HOUSTON – (Realty News Report) – Houston home builders surged out of the gate in the first quarter of the year, recording 9,917 single-family home starts — the highest quarterly level since 2007, according to housing analysts at Zonda.
Despite the strong momentum, builders face significant constraints from a historic shortage of vacant lots, limited labor availability and rising costs for building materials, said Lawrence Dean, Zonda’s Houston regional director. These supply-side pressures are shaping how developers plan and pace new home sales and construction.
Zonda and historical records from Metrostudy report the supply of available vacant lots for Houston builders is at an all-time low. With fewer lots to develop, builders must prioritize projects and manage sales carefully to preserve profit margins.
Demand remains robust as buyers race to secure historically low mortgage rates that have hovered in the 3 percent range. Millennials are a particularly active buyer group: Zonda found that 66 percent of new homes sold in the Houston area in 2020 were purchased by Millennial households.
Rapid price growth is another defining trend. The Houston Association of Realtors reported the average price for a single-family home sold in April reached $371,854 — a 20 percent increase versus the previous year. Such price appreciation reflects strong buyer demand amid constrained supply.
Builders Rethink Sales Pace to Protect Margins
With construction costs spiking — lumber prices alone have seen increases of several hundred percent at times — some builders are adopting the unconventional strategy of deliberately slowing sales. Dean cited a national homebuilder division president who admitted leadership has discussed ways to sell fewer homes to avoid locking in contracts at prices that might later leave margins vulnerable.
As material costs climb quickly, builders risk seeing profits erode between contract signing and closing. To mitigate that risk, some Houston builders are limiting sales in order to preserve available lot inventory and protect expected returns as input prices fluctuate.
Houston builders recorded 36,700 single-family starts in 2020 with 34,500 closings. For 2021, Zonda has forecast between 33,500 and 36,500 starts, contingent on market behavior and builder strategies staying within expected norms.
The National Picture
At the national level, single-family building permits through March totaled 276,110 year-to-date, a 25.3 percent increase from the March 2020 level of 220,416, according to the National Association of Home Builders (NAHB).
Among the top 10 metropolitan areas issuing the most single-family permits, three were in Texas: Dallas-Fort Worth-Arlington (13,094), Houston-The Woodlands-Sugar Land (12,745) and Austin-Round Rock (6,189). Florida markets also posted high permit counts, including Tampa-St. Petersburg-Clearwater (5,219) and Jacksonville (3,391).
Multifamily permitting was led by the New York-Newark-Jersey City region (9,222 permits), followed by Austin-Round Rock (7,359).
Although starts reached a record pace earlier in the spring, new construction cooled slightly in April as shortages of lumber, land and labor constrained activity. Housing starts fell 9.5 percent month-over-month in April to a seasonally adjusted annual rate of 1.569 million, but remained 67.3 percent higher than April 2020 levels.
Tendayi Kapfidze, Chief Economist at LendingTree, noted the April decline was not unexpected: “The shortages in lumber and labor hitting the country present a notable challenge. However, both builder sentiment and demand for new homes remain strong, suggesting the housing market won’t collapse anytime soon. Material cost pressures and labor shortages will likely be top concerns for builders in the coming months. If mortgage rates stay low and consumer demand for new housing remains high, builder confidence could hold steady.”
May 18, 2021 Realty News Report. Copyright 2021.
About this report
This article summarizes data and commentary from Zonda, Metrostudy, the Houston Association of Realtors, the National Association of Home Builders and industry economists. It highlights the interplay of strong buyer demand, historically low lot inventories and sharp material cost increases that are shaping builder strategies and the pace of new home construction in Houston and nationally.
Photo credit: Ralph Bivins, Realty News Report. Copyright 2021.