DALLAS-FORT WORTH HOUSING 4Q18: 2018 Was A “Good News, Bad News” Year – More Cities Open to Denser Communities and Smaller Homes
- Dallas-Fort Worth remains the top market for new home sales activity in the country with 34,586 new home starts in 2018.
- DFW’s median new home price has dropped since last year – an indication that buyers are purchasing smaller, more affordable homes.
- Wage growth has not kept up with home price appreciation making many new homes outside of buyers’ reach; buyers are resetting their expectations of what they can buy and where, which has delayed their purchase – hopefully to 1Q19.
- The last half of 2018 saw a lot of bad news for the market: Record rainfall, the jump in interest rates and declining demand for homes priced above $350k made for a forgettable six months.
Metrostudy’s lot-by-lot survey of the Dallas-Fort Worth housing market shows that builders started 34,586 homes in the past twelve months, of which 8,180 started in the fourth quarter maintaining DFW’s top rank for new home sales activity in the US. Quarterly starts for the fourth quarter of 2018 decreased by 8.9% versus the previous quarter. When comparing 4Q18 to 4Q17, starts dropped 3.3%, which is lower than the 1.3% decrease last quarter. Frankly, for the last half of 2018, builders reported dismal sales and traffic. However, many cited a bump in activity after November elections and a stronger December than the previous 5 months.
Annual closings increased marginally this quarter by 2.6% over 4Q17. However, the annualized rate decreased slightly as compared to 3Q18 by 0.6%. During the past twelve months, DFW closed 32,582 homes. This quarter marks the first time since 3Q11 that annualized closings dropped since the previous quarter. Closings dropped 0.1% quarter over quarter, which is unusual for the fourth quarter. Typically, builders push to close as many homes as possible in the fourth quarter as their fiscal year ends. However, DFW experienced unprecedented rainfall in September (12.69 inches) and October (15.66 inches). The extraordinary rain events pushed closings into 2019, which could bode well for builders’ budgets. Annual closings also rose, but by a more temperate 2.6% over 4Q17.
“DFW’s median new home price has dropped since last year, yet the decrease in price is not devaluation; rather it is an indication that buyers are purchasing smaller, more affordable homes,” said Paige Shipp, Regional Director of Metrostudy’s Dallas-Fort Worth market. “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 $256,600 is 5.2% higher than 2017. 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 28.4%. The greatest difference in price was 50% in 2015.”
This quarter’s data provided further proof that builders are, in earnest, delivering DFW’s “new affordable” homes. In 4Q18, annual starts outpace closings by 9.1% between $200,000 and $300,000. This difference is higher than the market average of starts eclipsing closings by 6.2%. Starts outpacing closings indicate an expanding market. The greater the delta, the more rapidly the market is expanding. The 9.1% delta points to a growing supply of affordably priced homes in DFW.
The last half of 2018 is the time most builders and developers wish to forget. The rain, coupled with rising interest rates and new home prices that appreciated faster than anticipated, created a “perfect storm” for new homebuyers. Wage growth has not kept up with home price appreciation making many new homes outside of buyers’ reach. As for the interest rates, buyers don’t just wake up one morning and decide they want to purchase a home. It is a long, intense process of finding the home they want to purchase and then organizing their finances. During that period, interest rates jumped making their chosen home more expensive than they could afford. Buyers are resetting their expectations of what they can buy and where, which has delayed their purchase – hopefully to 1Q19.
DFW lot development continues to lag behind starts. Municipalities’ lengthy and overly complicated entitlement and development processes coupled with an epidemic of NIMBYism (Not In My Back Yard), delays delivery of much needed affordable new homes in DFW.
For DFW’s new home industry, 2018 was a year of “good news, bad news”. The good news included strong traffic and sales for the first half of the year. Builders and developers delivered additional communities and homes to meet the strongest demand in our market – product priced below $350,000. More and more cities are open to the possibility of denser communities and smaller homes. The bad news hit the last half of 2018 like a Mac truck. Record rainfall, the jump in interest rates and declining demand for homes priced above $350,000 made for a forgettable six months. There is optimism in the industry for the start of 2019. Rates inched down, the weather is generally clear and buyers are returning to the market. Only time will tell how the next 12 months shake out.
For information contact
Paige Shipp – email@example.com
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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