DALLAS HOUSING MARKET 4Q16: A Mismatch between Supply & Demand: Affordability Issues Loom in a Rapidly Appreciating Market

  • 2016 New Home Starts are up 11.2% over 2015 levels, although most of this growth is the result of a bump in 1Q16 starts
  • We continue to see a slowing of demand in the price ranges above $400k – the largest increases in new home starts occurred in the $300-399k range.
  • With every quarter, demand for new homes above $400,000 wanes. Builders continue to struggle to deliver affordably priced homes in a rapidly appreciating market.

Metrostudy’s 4Q16 survey of the Dallas home market shows that new home starts for 2016 increased 11.2% over 2015 levels. Builders started 29,892 homes this year, of which 7,278 started in 4Q16, up 4.2% over 4Q15. Quarterly starts dropped with a 12.2% decrease versus 3Q16. Dallas-Ft. Worth builders closed 28,048 homes in 2016 quarter, which represents a jump of 17.2% more than 2015. Labor shortages appeared to have an impact on this quarter’s closings with a quarter-over-quarter drop of 4.4% as compared to 3Q16. However, year-over-year quarterly closings shot up 18.6% versus 4Q15. A bump in starts in 1Q16 accounts for most of the starts increase for 2016. Between 2Q16 and 4Q16, starts only increased by 3.3% while closings increased at a much sharper pace of 13.1%. This corresponds to builder’s feedback regarding slowing demand at higher price points and in communities where prices have appreciated significantly over the past 3 years. Rapid price increases coupled with higher interest rates translated to slower traffic and sales during the fourth quarter. Builders have responded by increasing buyer and Real Estate Agent incentives, and in some cases, lowering base prices.

“As builders and developers realize that the heyday of 2015 and mantra “if you build it, they will come” is over, they grapple with how to address the mismatch of new home supply and buyer demand,” said Paige Shipp, Director of Metrostudy’s Dallas office. “A few builders are taking the leap to provide new homes below $200,000 in less desirable school districts with no buyer options. While this solution proves feasible for some buyers, others crave affordable, new homes in top school districts proximate to employers. The solution to the age-old problem of affordability is complex and will only be resolved once municipalities, developers and builders work together to deliver homes priced to meet the demand.”

Year-over-year quarterly starts by price range further demonstrate the slowing of demand above $400,000. Starts between $300,000 and $399,999 experienced the largest increase while starts between $400,000 and $749,999 were only slightly higher than a year ago. In 4Q15, just one year ago, quarterly starts between $400,000 and $499,999 were up 31.8% year-over-year, while starts between $500,000 and $749,999 jumped 45.7%. Conversely, closings in the higher price points continue to surge, which indicates that the slowdown in starts may not be a labor problem, rather a demand problem. When analyzing the sub-$300,000 market, lack of supply, not a lack of demand, influences the decrease and marginal increase in year-over-year closings. With every quarter, demand for new homes above $400,000 wanes. Builders continue to struggle to deliver affordably priced homes in a rapidly appreciating market.


For the first time in DFW’s history, NTREIS recorded over 100,000 home sales in a calendar year. This shattered the previous peak of 94,086 home sales in 2006. Existing home sales grew 6.9% year-over-year for 2016 and inventory decreased by 1.2%. The median price of existing homes rose to $225,000, 10% higher than twelve months ago.

Total inventory decreased in the fourth quarter while finished vacant inventory increased. Total inventory ended 2016 at 7.5 months of supply (MOS) which is 0.4 months lower than 4Q15. The drop in total inventory (which includes models, homes under construction and finished vacant homes) indicates that it is taking less time to construct new homes. The drop in total inventory points towards a stabilizing market, but the gradual rise in finished vacant inventory is a cause for concern. Finished vacant inventory, homes completed but not occupied, increased to 1.9 MOS as compared to 3Q16’s 1.7 months of supply. Although not as high as 1Q16 (2.0 MOS), absolute inventory reached its highest levels, 4,557 units, since 4Q09.

Because we started almost twice as many houses in 2016 (29,892) versus 2009 (15,010), DFW’s finished vacant months of supply is much healthier. Although general data suggests DFW is a strong market, it is important to monitor and react quickly to changing market indicators. When comparing finished vacant inventory for the fourth quarter of 2016 versus the fourth quarter of 2015, inventory increased by 35.3% and, similar to other data points, there is a notable uptick in inventory above $350,000. Since 2015, units of inventory between $350,000 and $399,999 increased 74.6% while finished vacant inventory between $400,000 and $499,999 increased 50.5%. Most likely, the increase in inventory at the higher price points can be attributed to builders starting speculative inventory, and not selling and closing the unit at completion. Builders state that traffic and sales slowed in the fourth quarter, but cancellations remain flat. Builders report they have not experienced higher than usual buyer “fallout” in the fourth quarter.

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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