Austin-area home starts hit 6-year high in 3rd quarter

Homebuilding in Central Texas revved up in the third-quarter to its highest level in six years, new figures show.

Builders started construction on more than 4,000 houses in the Austin area from July through September, an 11.1 percent increase compared with the year-ago quarter, housing tracker Metrostudy said.

The 4,067 starts was the highest quarterly level in six years, Metrostudy said, and approached the peak that was hit in the first three months of 2006, when builders started construction on 4,387 homes. Metrostudy’s report covers Travis, Williamson, Hays, Bastrop and Caldwell counties.

On an annual basis, Metrostudy recorded 13,402 home starts for the 12 months that ended in September. That’s a nearly 16 percent jump from the prior 12-month level of 11,555 starts, Metrostudy said.

“There is continued strong demand for new homes in the Austin market, and builders are responding,” said Vaike O’Grady, Metrostudy’s Austin regional director.

Demand is especially high for homes priced below $300,000, Metrostudy said. The top 10 builders with base prices below $300,000 had 5,639 annual closings in the third quarter — nearly half the 12,757 closings for the 12 months that ended in September, Metrostudy said. A closing is defined as a buyers having moved into a home.

The market has been hamstrung by a shortage of both new and resale homes relative to demand. The good news is that supply is growing to meet demand, Metrostudy said. The firm said it is now tracking 611 active subdivisions in Austin, up from 547 just two years ago.

The supply and demand imbalance has been driving prices up for some time, heightening the region’s affordability issues.

To combat the growing gap between escalating home prices and the area’s average annual salary — currently $56,908, according to the Federal Reserve Bank of Dallas — Metrostudy said some builders are trying to reduce home prices in a variety of ways, such as removing features, designing smaller homes or building such “attached” products as duplexes, townhomes and condominiums, Metrostudy said.

“We may be soon at the point where a first-time home in Austin is a condo or townhome,” O’Grady said.

In the third quarter, Metrostudy added 30 new condominium and townhome projects to its database, “quite a shift for Austin,” Metrostudy’s report noted.

Eldon Rude, principal of 360 Real Estate Analytics, an Austin-based consulting firm, said his homebuilder clients face two main obstacles in trying to build less expensive homes.

First, “there aren’t many lots available for them to buy, because they are already spoken for,” Rude said.

Second, if they opt to buy land and develop their own lots, increased regulatory and other costs make many potential projects cost-prohibitive, Rude said.

“What this means is that new home prices in our region will continue to increase, and prospective homebuyers will be forced to make more concessions with regard to home size, lot size, and, in many cases, location,” Rude said.

Suzanne Maddalon, vice president of marketing for Freehold Communities, developer of the master-planned Headwaters subdivision in Dripping Springs west of Austin, said its first model home will be finished next week and the project is seeing strong interest.

“We are already receiving a great deal of interest, especially from those relocating to Texas or moving from other parts of Austin,” Maddalon said. “This particular area is highly desirable for both families and empty nesters.”

When completed, Headwaters will have 1,000 single-family homes priced from about $350,000 into the $700,000s.

In general, builders say, the market outlook remains good.

At Meritage Homes, “we opened five new communities this year, including a gated community of townhomes in South Austin, and have plans for new neighborhoods in growing areas including Round Rock, Pflugerville, Leander and Dripping Springs,” said James Saunders, Meritage’s Austin division president. “With strong job growth, high (apartment occupancies and rent rates) and historically low interest rates expected for the foreseeable future, the outlook for housing continues to be very favorable,” Saunders said.

The Federal Reserve is expected to raise rates in December, but experts predict mortgage rates will remain low into next year, Metrostudy said. Kiplinger’s Personal Finance projects the average mortgage rate to be 3.7 percent at the end of 2017.

Although job growth is slowing, O’Grady said, “we don’t see significant headwinds going into 2017. The key is to keep the supply coming in at the more affordable price points.”

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