More new homes are being built and sold in DFW now than last year, with most growth coming from homes in the mid-price range, according to a new study by Residential Strategies. New home construction and sales have jumped more than 10 percent year-over-year at the end of the second quarter.
During this past quarter, 9,902 homes got underway, bringing the annual rate (since the third quarter 2017) to 35,399 new homes. Compared with the year before, the growth rate is up 12 percent (from 31,596 in the third quarter of 2016 to the second quarter of 2017).
As the numbers rise for new home construction, so do sales. There were 8,984 new home closings in Q2. That’s an 8.9 percent increase compared to the same time last year. Overall, the jump brings the annual closing rate up to 33,018, an 11 percent increase from the previous year.
Most new home growth over the past year—nearly 70 percent—occurred in the $250,000 to $350,000 range. Builders have found it difficult, however, to maintain affordable new home prices because of increases in land prices, material and labor costs, and mortgage rates.
Builders are focused on eliminating costs from their houses and the year has seen a shift toward selling homes with smaller square footage, Principal with Residential Strategies Ted Wilson said in the study. Construction on lots 50 feet wide and narrower increased 44 percent over the past year, while starts on lots 60 feet and wider plateaued.
As builders struggle to cut costs, construction of lower priced houses and demand for higher priced houses appear to be falling. “A year ago, builders in the Northern Dallas markets were reporting very strong sales at the higher price points, much of this stemming from relocation buyer demand such as the Toyota move,” Wilson says. “This spring, demand for houses above $500,000 from ‘relos’ and H1-B visa migration has been noticeably lower. This has resulted in a highly competitive markets for the builders along the Dallas North Tollway corridor.”
New home inventory levels have barely shifted: finished vacant inventory fell slightly from the first to second quarter from 5,715 to 5,624. Not much has changed in the existing housing market, which saw just a 2.45 percent year-over-year increase in May, maintaining a tight supply of listing inventory. Supplies of existing houses as well as vacant lots both fell below equilibrium, with a current 22.1-month lot supply of vacant lots.
“Despite the strong demand for new homes, we have noticed that the lot development pipeline is starting to shrink,” Wilson says. “With escalating land and development costs, builders and developers are reporting that it is increasingly difficult to find new locations to develop that can produce ‘right priced lots.’”
