DALLAS-FORT WORTH HOUSING: Starts Show Explosive Growth; Market Prices Continue Upward Shift
- Quarterly New Home Starts up 39.1% from 1Q15; Annual starts up 22% YoY
- Prices continue their upward shift, as builders report the greatest demand, and strongest sales for the first quarter are between $250K and $400K and 31.6% of starts were above $400K
- Due to rapidly rising land and development costs, developers argue there is little hope for the revival of the sub-$200,000 new home market. This will remain an issue until municipalities, developers and builders understand and deliver higher-density lots and smaller homes to the market
APRIL 25, 2016 – Metrostudy’s 1Q16 survey of the Dallas-Fort Worth housing market showed that builders began 2016 explosively with 28,759 annual starts, 22.1 % higher than in 2015. Quarterly starts numbered 7,015 in 1Q16, up 39.1% from 1Q15, which was hampered by bad weather, including snow and ice. Annual closings rose to 24,754 homes as of 1Q16, 10.3 % more than 1Q15. Quarterly closings increased 3.5% over 4Q15, as builders report closing many homes in the first quarter initially slated for 2015.
“First quarter starts data presents further evidence of Dallas-Ft. Worth’s market shift in price,” said Paige Shipp, Regional Director of Metrostudy’s Dallas Office. “Historically, most of DFW’s starts and closings occurred below $200,000. The new normal reflects a meteoric rise in starts above $200,000. When comparing the increase in starts and closings year-over-year, starts between $250,000 and $299,999 are nearly three times the closings increase. Starts between $300,000 and $349,999 jumped 81.2%, which is almost twice the increase in closings. Conversely, starts below $200,000 have dropped 14.6% and closings plummeted 31.0%. Due to rapidly rising land and development costs, developers argue there is little hope for the revival of the sub-$200,000 new home market. This will remain an issue until municipalities, developers and builders understand and deliver higher-density lots and smaller homes to the market.”
Builders report the greatest demand, and strongest sales for the first quarter are between $250,000 and $400,000. Starts in this price range accounted for 44.4% of the first quarter’s total starts. However, a whopping 31.6% of starts occurred above $400,000. As DFW new home prices continue to appreciate, and higher priced lots come to market, it will be important for builders to deliver new homes based on buyer demand.
While first quarter closings were strong, total and finished vacant inventory continues to climb. Since 1Q15, when total inventory was 6.7 months of supply (MOS), inventory has risen 19.4% to 8.0 MOS. The total inventory increase is not surprising based on the weather in spring of 2015 and extended build cycle. However, the finished vacant MOS continues to climb, as well. This is either an indication of increased cancellations, or more likely, spec inventory not closing upon completion.
Inventory below $300,000 grew slightly but remains below 8.0 MOS, which is consensus equilibrium. Price points above $300,000 hover above equilibrium, and most likely will not decrease significantly until the labor constrains ease. Typically, the more expensive a home, the longer it takes to build which leads to greater under construction inventory in higher price points. The tight labor market prolongs home building cycle times for higher priced homes.
Total SFD & TH lot inventory dropped for a fifth consecutive quarter to 19.9 MOS from 20.9 months last quarter. New lot deliveries for 1Q16 were 13.5% higher than 1Q15, but starts have increased 39.1%. Developers report numerous lots coming to market in 2016, many in large tranches. One master planned community plans to deliver over 700 lots this year. The sizable lot deliveries have been in the works and under development for the past 18 months and are just coming to market now.
There are currently approximately 21,150 lots under construction in DFW. North Ft. Worth, a historically affordable market, has the most lots under construction with 2,530, a 14.8- month supply. Frisco is second with 2,055 lots, a 10.9-month supply.
“For the first three months of the year, builders and developers report that prices are stable but anticipate an increase in the cost of concrete in April. If builders are not able to pass the costs onto the buyer, margins may be affected,” said Shipp. “Demand for homes in Dallas-Ft. Worth persists, but builders, developers and municipalities must work together to deliver attainably priced homes. Land prices, development costs, fees and home building costs cannot be controlled. The only way to provide new homes below $300k will be by increasing home density and decreasing home square footage.”
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 information, media, event, and strategic marketing services company serving the residential, commercial design and construction industries. Utilizing the largest editorial- and analytics-driven construction market database, the company produces powerful market data and insights; award-winning publications, newsletters and websites; high-profile executive events; and strategic marketing solutions. To learn more, visit hanleywood.com.