LAS VEGAS – Houston led the nation in single-family home starts last year with a significant lead over the No. 2 market, Dallas, according to Metrostudy, a housing consulting firm.
With job growth in full force, Houston area home builders accounted for 28,339 housing starts in 2013. Houston was followed by Dallas-Fort Worth at 21,200 and No. 3 Atlanta with 13,119 starts.
“The energy belt metropolitan areas have done very well because their underlying economy has improved so quickly. So housing has come back strongly in most of the Texas markets, Houston in particular, “ says David Crowe, chief economist of the National Association of Home Builders.
The key to Houston’s home building boom is job growth and that trend should continue for several years, Crowe told me in an interview at the International Builders Show last week in Las Vegas. Houston added about 80,000 new jobs last year.
“It peters out at some point, but I think that is still several years away,” Crowe said. “There’s still good strong job growth.”
Rounding out the top 10 for housing starts last year were: Washington, Phoenix, Austin, Orlando, San Antonio, Miami and Charlotte, N.C., Metrostudy reported.
As a whole, 2014 looks better for the nation’s home building industry, even in many of the weaker markets, says Brad Hunter, chief economist for Metrostudy.
“The housing recovery is still in its infancy and a lot of growth is coming,” Hunter said at a Metrostudy outlook breakfast in Las Vegas.
In 2014, higher mortgage interest rates will be restraining the housing market and credit will be harder to obtain for first-time homebuyers. But the industry is coming off catastrophic lows and some significant gains are projected.
Last week in Las Vegas, the National Association of Home Builders released a bullish forecast for 2014. The NAHB is predicting the nation will have a 32 percent increase to 822,000 single-family home starts in 2014, followed up by a 41 gain in 2015.
“My single-family forecast for 2014 is pretty aggressive–822,000 starts which is likely 200,000 more than 2013,” said Crowe. “There are five key points to the turnaround. Consumers are back, pent-up demand is emerging, there is a growing need for new construction, distressed sales are diminishing and builders see it.”
Year-over-year household formations are on the rise and are now averaging 620,000 compared to just 500,000 during the housing downturn. At the height of the housing boom, the U.S. was producing 1.4 million additional households each year.
Meanwhile, new-home sales are averaging just 8.7 percent of total home sales, barely half the historical average of 16.1 percent.
Mortgage rates will rise in 2014 as the Federal Reserve reduces its economic props through bond buying, said Frank Nothaft, chief economist at Freddie Mac.
“Regarding mortgage rates, we’ve gone from dirt cheap to cheap, and I think we will see a gradual rise of about a half a percentage point to 5 percent in 2014,” said Nothaft in a press conference on the bustling floor of the Las Vegas convention center. “But most markets will remain quite affordable.”
David Berson, chief economist at Nationwide Insurance, said there is pent-up demand for homes because the nation has had abnormally low household formation in recent years. Recent college graduates returned home to their parents because the job market was tight or they found roommates to reduce costs. As that uncoils, there will be growing demand for housing.
“At least 3 million fewer households formed over the past five years than would normally have been expected,” Berson said. “I think this will be a pretty good year for home construction. There will be a big increase in single-family construction, but not as much for multifamily.”
NAHB is anticipating 333,000 multifamily starts in 2014, up 9 percent from 306,000 last year. Single-family home sales are projected to hit 584,000 this year, a 35.9 percent increase above last year’s 430,000 sales.
In Houston, the market has faced a shortage of labor and lots. Construction tradesmen left the industry during the crash and land developers didn’t crank up their lot creation machines soon enough to supply lots for this latest boom.
Houston builders sold 25,627 new homes last year, up 13 percent from 2012, Metrostudy reported. Houston home starts were up 20 percent in 2013, over 2012, as builders accelerated the construction pace to meet demand.
The inventory of available homes is tight in Houston, with builders holding. very few completed homes for sale, says David Jarvis, regional director for Metrostudy in Houston. And at year-end, the Houston Association of Realtors reported record-low inventory of existing homes for sale. With tight supply and high demand, Houston consumers will pay more for a house in 2014.
“Tight supplies of available housing historically leads to home price appreciation,” Jarvis says, “and prices in housing are rising quickly in both new and resale homes.”
The Houston new home market continued to surge in the fourth quarter, with builders starting construction on 6,141 new homes, the fastest fourth quarter pace in more than six years, Metrostudy said. Representing a year-over-year gain of 10%, Houston hasn’t registered this many annual new homes starts since 2007. On an annualized basis, starts stand at 28,233, 19.5% above fourth quarter of 2012. “The growth in the pace of starts continues to follow a measured linear trajectory as lot supply constraints and shortages in labor and materials have prevented Houston builders from ramping up construction more quickly,” said Jarvis.
In the fourth quarter, area builders closed 6,500 new homes, bringing the annualized total to 25,627. This level of activity represents a 13% gain from a year ago.
“The number of finished vacant homes in the market remains at historic lows as builders see their speculative homes purchased before reaching completion,” said Jarvis. The relative supply of finished vacant homes in the market is a mere 1.5 months, well below the 10-year average of 2.5 months.
“Moving forward, lot availability will continue to be a key factor for the growth of the Houston housing market. Due to builder demand for more lots, most, if not all, lots being brought to market have a buyer before they’re completed. Therefore, a number of publicly-traded builders and large, privately-owned builders have begun aggressively accumulating land and developing lots for their own use as a defensive posture,” said Jarvis.
Hillwood, a large Dallas-based developer led by Ross Perot Jr., just announced a 1,000-acre project called Pomona in Manvel, south of Houston. And Toll Brothers, a publicly-traded builder, just bought 3,700 acres in Sienna Plantation in Fort Bend County south of Houston. Friendswood Development is starting two new communities – the 850-acre Woodtrace and the 1,500-acre Tavola – along the northern stretch of the Grand Parkway, which is under construction.