DALLAS-FORT WORTH HOUSING 1Q19: Builders Continue to Shift to More Affordable Homes and Decreasing Base Prices
- Dallas maintains its spot as the #1 market for new home starts in the US – even as quarterly starts are down 1.4% from 1Q18 levels
- This is the first time since 1Q11 that quarterly starts have dropped for three consecutive quarters.
- DFW’s median new home price has dropped since last year. The decrease in price is not devaluation; rather it is an indication that buyers are purchasing smaller, more affordable homes.
- To address affordability concerns, developers need to winnow lot sizes. However, many of DFW’s 212 municipalities oppose any sort of density for fear that it will devalue existing homes and burden their infrastructure.
Metrostudy’s 1Q19 survey of the Dallas housing market shows that the region maintained its top rank for new home sales activity in the US. Builders started 34,361 homes in the past twelve months, of which 7,459 started in the first quarter. Starts in the first quarter of 2019 decreased by 7.7% versus the previous quarter. When comparing 1Q19 to 1Q18, starts dropped 1.4%, which is lower than the 13.3% decrease last quarter. This is the first time since 1Q11 that quarterly starts have dropped for three consecutive quarters.
The continued decrease in starts can be attributed to slumping sales in the last half of 2018 as well as weather related delays that have dogged the market since September 2018. Annual closings increased marginally this quarter by 1.2% over 1Q18. However, the annualized rate decreased slightly as compared to 4Q18 by 0.8%. During the past twelve months, DFW closed 32,312 homes. This quarter marks the first time since 4Q11 that annualized closings declined for two consecutive quarters. Quarterly Closings dropped by 14.9% quarter over quarter, which aligns with a historical decline in closings for the first quarter. In spite of the sinking numbers, builders report stronger than anticipated sales during the first part of 2019.
“Based on last year’s slowdown, there was concern that the market cooled,” said Paige Shipp, Regional Director of Metrostudy’s Dallas region. “Many builders responded by shifting their product offering to more affordable homes and decreasing base prices. These shifts more closely match DFW’s new homes with what buyers can afford. Additionally, DFW’s median new home price has dropped since last year. The decrease in price is not devaluation; rather it is an indication that buyers are purchasing smaller, more affordable homes. In a market where new and resale price appreciation significantly outpaced wage growth, a lower median price indicates that more homebuyers will be able to afford new homes. The median resale price of $251,000 is 1.0% higher than 2018. As the median new home price drops and resale price increases, the delta between new and resale narrows. Currently, the difference between the median resale and new home price is 23.1%. The greatest difference in price was 50% in 2015.”
This quarter’s data provided further proof that builders are addressing DFW affordability concerns by starting more homes between $250,000 and $350,000 than closings. In 1Q19, annual starts outpace closings by 10.7% between $250,000 and $350,000. This difference is higher than the market average of starts eclipsing closings by 6.3%. Starts outpacing closings indicate an expanding market. The greater the delta, the more rapidly the market is expanding. The 10.7% delta points to a growing supply of affordably priced homes in DFW.
DFW new home price appreciation between 2010 and 2017 topped 67.3% – an average of 7.7% annually. That growth was neither sustainable nor beneficial to an increasingly unaffordable market. DFW lot development still continues to lag behind starts. To address affordability concerns, developers need to winnow lot sizes. However, many of DFW’s 212 municipalities oppose any sort of density for fear that it will devalue existing homes and burden their infrastructure. What the cities do not recognize is that well-designed, affordable housing strengthens communities by diversifying its demographic composition. DFW’s solid resale market is off to a healthy start, albeit a bit slower than 2018. First quarter sales reached 21,009, a year-over-year decline of 2.7%. The median price appreciation has cooled from previous years to a modest 1% increase over last year.
Fortunately and not surprisingly, 2019 began much stronger than how 2018 ended. While the last half of 2018 proved frustrating, concerning and scary, builders and developers responded quickly and appropriately. Prices were adjusted; new product was introduced; backlogs were scrubbed; overhead was cut. These moves may seem fundamental, but many were overlooked or unnecessary during DFW’s years of a “red hot” new home market. Developers continue to push municipalities for density and allowance of smaller homes. Builders edit and redesign product to provide new homes priced for market demand. All of these changes and pivots lengthen an unusually long cycle and prevent a sharp decline in DFW’s new home market.
For information contact
Paige Shipp – firstname.lastname@example.org
About Metrostudy Metrostudy is the leading provider of primary and secondary market information to the housing and related industries nationwide. Metrostudy provides research, data, analytics and consulting services to help builders, developers, lenders, suppliers, retailers, utilities and others make investment and business decisions every day. For more information, visit www.metrostudy.com
About Hanley Wood: Hanley Wood is the premier company serving the information, media, and marketing needs of the residential, commercial design and construction industry. Utilizing the largest analytics and editorially driven Construction Industry Database – powered by Metrostudy – the company provides business intelligence and data-driven services. The company produces award-winning media, high-profile executive events, and strategic marketing solutions. To learn more, visit hanleywood.com.