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Housing construction continues at a record pace in central Texas, the latest figures show, and industry experts predict housing demand in the Austin area will remain strong for the remainder of the year.
However, they say the market could slow down a bit in the second half of the year, both in sales and in price increases.
That could come when the Austin area cools down a little – from a “super, super, super, super-superseller to a super-super-super-superseller,” he said Economist Elliot Eisenberg in his half-yearly forecast last month to the Home Builders Association of Greater Austin.
Other experts agree.
While house prices are expected to continue to rise, “the appreciation we’ve seen may wear off a bit,” said Eldon Rude, a longtime advisor to the Austin area housing market.
“Some builders I’ve spoken to say they are starting to see some resistance to prices and yet prices are likely to keep rising as land prices are still rising,” said Rude, head of 360 ° Real Estate Analytics, a consulting firm based in Austin. “So can buyers accept even higher prices next year? That’s one reason we may be seeing the pace of sales slowing.”
More:The housing market in central Texas remains on course for a record year
Housing construction in central Texas hits record levels
Central Texas home builders began building 6,530 homes in April, May and June, most in the second quarter, up 21.2% year over year, according to industry data firm Zonda, which is tracking construction start in the 1950s-County Austin Region as well as in other metropolitan areas across the country.
On an annual basis, in the 12 months ended June, builders began work on 24,606 homes in the five-county Austin area. That 12 month grand total was another record, and according to Zonda data, a 20% increase over the 12 months that ended in June 2020.
According to Zonda, records have also been set for annual closings, which builders define as a house sold and occupied.
Together with the new record highs, all-time lows were recorded in the number of completed but vacant apartments and the number of building vacancies.
The numbers reflect the lingering history of the Austin area’s housing market for a decade: a history of strong demand – including from an influx of wealthy buyers – and low supply that drives prices higher and higher. This trend was only compounded by the coronavirus pandemic.
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“The Austin housing market is enjoying the high that surprised us shortly after the pandemic broke out,” said Vaike O’Grady, Zonda’s regional director in Austin. “It was the perfect storm of low inventory and extraordinarily high demand, driven by coastal moves and millennials looking to buy.”
April Whitaker, division president for Austin at Taylor Morrison, the fifth largest home builder in the US with 29 parishes in central Texas, said Austin was “a fiery market”. Taylor Morrison recently said it would build on 60 lots in the La Cima neighborhood of San Marcos with homes starting at $ 400,000.
“We’re seeing buyers from other parts of Texas, but also from California and the west coast,” said Whitaker. “Millennials are gaining traction as first-time home buyers. Nationally, there has been an approximately 5% increase in single first-time home buyers, particularly those who are not married, over the past year.”
Are New Home Prices Leveling Up in the Austin Area?
Prior to the 2007-2009 recession, the largest quarter for startups in the Austin area came in the third quarter of 2006, with just over 5,000 startups according to Zonda data.
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 then, O’Grady said.
Rude said many home builders have not set prices on special homes in recent months – homes built without a buyer who has already committed to buying them – until the homes are nearly ready to shield material price increases and tighten their margins protection.
He said the market is still “really, really strong” as the region has seen a steady influx of people. Given the limited supply of resale homes in the market, some buyers are looking for new homes as an alternative, Rude said.
However, he said slower sales could be in sight.
“Builders are going to have a great year, but I expect the pace of sales to slow down towards the end of the year,” said Rude.
More:With Austin property prices soaring, you can still shop for less here in town
Among other things: Resistance from some buyers to sharply rising prices. Some people “aren’t that urgent to buy just because a home is available,” said Rude.
Financial realities also play a role. Buyers looking to spend $ 400,000, for example, are now faced with prices that have risen to $ 500,000 or $ 600,000 and are realizing that “‘we can’t buy now,'” Rude said.
Add to that the fact that the Austin area’s housing market became much more expensive than some of its peers in just a year, Rude said: Houston, Dallas, San Antonio, Nashville, Tampa, and Atlanta, among others.
“Our prices have risen faster than in any of these markets,” said Rude. “We may have lost a little of our competitive advantage over these markets.”
Challenges with Permits, Home Permits in the Austin Area
O’Grady said the developers are working to bring new lots to market but said “approval delays and extended build times” are challenging. And that drives prices up and limits growth, especially in closer areas, she said.
Peter Merrigan, CEO of Taurus Investment Holdings, a global real estate private equity investment firm that owns several residential properties in the Austin area, agreed with O’Grady’s comments on how long it takes to approve new Austin housing developments.
“The biggest problem in Austin is the long entitlement process associated with housing production,” Merrigan said. “It can take 28 to 36 months or more to have a final plan with construction drawings on developable land.”
Taurus Austin properties include Whisper Valley, a subdivision east of the Texas 130 and FM 973 toll road, where 7,500 geothermal and solar-powered homes are planned. Maisonette prices start at $ 370,000, and single-family homes are now a mid-range $ 600,000.
Merrigan said the slow approval process is leading to a lack of affordable housing in particular, “and that dynamic will continue to add to housing costs for Austin residents as builders struggle to keep up with demand (15-18 months maximum) it will allow the supply side of the market to catch up with the demand side and ultimately help cushion the price increases. “
Despite some of these challenges, O’Grady said that central Texas housing demand will maintain its strong pace throughout the year.
“If we had the land offer,” she said, “we could easily open 7,000 to 8,000 apartments in the third quarter.”
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