New home starts across North Texas remain strong despite the continued climb in the 30-year mortgage rate, according to a new report.
North Texas builders initiated construction on 13,348 homes in the third quarter of the year — slightly lower than the 14,637 starts in the second quarter but 39% higher than the 9,592 starts in the same period a year ago, according to Dallas-based housing analyst Residential Strategies Inc.
As a result, the North Texas annual start pace improved to 45,908 units, up 8.9% quarter-over-quarter and down 14.5% from a year ago.
New home starts in North Texas varied relatively widely by submarket, said Cassie Gibson, senior vice president with Residential Strategies Inc.
“Many of the northern suburbs that have been positively affected by relocation buyers continue to show strength,” Gibson said in the report. “However, regions of the Metroplex characterized by lower household incomes continue to wrestle with housing affordability. These submarkets are the areas where the trend in new home sales have declined the most.”
“It is especially important for builders to provide mortgage rate buy-downs and incentives to maintain a healthy sales pace in these rate-sensitive submarkets,” she added.
Prices for new homes across Dallas-Fort Worth, meanwhile, remain at or near all-time highs.
New vs. pre-owned homes
Sales activity in the existing home market remains “muted,” the report noted. Homeowners that have a 30-year mortgage in the 3% to 4% range remain reluctant to consider listing their house for sale and, as a result, existing home sales have declined.
There were 92,699 existing home sales in North Texas for the 12-month period ending Aug. 23, down 12.9% year over year, according to data released by the Texas A&M Real Estate Data Center.
At the end of August, there were 20,982 existing home listings for sale representing just a 2.7-month supply of inventory. A six-month supply is considered equilibrium in the pre-owned home market.
“New home sales continue to garner an outsized share of market” Gibson said. “Not only are many homeowners reluctant to walk away from ultra-low mortgage rates, but homebuilders are able to provide mortgage rate buy-down opportunities on new homes that make monthly payments on new homes much more affordable in the initial years of purchase as compared to nearby resale inventory.”
Carolyn Rosson, president and CEO of Dallas-based residential real estate firm The Ebby Halliday Cos., said new home sales have become an increasingly important part of the overall housing market as inventory has tightened for resales.
Carolyn Rosson, president and CEO of the Ebby Halliday Cos., said would-be sellers don’t want to trade a mortgage rate in the 3% range for a higher one, so they’re staying put.
“It’s interesting because the inventory for new homes in some markets is plentiful and in others is not very plentiful at all,” Rosson said in an interview with the Dallas Business Journal. “Sometimes our clients are willing to drive a little bit further to secure a new home. With remote working since the pandemic, that has changed the process in many families’ decision to purchase. If they can work from home, the location doesn’t matter as much.”
New home inventory ‘in good shape’
In the new home market, builders report that many of the positive sales and traffic trends that emerged this past spring continued through the summer, said Ted Wilson, principal with Residential Strategies. Nonetheless, with the 30-year mortgage rate surging toward 7.5%, “we would not be surprised if traffic and sales moderate further,” he said.
Ted Wilson, principal of Residential Strategies, said homebuilders are closely watching for increases in cancellations in light of the recent run-up in mortgage rates.
Homebuilders had another strong quarter of home closings between July and September, with 13,096 single-family homes and townhomes closed in the quarter. Annual closings are pacing at 52,670 homes — very close to the pace of 52,752 units in the second quarter and up 5.4% from year-ago pace of 49,953 closings.
Housing inventory levels remain “in good shape” for supply-demand conditions, according to the Residential Strategies report. The number of homes under construction remained generally flat for the quarter at 28,548 homes. The level of finished vacant inventory inched slightly higher from 7,895 to 8,287 homes during the quarter but remains at a healthy 1.9-month supply. Residential Strategies considers a 2- to 2.5-month supply to represent a balanced market for new homes.
“Over the past year, builders have seen excellent improvement in construction cycle times (the time it takes to build a house), and direct construction costs are generally flat to slightly down,” Wilson said in the report.
Builders continue to closely watch the Federal Reserve’s actions and outlook. While many are hopeful that the Fed is nearing or has reached the conclusion of its series of rate hikes, the Fed has signaled that it plans to keep rates higher for an extended period in its battle to reduce inflation, Wilson said.
At the beginning of July, the 30-year mortgage rate was 6.81% according to Freddie Mac. The most recent report for the week of Oct. 5 indicates that the rate has now climbed to 7.49%, Wilson said.
Most Dallas-Fort Worth builders are performing stress tests on their sales backlogs and closely watching for increases in cancellations in light of the recent run-up in rates, Wilson said.
“In 4Q22, as the mortgage rate exceeded 7%, there was a noticeable slowdown in traffic and sales,” Wilson said. “We would not be surprised if history repeats itself in 4Q23.”
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Source: https://www.bizjournals.com/dallas/news/2023/10/10/new-home-starts-residential-strategies-ted-wilson.html