Austin-area home starts climb 3.3% in second quarter


Highlights

Housing demand remains strong due to region’s continued job growth.

Lots remain in short supply, Metrostudy says.

Demand is greatest for homes priced below $300,000.

Amid strong demand for housing, Central Texas homebuilders ramped up production in the second quarter as they started work on more than 4,500 houses, new figures show.

Starts totaled 4,537 from April through June, a 3.3 percent increase over the year-ago quarter, Metrostudy said in its latest report Thursday.

For the 12 months that ended in June, starts totaled 16,675 — up 1.9 percent from the prior 12-month period, the housing-market consulting firm said.

“Thanks to continued strong job growth, demand is high,” said Vaike O’Grady, Austin regional director for Metrostudy.

The median base price for new homes in the second quarter hovered around $290,000, as it has for the previous six quarters, Metrostudy said. To help offset rising costs, developers and builders are moving further out, constructing smaller homes on smaller lots, Metrostudy said.

The outlying areas of Pflugerville, Manor, Del Valle, Cedar Park, Leander, Liberty Hill and Kyle/Buda all saw more than 1,000 starts on an annual basis, Metrostudy said.

The supply of houses that are finished, but vacant — now numbering 2,872 homes — is up nearly 25 percent from a year ago.

“While the level is relatively high, it’s indicative of builder confidence in future demand,” O’Grady said. Half of the vacant inventory has base prices below $300,000, where there’s the most demand, O’Grady said.

However, the demand is not just at the lower end of the price spectrum, O’Grady said. She said quarterly closings — representing homes that buyers have occupied — outpaced starts in all price ranges above $300,000 as well.

Ken Langston, the Austin division president for KB Home, said the volume builder is acquiring land and opening several new communities amid favorable market conditions.

“The factors that are driving demand appear to be outweighing any increase in interest rates,” Langston said. “Market conditions remain robust with economic expansion, high consumer confidence and favorable demographics that reflect an increase in millennial household formation, plus job and wage growth supporting demand.”

A recent survey of Metrostudy’s builder clients indicated that affordability and construction costs are the biggest concerns. “Not only are they dealing with increased materials costs, but land is more expensive, as well,” O’Grady said.

Eldon Rude, an Austin-based housing industry consultant, said that although the Austin region could see the most home starts this year since 2006, “Builders continue to face significant challenges trying to keep up with demand, especially for homes priced between $200,000 and $300,000.”

“The combination of increased lot prices, higher material and labor costs, as well as delays in permitting all add up to higher home prices and longer construction times which ultimately stretch builders’ ability to deliver homes that are affordable to more people,” Rude said. “The industry’s response to these obstacles has been to develop communities and build homes further from Austin where land is less expensive and (building approvals) are easier to secure. We are seeing this change with the recent openings of more communities east of Interstate 35 in Georgetown, Hutto, Elgin, Bastrop and San Marcos.”

A scarcity of lots is adding to pressure on new-home prices, O’Grady said.

“Builders are meeting or exceeding their business plans, but they have real concerns about the future,” she said. “There are not enough lots on the ground, and what’s coming is taking too long and costing too much to build.”

Developers delivered 4,160 lots in the second quarter, down 13.4 percent from a year ago, Metrostudy found.

“Our annual lot delivery pace has slipped below 17,000 in a market that starts almost that many homes in one year,” O’Grady said.



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