DALLAS HOUSING 3Q16: Affordability Pressures Rising; Labor Issues Continue to Threaten the Market

  • Annual starts rate is flattening as builders are losing the ability to push prices higher – still through the twelve months ending in 3Q16 builders started 29,473 homes
  • There is a strong demand and lack of supply for homes in the more affordable price ranges; homes under $200k have practically disappeared as this quarter sees a 26.3% drop in starts in that price range.
  • Developer frustration with the lack of labor persists. Developers report contractors consistently overpromising and under delivering as it relates to workers being on site and completing work.

Metrostudy’s 3Q16 survey of the Dallas-Ft. Worth housing market shows that new home starts were up 14.8% from 2Q16. For the twelve month period ending 3Q16, builders started 29,473 homes, of which 8,260 started in the third quarter. This quarter’s starts represent an annual increase of 13.8% but when comparing 3Q16 to 3Q15, starts dropped 0.9%. Quarterly starts remained relatively flat with a 0.3% decrease over 3Q16. Dallas-Ft. Worth builders closed 26,824 homes annually through the third quarter, 14.4% more than annualized starts for 3Q15. Builders continue to work through weather related delays and labor shortages as indicated by a quarterly closings surge of 14.0% over 3Q15 and 7.0% increase over 2Q16. The flattening of annualized starts corresponds with builder’s decreased ability to push prices. In both 3Q14 and 3Q15, the annualized average price increase was 6.1%. For 3Q16, the annualized price change dropped to 4.7%. Builders report costs continuing to rise, which includes overhead, land, material and labor. If downward pressure on price appreciation persists as costs increase, builders’ margins will suffer.

“Although the number quarterly starts were similar between 3Q16 and 3Q15, the price distribution of the starts has shifted dramatically,” said Paige Shipp, Director of Metrostudy’s Dallas-Ft Worth region. “The disappearance of the sub $200,000 new home in DFW continues with a 26.3% drop in quarterly starts at that price. For new homes priced between $200,000 and $299,999, starts decreased by over 9.0% due to lack of supply. The greatest surge in starts occurred between $300,000 and $399,999. However, starts for new homes priced between $400,000 and $499,999 only increased by 3.0% while starts declined by 9.2% in the $500,000 to $749,999 price tranche. Unlike the lower priced homes, a lack of demand for more expensive homes contributes to flat and decreasing starts at the higher prices.”

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Builders report slower than anticipated sales particularly in new communities with new homes priced significantly higher than the community they are replacing. Real Estate Agents feedback indicates that these homes are overpriced for the market and buyers are not able or willing to pay a higher price for a similar home.

Both total inventory and finished vacant inventory months of supply stayed flat over last quarter. With builders working through weather delays from the first half of the year and labor shortages, 7.8 months of supply (MOS) of total inventory is a good indication of market stability. Finished vacant inventory, homes completed by not occupied, remains at 1.7 months of supply signaling builder discipline in starting, marketing and closing spec homes. Between the second and third quarters, the total number of model homes increased from 862 to 874 and the sales per model increased slightly from 30.0 to 30.7 sales. However, when analyzing the sale per model per price point, there is a stark difference between the lower and higher priced homes. Below $200,000, a shocking 78.5 homes sell for every model and between $200,000 and $249,999, 49.9 homes sell per model. Conversely, only 23.8 homes sell for every model in the $400,000 to $499,999 price range and 21.2 homes sell for every model in the $500,000 to $750,000 price tranche. This data further iterates the lack of supply and strong demand for new homes priced below $250,000.

When comparing total inventory for the third quarter of 2016 versus the third quarter of 2015, finished vacant inventory increased by 23.7%. When broken down by price points, there is a different story. Finished vacant inventory below $250,000 plummeted 33.5% in twelve months. For homes priced above $250,000, finished inventory increased by 41.4% in twelve months. This data indicates more expensive, completed homes remain unoccupied considerably longer than their lower priced counterparts.

Unfortunately, developer frustration with the lack of labor persists. Developers report contractors consistently overpromising and under delivering as it relates to workers being on site and completing work. When the crews do show up at the project, there are too few to complete the work in the agreed upon timeframe.

Homes in DFW continue to appreciate, but new home prices are tempering slightly. In 2013, 2014 and 2015, the median new home price increased by 13.5%, 8.5% and 9.9% respectively. Year to date, new homes have appreciated, but at a much more moderate 3.0%. Between 2013 and 2015, the median resale home price appreciated by 9.2%, on average. For the first three quarters of 2016, the median resale home price increased 9.5%.

“The DFW buyer is sending a clear message to homebuilders and developers – they need more affordable new homes and they won’t overpay for higher priced homes,” said Shipp. “Builders have responded by removing included features in their homes, which decreases the base price, but buyers pay more to get less. Other builders are slowly introducing new homes on lots less than 50’ wide. Until the labor crisis improves and municipalities embrace density, new home supply above $400k will stall.”

For information contact
Paige Shipp – pshipp@metrostudy.com
Tel: 972-793-0646

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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