DALLAS FORT WORTH HOUSING 2Q17: Still the Top New Home Market in the Country – Affordability Issues Hitting both New and Resale Markets
- Dallas remains the top new home market in the country, with builders starting 31,049 homes in the twelve months ending in 2Q17
- With the median new home price in DFW at $320,600, new homebuyers are stretched to the limit of what they can afford. While resale home prices continue to increase, new home prices are stagnant, as compared to 2016.
- While the under $200k new home market shows no signs of revival, new home starts between $200k-$250k are up 28% as builders and developers work to deliver more affordably priced homes.
- Homeowners are choosing to stay in their homes and remodel instead selling a buying another home, as buying another home requires paying more for a similar home or paying the same and buying a smaller home in a less desirable location. The apprehension to sell fuels the tight resale market and all but guarantees price appreciation.
Metrostudy’s 2Q17 survey of the Dallas-Ft. Worth housing market shows that new home starts edged up slightly by 3.4% versus the previous quarter. Builders started 31,049 homes in the past twelve months, of which 8,241 started in the second quarter maintaining DFW’s ranking as the top new home market in the nation. When comparing 2Q17 to 2Q16 quarterly, starts jumped 14.0%. Starts also increased between the first and second quarters of 2017 by 14.6%. Dallas-Ft. Worth builders closed 29,865 homes over the past twelve months, which represents a surge of 15.2% over 2Q16’s annual closings. As compared to 1Q17, annualized closings increased slightly by 3.2%. However, year-over-year quarterly closings rose 13.1% versus 2Q16.
“The increase in second quarter closings reflects stronger sales during the first quarter than the end of 2016; however, many builders and communities have hit a price ceiling,”says Paige Shipp, Director of Metrostudy’s Dallas-Ft Worth market. “With the median new home price in DFW at $320,600, new homebuyers are stretched to the limit of what they can afford. While resale home prices continue to increase, new home prices are stagnant, as compared to 2016. In an effort to spur sales, some builders are either reducing prices or minimizing price increases all while costs, including land, labor and materials, march higher. The difference in median price between a new home and resale home in DFW decreased to 30.7% from a high of 48.6% in 2015. At this pace, resale home prices will likely continue to increase while new home prices languish.”
During the second quarter, DFW homebuilders started a paltry 329 homes priced below $200,000. There is little hope for a revival of the sub-$200,000 market. However, the 28.0% increase in starts between $200,000 and $250,000 suggests that builders and developers are working to deliver more affordably priced homes. The price tranche experienced the highest jump in starts, which is encouraging. Starts for all other price points below $750,000 also increased over 2Q16. Closings between $300,000 and $450,000 rose 30.0% contributing to decreased housing inventory in the market.
Total inventory continues its downward trend with a slight decrease in the second quarter and finished vacant inventory dropped for the first time since 1Q16. Total inventory for 2Q17 dropped to 7.0 months of supply (“MOS”) which is 0.4 months lower than 1Q17 and above historical equilibrium of 6.0 MOS. The drop in total inventory indicates that the time between starting and closing a home is decreasing which aligns with builder commentary that labor issues are stabilizing. The drop in total inventory points towards an adaptation to the tight labor market, but the gradual rise in finished vacant inventory indicates that spec homes are taking longer to sell and close. Finished vacant inventory, homes completed but not occupied, decreased slightly to 2.0 MOS as compared to 1Q17’s 2.1 months of supply. However, the supply of finished vacant inventory is still within historical equilibrium of 2.0 to 2.5 MOS. Despite a stronger than expected spring selling season, finished vacant inventory hovers near its highest point since the market rebound in early 2013. As the market continues its struggles with affordability, it is important to monitor not only inventory levels, but also inventory by price. Finished vacant inventory levels below $400,000 are within or below historical equilibrium. However, inventory is above equilibrium, and rising, in prices above $400,000.
MLS recorded another record quarter with over 52,000 sales year to date and a median price of $245,000. Real Estate Agents report that homeowners are choosing to stay in their homes and remodel instead selling a buying another home. They have concluded during their home search that buying another home requires paying more for a similar home or paying the same and buying a smaller home in a less desirable location. The apprehension to sell fuels the tight resale market and all but guarantees price appreciation.
Builders report rougher than expected second quarter sales. For the first time this cycle, some builders are drastically reducing prices to move inventory in challenged communities. Other builders choose to maintain pricing, putting pressure on margins. On the flipside, builders and developers struggle to find land and lot positions that make financial sense. Land and development costs continue to rise, complicating a market hitting a “price ceiling”. Lot and land purchases contracted today will not deliver until mid-to-late 2019, and the DFW market’s crystal ball is hazy. Development in previously considered “tertiary markets” is encouraging, as are smaller, defeatured homes entering the market. The speed at which these lots and home are delivered will determine the future of DFW’s housing 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
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