Much of what I have written about the “state of the market” in and around Austin has focused on resale homes. New construction is obviously an important part of the market, and it’s a great barometer for confidence in the local economy, job growth, investment opportunities, etc.
This chart summarizes residential building permits issued from January 2000 to January 2010:
The top graph on that page shows rolling 12-month totals of building permits issued. The bottom graph shows the average value of those permits as reported by the builders involved.
The most visible feature of this ten years of history is the bubble in 2006. It is widely recognized that was a nationwide phenomenon, and it was much more dramatic in most areas that have felt the downturn more seriously since then. That bubble is also readily identifiable in both the long-term and five-year views of my Austin Market Dashboard.
You can see the effect of supply and demand in both the Building Permits chart and on my Dashboard, but with different results. On the Market Dashboard, average home prices have been below the long-term trendline for more than a year, reflecting the fact that total demand fell more than the total supply of homes on the market. As I have written many times, homes continue to sell and values continue to trend generally upward. The Austin/Central Texas area remains one of the strongest markets in the United States, and is recognized as one of the first (if not the first) to emerge from the recession.
As I have noted, the Austin metro area continues to add jobs on a month-to-month basis, and home builders recognize that strength. The 12-month total of new permits has begun to move slowly upward since the 2nd quarter of 2009. (That statistical measure moves slowly because it includes a full year’s data, and in this case recent numbers include normal seasonal softness in the 4th quarter.) It’s interesting, though, that even with the same 12-month damper effect the average value of new permits improved until the 2nd half of last year.
The coming Spring and Summer seasons will tell the rest of that story. In addition to continuing general uncertainty about the U.S. and world economies, there are real estate-specific influences on the calendar: (1) the Fed still intends to stop purchasing mortgage-backed securities at the end of this month, and (2) the current tax incentives for home buyers will expire April 30. (Contracts executed by 4/30/10 and closed by 6/30/10.) Also see Act soon to take advantage of low interest rates, 01/28/10 and More about mortgage-backed securities, 02/10/10.
The combination of expected higher mortgage interest rates and the lack of incentives could disrupt normal seasonality in the housing market. I’ll keep watching and reporting.
Nice post Bill. You’ve nailed it.
Thank you. I see so much distorted, or just uninformed, reporting on our industry that I feel the need to do my own analysis. Of course, I could be as wrong as other observers these days, but I think the market generally speaks pretty clearly if we just listen.