DALLAS-FORT WORTH HOUSING 3Q15: Builders Struggling to Deliver Affordable Product – Buyers Forced into Resale Market or Rentals
- 3Q15 New Home Starts are Up 12.4% from 3Q14 and Up 8.3% from 2Q15
- Affordability Concerns Remain – New Home Starts below $200k dropped as $300-350k starts are quickly becoming DFW’s new “affordable” price point
- Buyers are growing increasingly frustrated with the prolonged time it takes to construct a new home, as DFW builders are all cobbled by extended build times, due to weather and labor constraints
NOVEMBER 2015 – Metrostudy’s 3Q15 survey of the Dallas-Fort Worth housing market showed that builders poured thousands of foundations in the third quarter to make up for time lost during the unprecedented rain in the second quarter. The starts during the third quarter were 12.4% higher than 3Q14 and 8.3% higher than 2Q15. Over the past twelve months, DFW recorded 25,881 starts, an increase over the 23,894 starts in the second quarter. Annual closings grew to 23,481 by the end of the third quarter, a 9.1% increase over the third quarter of 2014. Closings during the second quarter were up 2.8% compared to the second quarter of 2015. DFW’s existing home market heated up further during the summer months as buyers struggle to find affordable housing in top submarkets.
“New home starts below $200,000 dropped as starts between $250,000 and $400,000 surged,” said Paige Shipp, Regional Director of Metrostudy’s Dallas Office. “Although starts between $200,000 and $250,000 increased, a diminishing supply of homes at that price point is a concern. Buyers seeking affordable housing near employment and urban core are forced to buy from the limited resale market or into the rental market. Starts during the third quarter surged 38.9% and 74.5% higher than the second quarter for homes priced $250,000 to $750,000. The most notable increase in starts was in the $300,000 to $350,000 range, which is quickly becoming DFW’s new “affordable” price point.”
New home deliveries above $500,000 swelled which fuels an already competitive market among builders. North Fort Worth tops the list of submarkets with the most starts, primarily due to the availability of affordable new homes. With 12.5 months of vacant lots, North Fort Worth also has the lowest lot inventory of the top ten submarkets. The four most active submarkets, North Fort Worth, Frisco, Denton County and McKinney comprise nearly 40% of new home starts in DFW.
Builders busied themselves starting houses in the third quarter, which resulted in a build-up of vacant inventory. Total Finished Vacant new home inventory ticked up 0.9% during the third quarter as builders aggressively started homes. The ratio of finished vacant inventory of 21.3% remains well below equilibrium of 35%. As compared to last quarter, total SFD & TH inventory jumped by almost 1,700 units to 14,760. In turn, the total inventory level increased from 6.9 months in the second quarter to 7.5 months this quarter. That number is expected to decrease as builders finish and deliver the numerous homes started during the third quarter. However, DFW may not recover from the weather-induced delays until early 2016.
As builders recover from the rain during the second quarter, buyers grow increasingly frustrated with the prolonged time it takes to construct a new home. Unfortunately, DFW builders are all cobbled by extended build times, due to weather and labor constraints, which leaves few alternatives for buyers wanting to purchase a new home. As expected with increased starts this quarter, finished vacant inventory inched up slightly since last quarter. However, inventory among all price points remains low as buyer demand for new homes continues. Currently, finished vacant inventory for all homes below $400,000 hovers below a 2.0- month supply.
Total inventory increased, as well, this quarter and homes priced from $250,000 are all above 6 months of supply. As builders finish and close their homes under construction, the months of supply will drop. Existing home sales grew 6.3% during the third quarter despite inventory dropping by 15.5% to another record low. The median price of existing homes decreased slightly since last quarter to $202,000, but is still 9.0% higher than twelve months ago.
“Builders pushing new homes from start to closing can be compared to forcing a bowling ball through a pipe,” said Shipp. “After the weather cleared, concrete and foundation companies were in high demand, and had difficulty keeping up with demand. As home construction proceeds, pressure shifts to framers, then drywall, and then painters. The effect of the spring’s rain continues to impact builders and is expected to do so through the end of 2015.”
Even though employment slowed marginally, demand for homes in Dallas-Fort Worth remains strong. As land and labor prices increase, builders struggle to deliver affordable product. Of the many starts builders produced in the third quarter, a startlingly high percentage was above $250,000. The trend is expected to continue and steer homebuyers to the existing home or rental markets.
For information contact
Paige Shipp – firstname.lastname@example.org
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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