North Texas Home Builders Got a Hot Start to 2024
Builders started construction on 14,217 units, a 44.7% improvement from the 9,828 starts in Q1 2023. But will interest rate cuts come?
North Texas home builders continued their push, getting off to a hot start in the first three months of 2024.
Builders started construction on 14,217 units, a 44.7% improvement from the 9,828 starts in Q1 2023. The annual start rate climbed to 54,706, the highest annual pace since Q2 2022, according to the latest estimates from Dallas-based Residential Strategies.
Ted Wilson, the group’s principal, said it was a very solid quarter, but there’s more to the story underneath those numbers.
”There’s a story behind the story,” Wilson said. “Going back to the end of 2022, there was a lot of finished housing inventory on the market. When we went into the first part of last year, builders had huge sales, but they were focused on selling down that inventory. They didn’t start as many units… That’s why starts were up as much, comparatively speaking.”
A big key to the start was mortgage rates falling under 7% in December after the Federal Reserve signaled that rate cuts were likely in 2024. Anecdotal reports from area home builders suggest that traffic and sales were strong in January and February, but March brought mixed results, Wilson said.
Areas in northern Dallas-Fort Worth were particularly strong. But builders reported narrower profits and more issues finding qualified buyers in southern DFW, according to the company.
New home closings were slightly stronger than at the end of last year, but flat compared to the first three months of 2023. Builders closed 12,965 units in the first quarter, a smidge down from 13,069 in early 2023.
There were 28,525 units under construction at the end first quarter, up slightly from 27,781 at the tail end of 2023. North Texas saw an increased level of finished vacant housing — up to 9,807. That’s an increase of 1,257 units or 14.7% compared to a year ago. This is part of the rebuilding process following the housing shortage during the COVID-19 pandemic, Wilson said.
During the first quarter, there were 1,002 rental units started, and the annual pace totaled 5,669 rental units. Build-to-rent represents 10.4% of North Texas’ new home starts.
Sales of existing homes remain limited. Data from the Texas A&M Real Estate Data Center show there were 91,131 existing home sales for the 12-month period ending Feb. 24. That’s a yearly drop of 4.6%.
Wilson said those slow sales will continue until there’s a noticeable decline in 30-year mortgage rates. The 30-year rate for the week ending April 11, 2024, averaged 6.88%, according to Freddie Mac, up 0.61 percentage points compared to a year earlier.
Homeowners locked into a 3% or 4% rate likely won’t sell, but builders have some tools at their disposal to get other folks interested in their newly built homes. Builder buy-down programs could reduce mortgage rates to 4.5% or 5% for a few years. It has motivated buyers who believe that interest rates will drop over the next two years, and they’ll look to refinance at a lower rate in the future, Wilson said.
At the end of February 2024, there were 20,757 existing home listings representing a tight 2.73-month supply.
New home sales now represent 40% of the combined new and existing home market, according to the company’s estimate.
“I think they are jumping on it,” he said.
However, builders and buyers got some bad news earlier this week as the selling season approaches. The latest Consumer Price Index data released by the Bureau of Labor Statistics showed inflation rose more than expected in March. This could force the Federal Reserve to push interest rates higher. Builders were hoping to see 30-year rate cuts later this year, Wilson said.
“That’s likely going to push the mortgage right back up a little bit, maybe over 7%,” he said. “I think there will still be continuation into the market, but if rates do climb over 7% that could have a dampening effect.”
Source: Dallas Morning News