Houston’s inventory is low, which is helping to keep prices surging while sales stagnate. The obvious remedy to rebalance the market would be an injection of new homes. But as a recent report from Metrostudy Corp. explained, growing construction costs are hindering builders from filling out the lower tiers of the market where options are scarce.

“We are seeing concern reflected in the new home market,” said Scott Davis, regional director of Metrostudy’s Houston market, who noted Q2 new home starts were nearly 1,000 units less than at the same time last year.

The national housing research group reported that while buyers in Houston have historically spent about 15 percent more on a newly constructed home over an existing resale home, the new higher prices of labor and concrete, as well as lot availability – which Davis postulated could be a serious concern in 2017-2018 – have pried the gap considerably wider.

Existing-Home Prices Remain Strong

Drawing on more refined data from Metrostudy, the Houston Business Journal provided more specific examples of the exacerbated imbalance between new and existing homes. In Bridgeland, a master-planned community in Cypress, the 2011 difference between the property types was 13 percent. However, more recently, the gap has widened to 22 percent. And these are homes of comparable quality and size, the news report claimed.

“On an annualized basis, starts stand at 29,024, and the market continues to experience declines related to weakness in the economy,” Davis said.

Metrostudy researchers admitted in their report that they have been expecting and waiting for resale activity to slow, but the low inventory, a result of limited building – mostly in the $300,000 and up range – is keeping that sector of the market unnaturally robust in terms of price increases.

Down But Not Out

According to the report, MLS transactions of resale homes reflected a median price of $222,000 in the year’s second quarter, which is 5 percent higher than Q2 2014 and, more telling, the highest median home price in the city since 1990.

However, despite the complications and hurdles facing the industry, and construction in particular, Davis reassures the worried that Houston’s market is not in serious trouble. In fact, he said, it is still one of the strongest in the nation.

“The market appears to have peaked in (the fourth quarter of 2014), but even if the market experiences a 15 percent decline, Houston will still remain the nation’s leading new home construction market by several thousand starts.”