The Local Housing Market, an Update

President, Home Builders Association of Greater Austin
In January over 500 housing industry professionals attended the Annual Housing Forecast sponsored by the Austin Board of Realtors and the Homes Builders Association of Greater Austin. In that meeting experts shared their opinions of the Austin housing market last year and some predictions about 2010. The tone for this year was “cautious optimism” as new home sales continued to exceed new home starts by wide numbers. Most of the speakers predicted a “slight” turn around by the end of this year if interest rates remained low and there were no more national surprises.

Last month we were offered a Mid Year Housing Update that was full of mostly good news, for Austin. As many parts of the country continue to struggle with high unemployment, continued foreclosures and elevated housing inventories, the local Austin market is breathing again. While most Texas cities are doing much better than the national average, Austin is receiving recognition as the state’s shining star. National magazines have ranked us as the “Number 1 Best City to Live in and the Number 3 Best City to Relocate to”. Our local unemployment is well below the national average and at the mid year forecast we learned that Austin is expected to double in size over the next 25 years. Last summer during the education day of Leadership Lake Travis the school district put us on a school bus and drove us to every new school and maintenance site that the district has under contract. Not surprisingly, all of these sites are out Highway 71, including a future high school. Watch this area for the future growth of our community.

Homebuilders have not started many unsold homes over the past two years and the return of “Spec Home” building is still not foreseeable. Additionally, there have not been any new developments started in our area for over 3 years with none (that we know of) projected in the next 12 months. As we read the tea leaves here we can see that by next summer there will be very little new home inventory for relocating families. The current lot inventory will continue to shrink and eventually create a home site shortage as well. It typically takes 2 ½ years to develop raw land into residential lots. While mortgage financing is becoming more accessible, development loans are still a memory of Christmas past.

As national housing starts increase through the end of this year builders have been told to prepare for as much as a 25% to 30% increase in the cost of building materials by as early as next spring. This supply and demand equation could take as long as two years to right itself as plants slowly reopen, loggers return to the forests and manufacturers ramp up production. Here is the bottom line as I see it:

1. If you plan to build a new home three years from now, the lot you will select is on the ground today.
2. New families relocating to the Austin area in many neighborhoods will be forced to choose between resale properties since new home inventory will be low or nonexistent.
3. Families thinking of building a new home in the near future will be the last to benefit from the recent cost and price downturn. Most agree that interest rates will rise as inflation kicks in and the projected building cost increases have already started to appear in some building materials.

Local builders report an increase in new home inquiries over this time last year. During the last three weekends of October Rough Hollow will host the Annual Parade of Homes in Lakeway. Seven new homes are featured and as of this writing, 3 of the homes are sold and another sale is pending. This success is at a time when parades of homes events have been cancelled around the country. As the market begins to return the best homes in the best areas will sell first. Current homeowners should expect to see a better market for re-sales over the next two years when they are not forced to compete with builders for buyers needing completed homes. My last thought on the subject is that after 31 years in the home building business I have seen the good and bad selling cycles many times. These cycles are usually affected by national events over which we have no control. The only constant in the cycle is that they always end, and they always return. I am proud to serve this year as president of our homebuilders association and sure feel lucky to live in Austin Texas.