Austin-area home starts hit second-highest level on record


Highlights

The last time starts topped 16,000 was in 2006, when builders started work on 17,784 houses.

Experts predict a continued strong housing market this year.

Headwinds include high home prices; rising costs of labor, materials; and projected uptick in interest rates.

Amid continued strong demand for housing, Central Texas builders started construction on just over 16,000 homes last year, the second-highest level on record, new figures show.

The only other time the Austin area finished a year with more than 16,000 starts was in 2006, when builders put hammer and nail to 17,784 houses, said Metrostudy, which tracks housing markets locally and nationally.

Last year’s 16,058 starts were up 2.7 percent from 2016.

In the fourth quarter, builders started construction on 3,456 houses, a 16.8 percent drop from the final quarter of 2016, Metrostudy found. The decline is in line with a typical Austin winter season, said Vaike O’Grady, Metrostudy’s regional director in Austin, but she also noted that the last quarter of 2016 was particularly strong by comparison.

Despite challenges in the local market — including home prices that are outpacing incomes and anticipated rising mortgage interest rates that will hurt affordability — Metrostudy said “Austin is poised for a robust housing market in the first half of 2018,” barring “a significant geopolitical threat or substantial inflation.”

“Demand for housing in Austin should continue to be strong well into the spring,” O’Grady said. “Many of our builder members reported record sales in 2017. We estimate nearly 20,000 new homes were sold in the Austin area last year.”

One drag on the market is high home prices, which continue to keep prospective buyers on the sidelines, O’Grady said. In addition, increased labor and construction costs, coupled with tighter regulation and higher fees, are squeezing builders’ margins, O’Grady and other housing experts said.

“Home builders continue to face an extremely tight labor market which not only lengthens the time it takes to complete a home but also increases construction costs,” said housing market expert Eldon Rude, principal of 360 Real Estate Analytics, an Austin-based consulting firm. “I don’t expect these conditions to ease in 2018, which means more frustrated customers paying more for their homes in Austin this year.”

As in prior quarters, Metrostudy said demand is highest for homes priced between $200,000 and $300,000. That segment accounted for almost half of the new starts last year.

In Hays County, south of Austin, Pacesetter Homes is building homes priced from $173,900 to $289,900 in the Blanco Vista subdivision. Nearly 40 homes are in various stages of construction, with another 78 lots to be ready to build homes on soon, the company said.

“Pacesetter is optimistic about 2018,” said Lee Whitaker, vice president for Pacesetter Homes. “There is more robust demand than supply, especially for homes under $300,000.”

Whitaker said smaller lots were delivered in 2017 in record numbers, allowing Pacesetter to keep its price points low for entry-level buyers.

First-time homebuyers and newlyweds Katelyn and Stephen Ayers will be moving into a new Pacesetter home in a few weeks. They bought a home priced in the mid-$200,000s in the Oak Creek subdivision in Leander.

“It’s a beautiful three-bedroom home with a study, open living room and kitchen that’s perfect for hosting friends and family, and just enough yard for our golden retriever to play in,” said Katelyn Ayers, 26. “We both love the idea of a home outside of the city where we can have a bit more open space and a country feel to it.”

Whitaker said Pacesetter Homes is seeing buyer interest both locally, including people who no longer want to rent or who are cashing out equity from their first home, as well as from out-of-state buyers, primarily from California and Florida.

Ed Horne, a veteran Austin area homebuilder who is developing Santa Rita Ranch, a subdivision located between Liberty Hill and Georgetown in Williamson County, said he is seeing “a significant number of renters entering the market.”

“Specifically in Santa Rita Ranch, I predict the upward trend in home sales we saw in 2017 to continue as we introduce additional builders and product offerings,” Horne said.

Eleven builders are marketing homes priced from the $190,000s to the $700,000s in Santa Rita Ranch.

“We ended 2017 well above sales in 2016, and we should retain our status as being the top-selling community west of Interstate 35,” Horne said.

For most of 2018, O’Grady predicts the market “will meander along the peak at about 16,000 starts.”

“As long as interest rates don’t creep up too fast too quickly, there is plenty of demand to fuel the new home market,” she said. “And buyers seem willing to shop further out in order to afford a new home.”



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