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The coronavirus pandemic has made for a rough year for a number of industries in Central Texas, but the home construction sector hasn't been one of them.
The area's homebuilding industry has continued to thrive despite the outbreak, as new home starts were up 17% in the 12 months that ended in September, according to industry research firm Zonda (formerly Metrostudy). The Austin region spans five counties from Georgetown to San Marcos.
"The Austin market was hot before the virus hit," said Vaike O'Grady, regional director in Austin for Zonda. "After a short hiatus, demand roared back and that demand held throughout the summer. What's more, it was evident across all price points and (areas)."
Builders started work on 20,395 houses in the 12 months that ended in September. That's almost 2,000 more homes than the pre-recession peak of 18,407, which came in the 12 months that ended in September 2006.
In the July through September quarter, builders started construction on 5,330 houses in the Austin metro area. That was down 3% from the third quarter of 2019, which — prior to the pandemic — saw a record 5,509 housing starts.
Central Texas homebuilders recorded 20,356 closings in the 12 months ended in September, which was up 16% from the 12 months ended in September 2019. For the third quarter, there were 5,695 closings, up 13% from the third quarter of 2019, according to Zonda's report. Builders define a closing as a home that has both sold and into which the buyer has moved.
The Austin housing market had entered 2020 poised for a record year in home sales, owing to historically low mortgage interest rates and "the demographic tailwind of millennial family formations," O'Grady said earlier this year
"The pandemic sent demand into overdrive," O'Grady said in October. "When your home becomes the center of your world, where — and how — you live becomes even more important."
Market fuel
The demand for new homes is being driven by low mortgage interest rates, buyers' desire for more space during the pandemic and an influx of buyers from other states, said Eldon Rude, principal of Austin-based consulting firm 360 Real Estate Analytics,
Rude said his monthly survey of builders indicates year-to-date sales through September were up 25% over last year.
"Although sales remained strong through September, one major change we are seeing in the market is builders are now running extremely low on both housing inventory and lot inventory," Rude said. "The impacts on prospective home buyers include a combination higher home prices and longer wait times before their homes are completed."
Rude said some builders are restricting the number of weekly sales in select communities in an effort to finish homes on time and to better control construction costs, which continue to increase.
"Whether it be the seasonal slowing of sales over the last two months of 2020, or a shortage of lots and homes, I expect new home sales to slow as we finish the year," Rude said. "That said, builders will remain extremely busy the balance of this year completing and closing homes they sold over the summer, as well as racing to finish construction on lots they will need to put them in position to meet 2021 sales goals."
Zonda's new home pending sales index for Austin is up a seasonally adjusted 54% year-over-year in September. That's due in part to a shortage of pre-owned homes for sale.
"Sellers have opted to stay put, either not listing due to fear of the virus or because of economic uncertainty," O'Grady said in her report.
Affordability concerns
The strong demand for new homes in Central Texas, coupled with a lack of supply, is also driving home prices higher, industry analysts say.
In September, the median price of existing home in the Austin metro area was $355,000, a tie with the median in August for the highest level on record, the Austin Board of Realtors said last month. The $355,000 median means half the homes sold for more than that amount and half for less. September's median was up 12.1% from September 2019.
In addition, sales of homes, townhomes and condominiums skyrocketed 31.5% in September compared to September 2019, the Austin Board of Realtors said.
With bidding wars on the rise due to a lack of housing supply, "prices are not expected to come down anytime soon," according to O'Grady's report.
The rising prices continue a trend in Austin, which over the past five years has seen home prices rise 2.5 times faster than annual wages, according to a recent report by Construction Coverage examining housing affordability across the U.S.
The affordability question is an ongoing issue in Austin, according to Zonda's report.
"Many would-be buyers may be priced out of the (Austin) market and forced to the sidelines," the report said. "Relative affordability is one of the reasons people move to Austin but there are demand as well as cost pressures that are making reasonably priced housing hard to deliver in 2021."
Outlook
As 2020 winds down, most of the indicators suggest Central Texas homebuilding will continue its torrid pace during the fourth quarter and into 2021, industry analysts say.
In her latest report, O'Grady noted that the Urban Land Institute recently named Austin the country's No. 2 market for real estate investment for 2021. O'Grady said the home-closings rates in the Austin region are expected to continue through the fourth quarter, "thanks to strong sales well into the summer months."
Looking ahead to next year, Rude said robust housing demand combined with low inventory of both new and resale homes should make 2021 another good year for builders.
But a couple of unknowns could affect sales, he said.
"How many homebuyers that purchased a home this year accelerated their plans to purchase and therefore won't be in the market next year?" he said. "And how long can housing demand remain at recent levels in the absence of meaningful job growth in the region?"