Mid-Range Homes Fuel Houston’s Rapid Housing Market Surge
Lawrence Dean
HOUSTON – (By Dale King, Realty News Report) – For the 12 months ending in the first quarter of 2018, Houston remained the second-largest new-home market in the nation, with only Dallas/Fort Worth reporting more housing starts.
That strong ranking alone would be notable, but the Metrostudy Housing Webcast – 2Q18 offered several additional positive indicators for the Bayou City.
Lawrence Dean, regional director for Metrostudy’s Houston market, reported that housing starts in Houston exceeded closings during the first quarter of 2018 and for much of 2017. The one exception was the fourth quarter of 2017, when builders concentrated on year-end closings following Hurricane Harvey. That period experienced 4–8 week increases in cycle times because of shortages in specialty trades such as drywall finishers, trim carpenters and skilled painters.
While Harvey has passed, its effects remain. Dean emphasized that shortages of specialty trade labor continue to add roughly 4–8 weeks to build cycle times.
The hour-long Metrostudy webinar on May 17 covered the housing markets for Dallas-Fort Worth, Austin, San Antonio and Houston. The session also included commentary from Bosch Residential Solutions on the rising interest in energy-efficient homes, along with discussion of mortgage rate trends and employment conditions.
Over the past year Houston recorded 27,675 new home starts, a 7.5% increase—1,927 more starts year over year. Metrostudy expects growth to moderate to about 3%–4% annually by the end of 2018.
Last year’s volume growth was largely driven by builders and developers offering a greater share of moderately priced, attainable homes priced at $300,000 and below. That trend continued through the first quarter of 2018 and is forecast to persist throughout the remainder of the year and beyond.
Yearly new-home starts remain concentrated in the $200,000–$299,999 price band, but starts in the $300,000–$399,999 range posted the strongest year-over-year gain, rising 14.0%.
Dean identified the market “sweet spot” as base prices between $200,000 and $400,000. At the same time, the $400,000–$499,999 and $500,000–$599,999 bands showed stabilized starts, with year-over-year growth of 8.7% and 0.9%, respectively.
The Houston submarkets with the largest year-over-year increases in new-home starts were Far North, Central, Northeast, and West Northwest market areas.
On the resale side, MLS transactions showed a median sales price of $214,000 in March 2018, up 5% from the prior year.
Dean also noted several potential headwinds:
1) The first quarter of 2018 marked the fifth consecutive quarter of limited lot deliveries.
2) The local industry is concerned about planned and announced changes to land development regulations by the City of Houston, Harris County and surrounding suburban counties.
3) Production builders report cycle times lengthening by four to eight weeks, largely due to severe shortages of specialty trade labor. Much of this increased demand stems from rebuilding work following Hurricane Harvey.
Regarding Harvey’s longer-term effects, Dean said builders have begun to see modest increases in new-home sales since February 2018 from homeowners whose properties flooded during the storm. Many of these buyers spent months managing damage repairs, temporary housing, insurance settlements and FEMA assistance before resuming plans to purchase new homes.
Demand for build-on-your-lot (BOYL) product has grown noticeably after Harvey, especially in close-in, former first-ring suburban neighborhoods such as Meyerland and western Memorial. Those neighborhoods sit within floodplains that often require new construction to be elevated on four- to six-foot slabs.
Families are choosing to rebuild on their original lots or on nearby flooded lots because elevated new homes are significantly less likely to flood in future events than the older, lower-slung houses built in the 1950s and 1960s.
Metrostudy provides primary and secondary market information to the housing and related industries across the country.
