DALLAS-FORT WORTH HOUSING 4Q15: Starts Reach Highest Level Since 2007 – Rising Starts Prices Could Lead to Oversupply Above $350K
- Annual New Home Starts at their highest levels since 2007 – and Up 11.4% from 2014; Quarterly Starts Down 16.7% QoQ off 3Q15 highs
- Affordability Concerns Remain: Quarterly starts above $300K exploded in 2015 and New home closing prices increased 7.8% in the last 12 months
- If most new home demand remains below $350K, builders will be carrying excess lots and finished vacant homes above $350K in 2016.
FEBRUARY 2016 – Metrostudy’s 4Q15 survey of the Dallas-Fort Worth housing market showed that builders finished 2015 strong with 26,779 starts for the year, 11.4% higher than 2014. Quarterly starts numbered 6,939 in 4Q15, down 16.7% from 3Q15. Annual closings rose to 23,912 homes in 2015, 9.3% more than in 2014. Unlike starts, quarterly closings grew by 1.9% over 3Q15.
“This year’s annual starts represent the highest total since 2007,” said Paige Shipp, Regional Director of Metrostudy’s Dallas Office. “The QoQ decline in starts was due mostly to the elevated third quarter starts compensating for weather-related issues during the second quarter. Although closings grew both quarterly and annually, builders reported delaying a significant number of projected closings from 2015 to early 2016 because of labor constraints. Because of the postponed closings, builders were not able to reach their annual closing budgets for 2015. On the other hand, builders expect January and February of 2016 to be unusually strong months for closings.”
Quarterly starts above $300,000 exploded in 2015, and the fourth quarter was no exception. Most notably, 4Q15 closings between $300,000 and $349,999 increased 51.7% over the same quarter last year. Increased land and development costs, in addition to increased construction costs, contributed to skyrocketing home prices. New home closing prices increased 7.8% during the past twelve months and 50.3% since 2010. In comparison, closings have increased in the higher price ranges, but not to the extent of starts increases. For the $300,000 to $349,999 range, the closing pace is merely 2.4% lower than starts. However, in the tranches between $350,000 and $499,999, there is a double-digit difference between quarterly starts and closings. If this trend continues, DFW inventory above $350,000 will expand and could lead to oversupply.
In 4Q15, Frisco eclipsed North Fort Worth as the top performing submarket in the Metroplex. Many of the major employment relocations are in Collin County, which generates increased demand in markets such as Frisco, McKinney and Prosper. The historically affordable market of North Fort Worth comes in second for annual starts and boasts a very low vacant developed lot supply of 13.2 months. The four most active submarkets, Frisco, North Fort Worth, Denton County and McKinney, account for 30.2% of new home starts in DFW.
The delayed closings in 4Q15 will make for a strong start to 2016, but kept inventory levels similar to the previous quarter. The ratio of finished vacant inventory of 21.5% remains well below equilibrium of 35%. Total inventory rose 833 units, but that number should drop as builders push to complete homes in the first quarter of 2016. The total inventory level increased from 7.6 months in the third quarter to 7.8 months this quarter. Although inventory levels are the highest since early 2005, inventory should stabilize as builders close homes in backlog in 2016.
Finished vacant inventory also edged up from 1.6 months of supply this last quarter to 1.7 months of supply in the fourth quarter. This indicates that the homes under construction close at completion and there are few finished spec homes lingering on the market. Inventory below $350,000 stayed relatively flat since last quarter. Conversely, inventory between $350,000 and $399,999 surged 0.7 months and inventory $400,000 to $499,999 climbed 0.6 months. While overall inventory remains relatively low at 7.9 months of supply, the rising levels between $350,000 and $500,000 could lead to an oversupply. Increased land cost coupled with escalating construction costs force builders to construct housing that is more expensive. If the majority of new home demand remains below $350,000, builders will be carrying excess lots and finished vacant homes above $350,000.
“In the fourth quarter, builders hurried to complete the numerous homes started during the third quarter. Unfortunately, labor constraints prevented many of those homes to close by year-end,” said Shipp. “Builders report that in November 2015, framing costs were up by 50% or more, all of which was attributed labor, not materials. In addition, extended build times are reported to be the norm and there is little evidence that will change in 2016. Strong buyer demand and labor shortages strengthen builders’ backlogs, but exasperate lengthy build times. To combat increasing prices, some builders are supplementing their product with value-engineered product and smaller homes. Buyers have responded positively to the new product and those builders have robust sales to prove it.”
Market fundamentals in Dallas-Fort Worth remain healthy, including diversified employment growth and strong demand for housing. Factors such as increasing land prices, labor shortages and extended cycle times place upward pricing pressures on a historically affordable market. Moving forward, providing quality new homes below $350,000 will be critical to maintain DFW’s robust 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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