Burned by Boom: Austin's Builders in the Hot Seat

Executive Summary

• We analyzed 300 U.S. housing markets to identify high-growth areas with substantial new construction exposure. Our goal: to determine if demand is keeping pace with supply and assess the impact on prices. This analysis is open source and accessible with a free API key.
• The API-driven analysis efficiently narrowed 300 markets to 20 high-growth areas, then to 10 markets with significant new construction supply, ultimately revealing Austin's acute distress.
• Top 20 High-Growth Markets: Pandemic boomtowns saw exceptional growth: While U.S. single-family housing stock grew 1.9% since 2019, Boise City, ID (9.51%), Lakeland, FL (8.30%), Raleigh, NC (7.80%), Jacksonville, FL (7.17%), and Austin, TX (6.87%) experienced dramatic increases.
• Top 10 New Construction Hotspots: New construction flooded these high-growth markets.  The U.S. average for new builds is about 10% of listings, but Boise (33.3%) and Austin (21.6%) saw significantly higher rates as of June 2024. Both markets fluctuated between 1 in 3 and 1 in 2 new listings being new construction over the past two years.
• Demand for new construction is cooling in former hotspots: Austin's new build sales plummeted from 40% of all sales in early 2021 to just 9.7% by June 2024, signaling a shift in buyer appetite.
• Prices reveal market-specific trends unfolding: While U.S. new construction prices rose 3.78% year-over-year, Austin bucked the trend with declines across sales (-0.25%), listings (-2.52%), and rentals (-1.60%). Meanwhile, Boise defies expectations: Despite supply-demand imbalances, it maintains strong sales price growth at 8.25%, raising questions about market sustainability.
• Austin faces a reality check: The market is seeing an average price cut of 7.23% on new builds, with some properties slashed by up to 31.33%, indicating very motivated sellers. This distress in the new construction sector has rippled through the entire market. Due to Austin's outsized exposure to new builds, the downturn in this segment has driven overall price declines - Parcl Labs Austin Price Feed is down 6% year-over-year.
• The pressing question: Will Austin's distress spread to other high-growth markets where builders placed big bets, or is it an outlier in the new construction boom?
• Want to see how these market dynamics unfold in real-time? Join us in tracking these trends by accessing the Parcl Labs API.

Background

New construction has become a driving force in real estate since the pandemic. Homebuilder stocks have surged, and build-to-rent has emerged as a magnet for institutional investors. This shift has placed new construction under an unprecedented spotlight, with more businesses than ever viewing it as a key growth area.

At Parcl Labs, we go beyond raw delivery numbers to provide a sophisticated and actionable view of new construction's impact. Our API offers granular, context-rich insights on new build supply, demand, and pricing at both market and unit levels. By analyzing single family housing stock growth, supply shifts, and price impacts, we uncover the real story of new construction in today's housing market.

Our approach: We start broad, examining all U.S. markets. Then, through iterative analysis, we pinpoint areas where disproportionate exposure to new construction signals potential risk. What are we looking for? Where did homebuilders place their bets, and how are these wagers playing out.

We let the data speak. Let’s review what we found.

Single-Family Stock Growth: Tracking the Boom

To understand new construction's impact, we first examined single-family housing stock growth across U.S. markets. Why focus on stock growth rather than raw build counts? It reveals how new construction is reshaping overall supply and what homebuilders are truly selling into. Each market has a unique absorption capacity.

Using our API, we analyzed the top 300 U.S. metros and ranked them by single-family stock growth. The results are striking.

While the U.S. benchmark sits at a modest 1.9% growth, the growth leaders are in a league of their own:

1. Boise City, ID: A staggering 9.51% growth
2. Lakeland, FL: 8.30%
3. Raleigh, NC: 7.80%
4. Jacksonville, FL: 7.17%
5. Austin, TX: 6.87%

These figures are a roadmap of well-documented pandemic-era migration patterns. The conclusion is clear: builders aggressively chased the boom, racing to meet surging demand in hot spots like Boise, Raleigh, Austin, and several parts of Florida.

New Builds Reshaping Market Supply in 10 Markets

After identifying the top 20 growth markets, we examined new construction's share of new listings. This metric reveals the competitive landscape: what percentage of available homes are fresh builds?

The Results:

• U.S. Average: Steady at around 10% since 2022.
• Boise City, ID: The outlier. Since 2022, 1 in 2 to 1 in 3 listed homes were new construction. June 2024: 33.3% new builds.
• Austin, TX: Consistently 1 in 3 to 1 in 5 homes listed are new. June 2024: 21.6% new builds.
• Raleigh, NC & Jacksonville, FL: Both exceed 20% new construction in recent listings.

This surge in new builds is reshaping high-growth markets, offering buyers abundant choice. However, it raises questions about market stability and potential oversupply.

From Listings to Sales: The New Construction Appetite

With new builds flooding the market, how are buyers responding? We shift our focus from supply to demand, examining the percentage of total sales that are new construction in our 10 markets.

The data tells the story:

• National Trend: New construction sales hover at 8-10%, generally aligning with supply levels.
• Boomtown Dynamics:
  • Austin, TX: Once a standout with new construction accounting for 40% of sales in early 2021, it's now at 9.7% (June 2024), below the national average. This steep decline outpaces the drop in new listings (21.6%), indicating a demand cooldown.
  • Boise, ID: The mismatch is stark. While new listings remain high at 33.3%, sales have plummeted from a peak of 33% in early 2022 to just 7.7% in June 2024.

