Posted in Houston Market, Texas Market | Posted on 05-12-2015 | Written by Metrostudy News
- Through 1Q15, Metrostudy’s survey shows annual new home starts at over 29k, down slightly from 4Q14 but still the second strongest total since 3Q08
- The current annualized rate of home closings is the second highest since 1Q09
- Although the supply of finished vacant homes has increased 22% from a year ago, this number is a mere 30% of FV inventory in 2Q07, the height of speculative building
Metrostudy’s 1Q15 survey of the Houston new home market showed continued strong performance, with builders starting construction on 6,655 new homes, a slight increase over 4Q14 but about 6.9% lower than 1Q14. On an annualized basis, starts stand at 29,852, about 1.6% below 4Q14 and the strongest rolling four quarter total since 3Q08. The annual pace in starts declined for the first time since 2011 as region felt the first effects of the slowdown in the oil patch.
“While annual starts have outpaced annual closings since 2012, closings have increased steadily over the last thirteen quarters, only to fall 2.7% over Q1 2014,” said Scott Davis, Director of Metrostudy’s Houston region. “In the first quarter, area builders closed 6,383 new homes, bringing the annualized total to 28,106. Despite the dropoff in closings in the first quarter, the rolling four quarters total still represents a 7.3% increase year-over-year. The current annualized rate of new home closings is the second 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.”
Metrostudy’s first quarter survey reflects 11,916 homes currently under construction; about 1,000 more than a year ago, and which equates to 7.1 months of supply. Conversely, the supply of homes sitting finished and vacant has increased 22% from a year ago to 3,945 units, which represents the highest level of inventory since Q1 2012. Interestingly, this is a mere 30% of the number of finished vacant units available in the second quarter of 2007, the height of speculative building. The number of model homes has risen to 803 from 788 a year ago.
“Houston’s resale market closed on 83,224 single-family homes from Mar 2014 through Mar 2015, falling just shy of the level in Jan 2015 but represents the second largest volume of resale closings since we’ve been compiling the statistics back to 1990,” said Davis. “Despite the slowdown in energy, the pace of closings remains ahead of Q1 2014. The pace of home closings remains constrained, with listings at 19,286 in March 2015, even though it is up from 17,857 last year. The addition of almost 2,000 properties in listing inventory has increased the months of supply to 2.8, which remains significantly below the six month mark, which is typically considered a healthy equilibrium level. Even with a weakened economic background, Houston is currently not able to meet housing demand.”
MLS transactions of resale homes reflect a median price of $204,000 in the fourth quarter, nearly 7% higher than a year ago, and the third highest median home price since 1990. Prices on existing product have held better than most expected, driven by tight supply. We would expect that prices in the resale market should return to historical levels as sales slow as pressure on the market is lessened by the slowdown in the energy sector.
Deliveries of Vacant Developed Lots are starting to catch up to the pace of absorption. By the end of the quarter, we had supplied about 1,020 more lots than starts. During the first quarter, 7,675 new lots were delivered to the market while 6,655 new homes were started. Year to date, 28,835 lots have been delivered, while builders have started construction on 30,325 new homes during the same time frame. Houston’s relative supply of VDL sits at 14.9 months, well below the 10 year average of 25 months. Moving forward, lot availability will continue to be a key factor for the growth of the Houston housing market.
In 2015, several significant trends are important for the Houston housing market. Mortgage rates should continue to remain low, factors that have contributed to the rapid increase in home construction costs should abate, and lot supply should increase significantly and these should encourage new home sales. But these trends will be overshadowed by concerns over the rapid decline in the price of oil. At present, consumer hesitation over the influence of oil prices is the greatest risk to the market; job increases from oil and gas producing companies have comprised less than 10% of the job increases in Houston over the last year. However, the longer that oil stays below $55/barrel the greater the negative impact it will have on the Houston housing market.
“Tight supplies of available housing historically lead to home price appreciation, and prices in housing are rising quickly in both new and resale homes,” said Davis. “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.. Consumers have little choice but to pay 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 5% since last year and new sales are up 4.6%.”
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