Posted in Dallas - Ft. Worth Market, Uncategorized | Posted on 02-06-2015 | Written by Metrostudy News
- 2014 finished strong with 4Q14 starts up more than 20% over 4Q13
- We expect starts to slow in 2015 as activity in the lower price points is squeezed; starts in the price points above $300k are trending up
- Although finished inventory is growing at a slower rate than starts, supply is even more restricted than indicated using the historical closings rate.
February 2015: The housing market ended 2014 on a strong note with starts during the fourth quarter jumping over 20%. Annual new home starts pace (single family detached and townhouse) in the Dallas Fort Worth region rose to 24,000 homes during 2014, 13% higher than 2013 and 76% above the low in 2011. The growth in starts accelerated during the fourth quarter driven by the $200,000 to $750,000 price range. The increased starts rate was driven by strong sales during the fourth quarter with interest rates falling and builders slightly increasing their spec inventory heading into the spring selling season.
“Price increases over the past three years have affected affordability and forced buyers to the next submarket or to an existing home,” said David Brown, Regional Director of Metrostudy’s Dallas Fort Worth market. “The existing home market has gained 12% in market share during this time, primarily in the under $250,000 price point. With the higher lot prices for the newest generation of lots leading to a drop in starts under $200,000, the growth in starts overall is likely slow over the next year.“
Starts during the fourth quarter were up 21% compared to the prior year, driven by secondary submarkets. Higher lot prices in the submarkets driving the early years of the recovery have pushed buyers to the next location. New home closings jumped 10% in 2014 to 21,900 homes. Completions exceeded closings by 800 homes during the year causing finished inventory to grow 26%. However, inventory continues to remain near a historically low level. The top four submarkets (North Fort Worth, Frisco, McKinney and Denton County) accounted for 32% of the starts in the Dallas-Fort Worth region. The top ten submarkets accounted for approximately 45% of all new home starts in the region, but have lost market share in 2014 due to rising prices.
“New home inventory rose 18% during 2014 due to the increased starts and extended construction cycle time,” said Brown. “The extended construction cycle is evident in the fact that the inventory under construction accounted for 63% of the growth in inventory during the year. The ratio of finished vacant inventory to total inventory remains near the historic low well below 30% – a 35% ratio represents a market at equilibrium. The extended construction cycle is exaggerating this metric.”
Even though starts increased 21% during the fourth quarter, finished inventory grew at a slower rate of 14%. Finished inventory, however, is 38% above the record low level during the 3Q13. Although finished inventory is higher this year, it is still a very restricted at a 1.8-month supply based on historical closings. If closings grow as expected in the coming quarters, the supply is even more restricted than is indicated using the historical closings. Shifts in the supply of finished inventory have historically been an indicator of changes in future starts. The current inventory level continues to indicate a very strong housing market. Metrostudy will be monitoring the trends in finished inventory for signs of any softening in the market dynamics.
“All price ranges have below a 2-month supply of finished vacant inventory, again indicating a very supply constrained market,” said Brown. “The lowest months of supply is for homes priced under $250,000 and over $750,000. The finished supply is most restricted in the luxury price range due to the extended construction cycle. The ratio of finished vacant inventory is the lowest for homes priced over $500,000 because of this extended construction cycle. The ratio of finished inventory is the closest to a normal range of 35% for homes priced under $200,000. Almost all of the top 30 submarkets reflect a very limited supply of finished inventory. The only submarkets reporting slightly elevated finished inventory are Irving, Prosper and East Dallas.”
Lot deliveries exceeded starts in 2014 for the first time since 2007. Total SFD & TH lot inventory grew 2% in 2014, with almost all of the growth occurring during the 4th quarter. New lot deliveries grew 23% from the fourth quarter and exceeded the absorption rate by almost 1,100 lots. Even with the increased deliveries in 2014, lot supply fell below 24-months for the overall market. Lots under construction grew over 30% in the quarter suggesting deliveries in the coming quarters should also be higher.
New development activity is concentrated in the northern suburbs of Dallas and Fort Worth where supply is the most restricted. Total lot inventory likely bottomed out in 2014. The fourth quarter reported the strongest year over year growth. New listings grew slightly during the second half of the year, which lead to an increase in pending sales and sales during the fourth quarter. If new listings can continue to grow in the coming months, then sales could continue to increase. However, if supply begins to fall again during the first quarter, sales are likely to decline. The appreciation rate has slowed somewhat as affordability issues have appeared in several submarkets. Overall, the outlook for the housing market for 2015 remains strong despite higher prices affecting affordability.
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