Housing starts stay strong in Central Texas

But some caution that builders may be risking a build-up in inventory.

By Claudia Grisales, Shonda Novak
AMERICAN-STATESMAN STAFF
Thursday, July 06, 2006

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In another sign of a robust economy, Central Texans scooped up a record number of new homes while builders continued to churn out new houses at a steady pace during the past three months.

Builders erected 17,308 new houses during the past 12 months, the most in Central Texas history. Domingo Sanchez works on one at the Meridian subdivision at Texas 45 and RM 1826.

The five-county region that includes Austin and Round Rock posted a record total of 4,335 closings on new homes for the three-month period ending June 30, according to Houston-based research firm Metrostudy. That's 40 percent more than in the same quarter a year ago, the biggest jump ever.

"The market is really exploding, with all price categories showing growth," said Harry Savio, executive vice president of the Home Builders Association of Greater Austin. "Generally, that is being driven by new job creation and in-migration from both the East and West coasts."

The figures are yet another sign of the region's thriving economy as it continues to add jobs at a healthy clip and buck signs of a cooling housing market elsewhere around the country.

In May, the five-county region made up of Travis, Williamson, Hays, Bastrop and Caldwell posted a healthy unemployment rate of 4 percent, according to the Texas Workforce Commission. The region's total number of jobs rose to 715,900, an all-time high, up 22,300 jobs from a year earlier.

It's part of a larger statewide trend, experts say.

"Texas keeps on rocking," said Ted Wilson, a principal for Dallas-based Residential Strategies, which also compiles new-home statistics for the Central Texas market. "We have some of the most affordable markets in the country and . . . it promotes the migration of business."

But despite the strong economy, some caution that demand may not keep up with a growing supply of homes in the long term. Many East and West Coast markets are seeing a slowdown, causing builders to extend aggressive discounts and increase incentives.

Currently, Central Texas has a 7.7-month supply of new homes. A six-month supply indicates a balanced market, said local real estate consultant Charles Heimsath.

"If this trend continues over the next couple of quarters, then I think there would be reason for more concern," Heimsath said. Builders "need to keep a close eye on sales to make sure they don't get an unwanted buildup in inventory."

But if models and unfinished homes are factored out of the supply, the inventory of new vacant homes is a little more than a two-month supply, which is considered healthy, said Eldon Rude, director for the Austin office of Metrostudy.

In the second quarter, builders eased off their record pace of new home construction.

Builders started construction on 4,419 homes in the second quarter. That's down slightly from the record level 4,553 home starts reached during the first quarter this year. But it's up 9 percent when compared with the same quarter a year ago, when there were 4,065 home starts, according to Metrostudy.

Still, builders cranked out 17,308 houses during the past 12 months, the highest reading in Central Texas' building history, Metrostudy said.

The biggest number of home starts in the 12 months ending June 30 was for homes costing $150,000 to $249,000, with 7,613 homes started in this range, a 37 percent increase from the same period a year earlier. But biggest percentage jump, however, was for homes in the $250,000-to-$499,000 range, which saw a 59 percent increase with 4,055 starts.

Rising mortgage rates and escalating costs of construction materials and labor is driving the cost of many new homes up, which may push some buyers out of the market, particularly first-time buyers, say housing experts.

And these price increases are likely to continue.

With land values rising, builders are having an increasingly difficult time finding lots priced low enough to build a $150,000 home on, said Don Cox, vice president of sales and marketing in Central Texas for Newmark Homes LP.

Land costs have risen along with increased costs of installing utilities, roads and other infrastructure. Still, Central Texas remains affordable when compared with other parts of the country, builders say.

David Weekly Homes, a private national homebuilder, continues to see an influx of buyers into Central Texas from pricier housing markets in California, Florida and the Northeast, said Ken Swisher, the Austin division president.

"I think the biggest thing that's driving our sales here is the affordability of Austin," Swisher said.

cgrisales@statesman.com; 912-5933.