Hot Start for North Texas Homebuilders in 2024 Has Cooled Slightly. Here’s Why
High interest rates and a buildup of finished inventory are partly to blame.
The hot start North Texas home builders saw in the first three months of the year cooled slightly in the spring.
Dallas-Fort Worth builders started 13,942 new homes between April and June, a drop of 5.1% from the nearly 15,000 starts in Q2 2023, according to estimates from Residential Strategies Inc., a Dallas market research firm that tracks Texas’ new home industry.
Ted Wilson, the group’s principal, said he expected numbers to be down, but it was still a pretty good quarter.
The slowdown was due to a minor buildup of finished inventory, Wilson said. Builders sold off more than 1,100 finished, vacant homes from their inventory in the second quarter.
“It was kind of a flip-flop from what we did last year,” he said. “This year, we had a very aggressive first quarter. So, builders backed off a little bit as they got into the second quarter and that shows up in the numbers.”
Area home builders reported a slowdown in sales from May to July. High interest rates coupled with a slowdown in jobs and relocations were key factors in the drop, according to the report.
From mid-April through much of May, the average 30-year mortgage rate was at or above 7% — an inflection point that determines whether the new home market is thriving or struggling, the company said.
In June and July, rates have continued to hover around that mark. For the week ending July 11, the rate was 6.89%.
Builders continued to use interest-rate buy-down programs to make homes more affordable, but selling was still a challenge. Builders of entry-level homes remained aggressive, but the market for homes above $1 million in the northern metroplex has weakened somewhat, Wilson said.
“We’re hearing from builders that traffic and sales are down 20% to 25% in a lot of neighborhoods,” he said. “Those that are getting sales many times are having to sacrifice profit margin to get them.”
Builders are hoping for a Federal Reserve rate cut in the fall, with additional cuts in spring 2025 to boost the market, Wilson said.
“I’m not sure just one rate cut is going to do much,” he said. “If we get back down to 6.5%, that would rev up the market. In our opinion, it would just make it more affordable. There’d be more people coming off the sidelines.”
Rate cuts would help the existing home market as well.
Listings and housing supply are up, but interest rates and other factors keep home prices high. Affordability remains an issue, Wilson said.
According to the Texas A&M Real Estate Center, there were nearly 90,000 sales reported through the MLS for the 12 months ending May 2024. That’s a 3.52% decrease year-over-year.
As of May, there were 25,926 listings in North Texas, a 48% increase from last year. There are 3.5 months of housing inventory in DFW, the highest rate since November 2012.
However, the median price of a DFW home is $410,000, up 1.2% from last year.
There were some positive trends from the second quarter.
On a year-over-year basis, home starts in DFW are up 28.4%. New home closings were up slightly. The annual closing rate reached a record high of 53,164 units, up less than 1% year-over-year. The number of units under construction neared 29,300 at the end of June, a 1.4% rise from last quarter.
“I think there’s still a positive spin to the market,” Wilson said. “Builders are still moving product, and we’ve not seen a problem with cancellations or anything like that. I think everybody remains hopeful about rate cuts in the future. It’s just taking longer than we expected it to take.”
Source: Dallas Morning News