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Area builders working hard to match demand

Posted by: In: Industry Insights 30 Oct 2013 Comments: 0

(Houston Chronicle) They can’t build fast enough to keep up with demand, which pushes prices higher 

Houston-area builders are selling houses before they can finish them and at prices close to 20 percent higher than they were two years ago, new data show.

Builders started 27,802 homes during the 12 months that ended in September, according to Metrostudy, an information and consulting firm. That’s a 24 percent increase over the same period a year earlier and the strongest 12-month period since 2008.

Yet supply is still lacking. Housing starts are still well below their 2006 peak of more than 50,000.

Based on job creation and population growth, “we’re still not building enough homes,” said David Jarvis, regional director of Metrostudy. “It’s still very tight.”

As a result, consumers are paying more for new construction.

In a market that typically sees around 4 percent annual home price appreciation, recent increases have been much higher.

The median price for a new home was $255,183 in the third quarter, up 12.5 percent from last year.

“We’re making money in real estate again,” Jarvis said.

Buyers are devouring new homes.

During the third quarter, buyers closed on 7,044 new homes, bringing the annualized number to 24,919 closings – 20 percent higher than a year ago.

“It’s hard to keep spec homes on the ground right now,” said Will Holder, president of Trendmaker Homes. “When a home’s available, it sells pretty quickly.”

Indeed, the number of completed homes for sale remains at historic lows as builders are selling many of their homes before they’re completed.

The supply of finished and vacant homes is around 1.5 months, well below the 10-year average of 2.5 months, according to the Metrostudy data.

With supply constrained, further increases in land and housing prices are expected.

“We have a razor-thin inventory of housing and lots, with the backdrop of massive demand,” said Jim McAlister IV, president and CEO of Rockspring Capital, a Houston-based real estate private equity firm that buys land and residential lots.

Houston’s growing economy, particularly the energy industry, is driving the demand.

While the pace of job growth has slowed from earlier this year, it’s still ahead of the 10-year average growth rate of 2 percent for this area, the Metrostudy report says.

Low resale inventory and low mortgage rates have been pushing buyers to new housing. Some of the demand is coming from renters who may have moved to Houston a year or two ago for jobs and are now deciding to put down more permanent roots.

Land, labor and material costs are creeping up, too, pushing prices higher.

“The price of land and the price of finished lots is going to be higher next year, and it’s going to be passed along,” Holder said.

More builders are buying land to develop themselves. Traditionally, single-family land developers buy property, divide it into lots and offer it to the builders.

As the housing market recovers nationwide, builders have been looking at other ways to grow.

This week, The Woodlands-based LGI Homes filed with the U.S. Securities and Exchange Commission for an initial public offering to sell 9 million shares of common stock at between $13 and $15 per share.

The company has applied to list the stock on the Nasdaq under the symbol LGIH. It expects to net about $114.2 million.

The company said it will put $36.9 million of that toward acquiring certain assets of GTIS, a New York joint-venture partner. It also will use some of the money to fund land acquisition, lot development and construction.

To view the Houston Chronicle article, click here.

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