To start, we analyzed Metro Study reports of the individual large markets in Texas. Austin continued to grow at an accelerated pace. After Q1 Dallas had been flat-to declining during the year but showed signs of improving at the end of 2016. Houston also showed signs of recovery toward the end of the year, although year-to-date in Q4 was a negative 3.7 percent over the same period in 2015. Fort Worth and San Antonio trended positive as the year progressed, but San Antonio remained 2.4 percent behind year-to-date numbers. Months of Inventory on hand of Texas houses for sale remained low at 3.7 months (seasonally adjusted), indicating continued strong housing demand. The nation remained at 4.3 months (around 6.5 months of inventory is considered a balanced housing market). Overall, supply has been restricted due to limited lot inventory and construction labor shortages. Rising Texas home prices reflect the low inventories resulting from constrained supply. Here are some details on each market:
Houston 2016 New Home Starts for 2016 were down 9% over 2015 levels – from 28,138 to 25,489, Employment remains steady and the market will be flat in 2017.
DFW is very interesting. Metrostudy’s 4Q16 survey of the Dallas home market shows that new home starts for 2016 increased 11.2% over 2015 levels. Builders started 29,892 homes this year, of which 7,278 started in 4Q16, up 4.2% over 4Q15. Quarterly starts dropped with a 12.2% decrease versus 3Q16. A bump in starts in 1Q16 accounts for most of the starts increase for 2016. Between 2Q16 and 4Q16, starts only increased by 3.3% while closings increased at a much sharper pace of 13.1%.
Austin Annual New Home Starts stand at 14,462 for 2016 – up 16% over 2015 levels. 4Q16 starts are up 39.1% over 4Q15. Despite strong growth, the median new home base price in 2016 was $284,403 – only 1.7% higher than in 2015.
San Antonio remained 2.4 percent behind year-to-date numbers as there were a total of 5,655 homes in inventory at the end of 3Q16, representing a 6.9 months of supply which is significantly higher than the rest of the state.
Fort Worth remained more-or-less unchanged.
Moving on to the multifamily sector, Dallas Morning News Real Estate editor Steve Brown reports that Texas leads the country for apartment starts in 2016. However, "Permits trailed off a little in the last half of 2016, suggesting the starts volume soon will ease to some degree too," said Greg Willett, top economist with Richardson-based MPF Research. "Capital sources, especially commercial banks, are getting more selective on individual deal selection. The D-FW area is on its list of the 20 U.S. cities most likely to see a significant drop in multifamily starts. Austin and Houston are on that list, too.Lawson said rising construction costs, higher interest rates on development loans and labor shortages are hurting apartment builders. "The incoming administration's immigration policy is likely to be inflationary for the labor market as well," he said. Builders in many parts of the country — particularly in Texas — have relied heavily on immigrant labor. Source.
On another note, the number of operating rigs in Texas continued to climb slowly for the sixth straight month to 271 up from 250 in October; however, they remain down from 339 a year ago. Oil production maintained recent output levels after dropping from its peak in March 2015. According to recent a Dallas Fed survey, most oil producers need prices around $50 to $55 to expand production profitably in turn increasing rig count and the jobs that come with expansion. Energy has a major impact for west Texas, east Texas, Houston area and Oklahoma.