 34% to 39% over the past year. The pace of new construction priced below $200,000 has decreased 16% over the year but the $300,000 to $500,000 has shown a 26% growth rate in the previous twelve months.”
Austin Annual Starts by Price Range – 4Q12 to 4Q14
Total housing inventory has risen over the past twelve months but remains at low levels. There were a total of 5,850 homes in inventory at the end of 4Q14, which represents 7.5 months of supply based on the current Annual Closings rate. Metrostudy documented 3,871 homes under construction at the end of 4Q14, up 815 units from 4Q13. When examining inventory levels, Metrostudy looks at the months of supply of finished vacant units as the key indicator of the health of housing inventory. The inventory of finished vacant units totaled 1,576 homes at the end of 4Q14, which is 298 units higher than last quarter’s total of 1,278 units, and 403 units above the level of a year ago when there were 1,173 finished units. Based on the closings rate for the last four quarters, the current level of finished vacant inventory represents 2.0 months of supply.
In the fourth quarter of 2014, Metrostudy recorded 14,785 vacant developed lots in the Austin market, an increase of 71 lots since last quarter. Based on the current annual starts rate, this lot total represents a 16.6 months supply of lots. There were 2,698 new lots delivered to the market during 4Q14 versus 2,627 lots absorbed. In addition, there were approximately 8,500 lots under construction at the end of the fourth quarter. The months of supply of vacant developed lots has decreased from a high point of 41.3 months reached in 2Q09 to the current supply of 16.6 months.
New home starts in 2014 are up 13.7% over 2013, a successful year by any standard. Closings, only up 5.2%, are not quite keeping pace. This leads to the question: “Are the fundamentals of housing demand in Austin strong enough to overcome rising prices and stagnant income growth?” The answer has to do with pricing and the ability, or inability, to produce lots and housing at significant levels that can cater to the under $200,000 market.
“Ten years ago builders started more than 8,400 homes priced less than $200k, a 66% share of all Single Family starts in a 13,000 unit market,” said Allsup. “In 2014, it was 2,504 starts and a 23% share. Developers can no longer provide lots for this category to meet the demand that requires more affordable housing in Austin. As a result we can only expect to substantially grow overall numbers if our move-up market continues its current expansion rate, which is unlikely, or if builders come up with creative planning and product design that allows for a more affordably priced product, or if builders become more geographically diverse with strategic growth into lower priced regions.”
There are many adjectives one can use when describing the Austin housing economy, not all positive, though we should all feel very good about where the market stands at the end of 2014 when compared to years past. Our economy has rebounded nicely, job numbers continue to grow and we anticipate more of the same in 2015 with minimal effects from dropping oil prices. Population and household growth maintain a strong growth pace, which leads to more housing demand. Tie all three together and it is apparent we remain in an excellent position for continued demand for new construction. The single family resale inventories are extremely tight, a seller’s market in that regard, resulting in rising housing values and prices. The new home move-up market is as strong as it has ever been, with the robust economy fueling that increasing demand. Nevertheless, we are keeping an eye onincreasing inventory levels as a possible signal of a softening market. All said, the 2015 forecast calls for moderate growth but not as easily obtained as in the past.
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