Lot Shortages Critical: Houston Home Building Surges

In Houston, Houston home builders sprinted out of the starting gates in the first quarter of this year with 9,917 single-family home starts, the highest level of building since 2007, as stated by Zonda housing analysts.

Home building is headed for an exceptional year in Houston, although construction is held back by a shortage of lots, labor and building materials, said Lawrence Dean, Houston regional director of Zonda.

The supply of vacant lots available for Houston builders is at its lowest point ever, as stated by Zonda and records from Metrostudy, its predecessor firm.

The sales pace is very strong, Dean said, as buyers rush to lock-down low mortgage rates, which have been in the 3 percent-range. The Millennial Generation is ready to buy houses. Zonda said 66 percent of the new Houston-area homes sold in 2020 were purchased by Millennials.

Home prices are skyrocketing. The average price of a single-family home sold in April was $371,854, up 20 percent from a year ago, as stated by the Houston Association of Realtors.

Home builders are doing the Unthinkable

With the fast-rising prices, the tight supply of materials, home builders are doing the unthinkable, thinking of ways to slow down the sales pace.

Dean said one Houston division president for a nation builder relayed this anecdote: ”I’ve actually sat around with my colleagues talking about how we can sell fewer homes.”

With the cost of materials, such as lumber, shooting up 300 percent builders can see profits diminish overnight after homeowners sign a contract.

“We’re seeing builders run out of lots,” Dean said. “Builders are limiting the amount of sales so they won’t run out of low and so the cost (of materials won’t outrun their profit margins.)”

Houston builders had 36,700 single-family starts in 2020 and 34,500 closings. In 2021, Zonda is forecasting 33,500 to 36,500 starts, as long as the market and builder tactics don’t get too abnormal.

The National Picture

The total number of single-family permits issued year-to-date nationwide reached 276,110 in March, up 25.3% over the March 2020 level of 220,416, as stated by the National Association of Home Builders.

Of the top 10 metropolitan areas that issued the highest number of single-family permits, three were in Texas; Dallas-Fort Worth-Arlington (13,094), Houston-The Woodlands-Sugarland (12,745) and Austin-Round Rock (6,189), and two were in Florida; Tampa-St. Petersburg-Clearwater (5,219) and Jacksonville (3,391).

The largest number of multifamily permits were issued in the New York-Newark-Jersey City area (9,222), with the second highest number in Austin-Round Rock (7,359).

However, new construction tailed off slightly in April as builders faced shortages in lumber, land and labor.

While housing starts in April saw a decline from March’s record figure, they are still 67.3% higher than they were in April 2020.Housing starts fell by 9.5 percent month-over-month in April to a seasonally adjusted annual rate of 1.569 million.

“Overall, April’s dip in housing starts isn’t all that surprising given the shortages in lumber and labor that are hitting the country,” said Tendayi Kapfidze, Chief Economist of LendingTree.“While these issues present a notable challenge, both builder sentiment and demand for new homes remain strong, suggesting the housing market won’t go belly-up anytime soon. It is difficult to say with any certainty what the future will bring for builder confidence. In the coming months, material cost issues as well as problems related to labor shortages will likely remain the major concerns for builders across the country. While these issues have the potential to hamper builder confidence, if rates remain low and consumer demand for new housing continues to remain strong, builder confidence will probably remain strong as well.”