Both Austin and Boise, once far outpacing the national benchmark, have now converged with or fallen below it, suggesting a normalization of these once-hot markets.

These results points to a cooling demand for new builds. As supply continues to outpace demand, we're left wondering: What does this mean for home prices in these areas? Let's look at the pricing data to find out.

Price Paradox: New Construction's Balancing Act

Homebuilders have adeptly navigated the high-interest environment using sophisticated financing strategies, particularly mortgage rate buy-downs. These tactics allow them to maintain price growth and attract buyers. This approach can make new construction more appealing and demonstrate price growth, even as the true cost is shifted elsewhere in their financial equation.

With that context, let’s examine the pricing data for our 10 focus markets:

National Price Trends:

1. Sales: Nationally, new construction sales prices are up 3.78% year-over-year.
2. Listings: New listing prices show a 4.27% increase, suggesting seller optimism.
3. Rentals (BTR): New rental listings are up 2.35%, pointing to a steady rental market for new constructions.

Boise and Austin Diverge

Boise, ID: Despite supply-demand imbalances, Boise's price performance remains robust:

• Sales prices up 8.25%
• Listing prices up 3.14%
• Rental prices up 4.04%

This strong performance across all categories, especially in sales, suggests that while volume may be down, the homes being sold are commanding premium prices. Builders may be focusing on higher-end properties or using creative incentives to maintain price levels.

To illustrate both of these dynamics in action, let's look at Boise Hunter Homes, a luxury homebuilder prominently featured on Zillow's new construction page for Boise. Many of their listings are for for homes north of $1.5 million. As of August 1, their website advertises an interest rate lock promotion.

Austin, TX: Austin stands out as the only market facing downward pressure across all event types:

• Sales prices down 0.25%
• Listing prices down 2.52%
• Rental prices down 1.60%

The decline in new listing prices is telling. Builders are proactively adjusting to weakening demand, setting lower initial prices to attract buyers. This shift signals a more realistic approach to current market conditions in Austin.

Overall, the new construction price narrative is nuanced: national resilience masks diverse local stories. Boise maintains strong prices despite demand declines, while Austin faces pressure across the board. Markets like San Antonio reveal stark disconnects between sales and listing price trends.With an arsenal of creative incentives at their disposal, meaningful price reductions by builders signal an exhaustion of other options. Austin emerges as a prime example of a booming market now facing these realities. Let's examine Austin's story more closely.

Austin's New Construction Reality Check

Austin's new construction market is facing a reality check, standing alone among our studied metros with price pressures across sales, listings, and rentals. This trifecta of decline signals a shift for the former poster child of pandemic-era boom towns.While the overall declines (<3%) might seem modest, they mask a more turbulent undercurrent. New listing prices are not only starting lower but are seeing substantial cuts post-listing. Our granular analysis of the Austin area reveals a market in flux:

What does this map reveal?:

• Deep Cuts Becoming Norm: The average price cut is a significant 7.23%, with some properties slashed by up to 31.33%.
• Geographical Disparity Within Austin: Southeast Austin emerges as a hotspot for price reductions, with zip codes 78747 and 78744 seeing average cuts of 21.41% and 16.98% respectively. The east (78725) and northeast (78653) are also significantly impacted, with cuts exceeding 11%. This pattern suggests that newer, rapidly developed areas on the outskirts of Austin are facing the most intense price pressures.
• While some areas are more heavily impacted, the data shows price cuts occurring across numerous zip codes in Austin, indicating a market-wide adjustment.

The depth and breadth of these cuts suggest that rate buy-downs and other incentives are no longer enough to attract buyers in a market cooled by high interest rates and economic uncertainty. Austin's story is beginning to serve as a cautionary tale for other booming markets. It demonstrates how quickly the tide can turn in the new construction sector, and how even the hottest markets can quickly face the cold reality of oversupply and waning demand.

Conclusion

In a housing market constrained by limited existing inventory and high interest rates, new construction remains a focal point of intense debate.

At Parcl Labs, we let the data speak. Our journey through the new construction landscape, powered by our robust API, took us from 300 top MSAs to 20 high-growth markets, then to 10 new construction hotspots, and finally to granular, zip code-level insights. This methodical approach unveiled two compelling outliers:

1. Boise: A market defying expectations with massive growth, dominating new construction listings, and sustained price strength.
2. Austin: A cautionary tale of rapid growth and oversupply, now grappling with price declines and localized distress.

Austin's story is particularly telling. We pinpointed specific zip codes showing acute distress in new construction, demonstrating how a once-hot market can quickly cool when new builds flood the supply. This granular insight - from national trends to neighborhood-level data - shows the power of the Parcl Labs API.

The divergent paths of Boise and Austin raise pressing questions:

• Will Austin's price declines spread to other high-growth markets?
• Which market will be the next to show signs of overbuilding stress?

As we continue to monitor these evolving markets, one thing is certain: in the complex world of new construction, data-driven insights are the key to navigating uncertainty. The Parcl Labs API offers this critical edge.

The new construction story is far from over. As markets continue to shift, those armed with precise, timely data will be best positioned to anticipate trends, mitigate risks, and capitalize on opportunities. Stay ahead of the curve - tap into the Parcl Labs and watch as the next chapter of the new construction saga unfolds.

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