Home construction continues at a record pace in central Texas, the latest figures show, and industry experts say housing demand in the Austin area is expected to remain strong for the remainder of the year.
However, they say the market could see the pace of sales and price increases slow down a bit in the second half of the year.
This could happen as the Austin area market cools down very slightly – from a “super, super, super, super, super sellers market, to just a super, super, super, super sellers market. “said economist Elliot Eisenberg in his mid-year forecast last month to the Home Builders Association of Greater Austin.
Other experts agree.
As home prices are expected to continue to rise, “the level of appreciation we are seeing may wane a bit,” said Eldon Rude, longtime Austin area housing consultant.
“Some builders I’ve spoken to say they’re starting to see some price resistance, and yet prices are likely to continue to rise because lot prices continue to rise,” said Rude, director of 360 ° Real Estate Analytics. , an Austin-based consulting firm. “So will buyers be able to accept even higher prices as next year approaches?” This is one of the reasons we might see the pace of sales slowing down. “
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Home construction in central Texas reaches record high
In April, May and June, builders in central Texas began construction on 6,530 homes, the highest level on record for the second quarter and an increase of 21.2% from the same quarter last year , according to industrial data firm Zonda, which tracks housing starts in Austin County’s five-region as well as other metropolitan areas across the country.
On an annual basis, builders began work on 24,606 homes in the Austin Five County area during the 12 months that ended in June. That 12-month total was another record, and represented a 20% increase over the 12 months that ended in June 2020, according to data from Zonda.
Zonda said records were also set for annual shutdowns, which builders define as a home sold and occupied.
Along with the new records, historic lows were set in the number of finished but vacant homes, as well as the number of vacant lots ready for construction.
The numbers reflect the continuing history of the Austin area housing market over the past decade: a history of high demand – including an influx of affluent buyers – and low supply, resulting in ever higher prices. This trend was only reinforced by the coronavirus pandemic.
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“Austin’s housing market peaked which surprised us shortly after the pandemic took hold,” said Vaike O’Grady, regional manager for Zonda in Austin. “It was the perfect storm of low inventory and extremely high demand driven by offshoring from both coasts and millennials looking to buy.”
April Whitaker, Austin division president for Taylor Morrison, the fifth largest homebuilder in the United States with 29 communities in central Texas, said Austin is “a hot market.” Taylor Morrison recently announced that he will be building on 60 lots in the La Cima subdivision in San Marcos with homes starting at $ 400,000.
“We are seeing buyers from other parts of Texas but also from California and the West Coast,” Whitaker said. “Millennials are gaining ground as first-time home buyers. Nationally, over the past year, there has been an increase of about 5% in the number of single first-time homebuyers, especially those who weren’t married. “
Are New Home Prices In The Austin Area Stabilizing?
Prior to the 2007-2009 recession, the biggest quarter of new housing starts in the Austin area was the third quarter of 2006, with just over 5,000 starts, according to data from Zonda.
The Austin market didn’t hit 6,000 starts in a quarter until the fourth quarter of 2020, and has done so every quarter since, O’Grady said.
Rude has said in recent months that many builders don’t price specific homes – homes built without a buyer already committed to buying them – until the homes are near completion, in order to protect themselves against material price increases and protect their margins.
He said the market was always “really, really strong” as the region sees a continuous influx of people settling in. With a limited supply of resale homes on the market, some buyers are looking for new homes as an alternative, Rude said.
However, he said slower sales could be on the horizon.
“Manufacturers are going to have a great year, but I expect the pace of sales to moderate as we approach the end of the year,” said Rude.
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Among the reasons: resistance of some buyers to the sharp rise in prices. Some people “are not so urgent to buy just because there is a house available,” Rude said.
Financial realities are also a factor. Buyers who planned to spend, say, $ 400,000, are now faced with prices that have soared to $ 500,000 or $ 600,000 and realize “we can’t buy right now,” Rude said.
Add to that the fact that the Austin area real estate market, in just a year, has become much more expensive than some of its peer markets, Rude said: namely Houston, Dallas, San Antonio, Nashville, Tampa and Atlanta, among others.
“Our prices have gone up more than any of these markets,” Rude said. “We might have lost some of our competitive advantage in these markets.”
Challenges with approvals, permits for the construction of houses in the Austin area
O’Grady said developers are working hard to bring new lots to market, but “approval delays and extended construction times” are a challenge. And that pushes prices up and limits growth, especially in areas closer, she said.
Peter Merrigan, CEO of Taurus Investment Holdings, a global real estate private equity firm that owns several residential properties in the Austin area, echoed O’Grady’s comments on how long it takes to obtain approval for new residential developments in Austin.
“The biggest problem in Austin is the lengthy eligibility process involved in producing homes,” Merrigan said. “It can take 28 to 36 months or more to get a final plate with construction drawings on land ready for development. “
Taurus properties in Austin include Whisper Valley, a subdivision just east of Texas Toll Road 130 and FM 973 where plans call for 7,500 homes that would be powered by geothermal and solar energy. Prices for duplexes start in the $ 370,000 range, and single family homes are now in the midst of $ 600,000.
Merrigan said the slow approval process is particularly causing a shortage of affordable housing, “and this dynamic will continue to drive up the cost of housing for Austin residents as builders struggle to meet demand. The eligibility process involved in the production of housing (ideally for a maximum of 15 to 18 months) will allow market supply to catch up with demand and, ultimately, stabilize price increases. ”
Despite some of these challenges, O’Grady said housing demand in central Texas will maintain its strong pace throughout this year.
“If we had enough lots,” she said, “we could easily start 7,000-8,000 homes in the third quarter. “