According to Mark Sprague, Austin area partner for Residential Strategies, Inc (RSI) the Austin area new homebuilders continued to slow new home starts in the Second Quarter,
2007 in response to slightly weaker market demand. Builders started 3,367 units during
the period compared to 4,295 units for the same period one year ago (2Q06). As a result,
the annual new home start rate declined to 14,568 units, off 6% from 1Q07 and down
12.6% from one year ago. “Builders have reported to us that buyer traffic under $200K
remains sluggish” reports Mark. “The $250-600K price points remain strong, but not as frothy as in recent quarters.”
New home closings declined during the quarter after hitting a new record at the end of
1Q07. The annual rate dipped to 15,556 units from 16,271 units, down 4.4%. Closings
continue to outpace starts. “The big builders’ attitude toward the Austin market remains
cautious” notes Sprague. “While Austin is clearly out-performing most other markets in
the nation, builders are being careful not to initiate too much spec inventory.”
median length of time that a completed home was on the market was 5.7 months. In
contrast, Austin’s finished vacant new home inventory stood at 2,694 units, a 2.08 month
supply. RSI considers a 2.50 month supply to be the maximum acceptable level of
finished inventory. “Builder discipline has been paramount to the health of Austin in
recent quarters” observes Sprague. “The fact of the matter is that Austin currently is not
experiencing the pain of over-building that is prevalent in most parts of the U.S.”
While the reduction in start activity heralds a more sober time for the building industry, it
should hardly come as a surprise in the wake of revelations of challenges in the subprime
market. “The extension of mortgage credit, especially at the lower-end of the housing
spectrum, over-stated housing demand levels throughout Texas” reflects Sprague. “Now
that the rules regarding mortgage underwriting have changed, buyers with the weakest
credits have effectively been removed from the buyer pool.”
Still, the news for Austin homebuilders remains relatively positive compared to most
other markets and the nation as a whole. While new home closings were off 4.4% vs.
1Q07, the annual closing rate is actually up 886 units (6%) vs. one year ago (14,670
annual closings 2Q06 vs. 15,556 closings 2Q07), the peak of the national market. In
contrast, national new home sales for May were 15.8% below a year earlier as stated by
“The strength of the market remains at the upper-end of the price spectrum” reports
Sprague. Annual new home closings over $300K climbed slightly from 3,534 at the end
of 1Q07 to 3,556 at the end of 2Q07. Especially noteworthy was that the annual closings
rate for new homes priced over $1million increased from 263 units to 294 units for the
Conversely, new home closings under $200K fell from 8,159 units to 7,481, down 8.3%.
“The decline in closings under $200K can be directly attributed to the changes in the
sub-prime market” notes Sprague.
Although the vacant lot supply declined from 26,966 lots to 25,889 lots over the past
quarter, the month supply of lots edged up slightly from 20.9 months to 21.3 months due
to the slow-down in start activity. Currently there are 6,206 lots under development.
The Austin market drivers remain in good shape. Net non-ag job formation (CES) for the
12-month period ended May, 2007 was 29,400 jobs. While the 30-year mortgage rate
has edged slightly higher during June, climbing from 6.42% (May 31,
2007) to 6.69% (June 21, 2007), long term the trend remains for rates to stay below 7%.
“Austin remains a vibrant market” reports Sprague. “While the area is not immune to the
negatives of the national housing market conditions, we continue to see positive signs for residential growth. --- June 28, 2007 Press Release - Residential Stategies, Inc.