July 18, 2016

Data shows builders serving entry-level homebuyers will see most sales; prices will continue to rise

Data shows builders serving entry-level homebuyers will see most sales; prices will continue to rise

Strong job market, population growth and cultural draw and are direct contributors

Austin, Texas (July 18, 2016) On July 13, 2016, the Home Builders Association (HBA) of Greater Austin held its annual Mid-Year Housing forecast at the Phillips Event Center near downtown Austin for a sold-out crowd of over 350 HBA members and industry partners. The program gives the HBA’s members a snapshot of how the industry is shaping up and insights on what to expect for the remainder of 2016 and into 2017. Tim Sullivan of Meyers Research, a Kennedy Wilson Company, presented his analysis of the Greater Austin housing market, concluding that the region is still trending upward in the market cycle. Solid job growth, particularly higher paying salary jobs, will continue to put pressure on affordability with prices expected to be on the incline for the foreseeable future.

“Differentiation is the key factor for the new home market,” says Sullivan. “New home prices in the Greater Austin area are just 5 percent above the cost of a resale home; compare to markets like Dallas where the difference is 46 percent,” he says. “The challenge for builders in Austin is differentiating new homes from resale homes.”

Sullivan says the region is building homes at 2.5x the rate (16.7 vs 6.85) of the U.S., but builders here are not overbuilding. “We don’t have a supply problem,” says Sullivan.

“The Greater Austin market has just three months’ supply of available inventory where six months is considered healthy,” says Sullivan. “The best-selling product right now includes “Active Adult” and the lower price ranges,” he says. With tight supply comes higher prices—good news for the region’s wealth building, bad news for affordability.

And while Sullivan says Austin is in a good position for new home building growth, restrictions on funding will likely keep new projects from coming to fruition—putting additional pressure on supply—a hindrance to addressing housing affordability.

According to Sullivan, the region’s demand ratio of employment to permits is 1.7—implying a balance between buyers who can buy and the number of homes being built. Analyzing home prices to income also results in good news for the average sales rate per project at 2.1. “Austin is one of the top five markets in the U.S.,” says Sullivan.

Sullivan expects job growth in Austin will slow over the next few years, but is still expected to top an average of 20,000 jobs created per year (down from 30,000 to 40,000 in recent years). “Austin’s strong combination of healthcare, education and tech sectors of the job market will insulate Austin from an expected economic slowdown nationwide,” says Sullivan.

Tim has more than 32 years of experience in analyzing and valuing real estate development opportunities. He has developed the ability to interpret diverse statistics and trends and translate them into actionable plans.

During his career, Tim was senior manager with KPMG Peat Marwick’s National Real Estate Consulting Group before serving as principal of Hanley Wood Market Intelligence’s (formerly The Meyers Group) Real Estate Consulting Practice and his own firm.  He earned an MBA with a concentration in marketing and finance from San Diego State University, and a bachelor’s degree in economics from University of California, San Diego. He also holds a MIRM (Member of the Institute of Residential Marketing) from the National Association of Home Builders.

Presenter slides can be downloaded here.

About the Home Builders Association (HBA) of Greater Austin

Since 1953, the Home Builders Association (HBA) of Greater Austin has served as the leading not-for-profit trade organization dedicated to residential construction and remodeling in Central Texas. The HBA works with government, public, business and community organizations in five counties – Bastrop, Caldwell, Hays, Travis and Williamson – to protect every family’s right to home ownership. For more information, visit www.hbaaustin.com.