Austin-area homebuilding still booming amid pandemic

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.

Influx of buyers

Ross Wilson, division president for Austin-based StoryBuilt, said the homebuilder has seen strong demand and sales for its housing subdivisions in prime Central Austin locations.

The company -- formerly PSW Homes -- has designed, built, sold and managed 22 developments in Austin since 2005.

In September, the company sold 20 units compared with 12 the prior September. Year to date, StoryBuilt reports 95 sales compared with 62 during the same period last year. For all of last year, the company sold 87 residences, a figure it topped as of mid-September this year, Wilson said.

Wilson said inventory is low. He said only two homes are left in the company’s community off of North Bluff Road, which has 33 homes.

StoryBuilt said it sold out its new project -- which it announced privately in mid-February -- before the end of October. The project, called Lucy, has 27 homes, and is located in East Austin at 3412 Pennsylvania Ave., near Airport Boulevard.

The community has homes with two to four bedrooms, ranging in size from 1,300 square feet to 2,000 square feet. It is scheudled to be completed by late next year.

“This is the first time in the history of our company that we sold out an entire community in the pre-sales phase pouring the first foundation,” Wilson said.

StoryBuilt also recently announced plans for another community, called Clementine. The development, which will be along Menchaca Road, will have a mix of three- and four-bedroom homes. A three-bedroom home starts at $648,000, and four bedroom units start at $756,000.

StoryBuilt is seeing an influx of buyers moving to Austin from outside of Texas, Wilson said

“Of the homes we have sold over the past quarter, a significant number of the buyers are young professionals looking for a better lifestyle who have recently found themselves more mobile due to the ability to work remotely created by COVID,” Wilson said. “Additionally, many of the buyers coming to Austin are being transferred by an existing employer or are coming for new employment opportunities, as Austin continues to be an engine for job creation.”

Development continues

This month, Empire Continental Land announced it has purchased 525 acres near Hutto for its second community in the Austin area, and its seventh project in Texas.

Empire plans to start construction next year on the land, which is 2 miles north of Texas 79 and just east of Hutto. Home sales should start the following year.

“We couldn’t be more excited about this new community,” Steve Sellers, president of Empire Continental Land, said in a news release. “Hutto has been recognized as a top place to raise a family, one of the best suburbs for millennials and one of the fastest-growing communities in Texas.”

Empire also is developing the 116-acre Lakeside at Lake Georgetown residential community. Empire has five projects in the Houston area — Dellrose, Coastal Point, Hidden Lakes, Katy Trails and Sommerall Park.

In northern Georgetown, Parmer Ranch recently broke ground. The 454-acre master-planned development will have homes priced from the $250,000s by builders Empire Communities, Gehan Homes, GFO Homes and Sitterle Homes.

Lots will be ready this coming spring and homes will be available by summer, said the developer, Joe Owen.

“Demand for new homes is huge and there is very limited new home inventory and new lot deliveries are not keeping pace,” Owen said. ”Parmer Ranch is a ’move up’ community right now so many can capture equity in their previous home and move to a nicer home.“

The mixed-use project will be at Ronald Reagan Boulevard and Williams Drive. It will include 1,043 homes, 100 acres of commercial development, 47 acres of parkland and sites for future elementary and middle schools.

“Jobs and the quality of life associated with Texas and specifically the Austin (metro) are attracting people migrating from out of state, primarily from the east and west coasts,” Owen said. “We are also seeing people moving to Williamson County from Travis County. Georgetown is a midsize town with a small-town feel and that attracts people who want to feel a part of a community, which Georgetown does really well.”

In addition to the more than 1,000 homes planned for Parmer Ranch, other developments are starting soon that will bring another 600 homes to the immediate area, Owen said.

"We believe that this is an area of Georgetown which will experience tremendous growth for the next five to 10 years,” Owen said.

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 saidm 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?“