Everything is bigger in Texas. The state continues to benefit from in-migration, driven by its relative affordability (including no state income tax) and vast supply of suburban and exurban housing.
Austin continues to live up to its “Silicon Hills” moniker. Apple recently broke ground on a billion-dollar, three-million-square-foot campus, which will house 5,000 employees initially with capacity to grow to 15,000. Construction is underway on Tesla’s next Gigafactory, spanning 2,100 acres in east Austin. The billion-dollar factory is expected to employ around 5,000 Austinites.
Dallas-Fort Worth benefits from a high percentage of jobs in high-income sectors (33%), which have generally fared better than many other sectors through the COVID-19 pandemic. Amazon is aggressively expanding its footprint across north Texas, with an additional 2.3 million square feet of warehouse and distribution space by the end of 2020. However, furloughs and layoffs continue to mount for Dallas-based Southwest Airlines and Fort Worth-based American Airlines amidst a slow return to air travel.
Houston had the misfortune of being hit with plummeting oil prices and COVID-19 layoffs. Houston lost more than a quarter-million jobs between March and April 2020, sending unemployment to 14.3%. Houston’s unemployment rate has since recovered to 8.1%, but still lags the national average. Oil and natural gas industry related jobs account for a substantial number of jobs lost in 2020, second only to the leisure and hospitality sector.
San Antonio lags Austin and Dallas in terms of job recovery but is outpacing the national average. San Antonio relies heavily on the leisure & hospitality industries, which took the hardest hit as a result of COVID. However, people still want to move there – according to Q4 U-Haul data, San Antonio experienced significant premium price increases to return a truck rented elsewhere, a reflection of the increased demand in U-Haul services in the metro.
The Housing Market
Across the Texas housing markets, new home closings are up double digits YOY, and 80% of builders are raising prices (as of our September survey). Months of resale supply is below equilibrium, contributing to new home price appreciation. Builders across the four markets continue to voice supply-side concerns regarding the availability of developed lots moving forward.
Austin continues to exhibit a very strong pricing environment. Based on our September Builder survey, new home prices are up 13% YOY with 89% of builders reporting increasing prices since August. New home closings are up 18% YOY. Austin is one of 12 housing markets that we rate as Very Strong.
Builders across the Dallas-Fort Worth metroplex report an increase in new home prices generally in-line with the 8% national average, and 92% of builders report raising prices since August. New home closings are up 13% YOY, with notable strength among move-up communities. We rate Dallas-Fort Worth’s overall sales and pricing conditions as Strong.
In the Houston housing market, builders are reporting YOY price appreciation of 8% (with 80% of builders raising prices since August), and a YOY increase in new home closings of 13%. Demand across Houston is steady among entry-level and move-up communities. We rate Houston’s overall sales and pricing conditions as Strong.
The San Antonio housing market hasn’t achieved the sales pace of the other major Texas markets, but 100% of surveyed builders are raising prices compared to last month. New home closings in San Antonio are up nearly 20% YOY and price appreciation of 9.6% is ahead of the national average. Overall sales and pricing conditions are rated as Strong.
The Rental Market
Apartment and single-family rental home fundamentals are comparable in Austin, Dallas-Fort Worth, and San Antonio, with Houston lagging behind. Each of the four markets have a substantial number of units under construction which will create increased competition at a time when demand is likely to be low post-COVID. Especially in Houston, where demand has trailed supply for several years following substantial new construction deliveries amidst the 2015–2016 oil bust.
Dedicated Build-For-Rent (BFR) neighborhoods are a bright spot across the four markets. BFR communities across Texas have generally enjoyed strong lease-up absorption and rental rate premiums relative to nearby Class-A apartment units and stand-alone single-family rental homes. We track 31 active BFR communities (of 25 homes or more) across the four metros. Traditional single-family homes are prevalent among BFR communities in Austin, Houston, and San Antonio; horizontal apartment-style is prevalent in the Dallas-Fort Worth area.
Advantage: Tie – Austin and Dallas-Fort Worth
While our California and Florida colleagues both make strong arguments for the west and southeast region—both of which offer some great places to live—households seeking relative affordability and wide-open spaces are flocking to the Lone Star State.