North Texas builders started the most number of houses in the second quarter in almost 12 years.
More than 9,900 Dallas-Fort Worth-area home starts were recorded — 12 percent more than in second quarter 2017, according to Dallas-based housing analyst Residential Strategies. The number was the most for any quarter since third quarter 2006.
“Most of the growth today is among affordable price points, especially the $250,000 to $350,000 range,” Residential Strategies principal Ted Wilson said in the report. “Builders are focused on taking costs out of their houses this year, and there has been a shift to sell homes with smaller square footages.”
Starts of homes priced between $250,000 and $350,000 have accounted for most of the construction increase this year.
But sales and starts of more expensive D-FW houses have moderated in 2018.
“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 said. “This spring, demand for houses above $500,000 from relocations 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.”
North Texas builders sold 8,984 homes in the second quarter — up 9 percent from a year earlier. During the 12 months ending June, local builders sold more than 33,000 houses, the best performance in more than a decade, according to Residential Strategies.
Despite strong sales, increases in costs are taking a bite out of builders’ financial performance.
“Increases in lot and land prices, material and labor costs and an uptick in 2018 mortgage rates have challenged the builders’ ability to maintain affordable new home prices,” Wilson said. “Most builders report that their direct construction costs are already up 5 percent to 6 percent this year.
“Just the effect of interest rates climbing and material prices up means that the monthly payment on a new house is up 10 percent this year.”
Selling smaller, more affordable homes also means smaller profits, too.
“We are coming off a period where we were making record profits,” Wilson said. “Across the market we are seeing margins get squeezed.”
Supplies of finished new houses on the market remain low. At the end of June, there were about 5,600 vacant new homes in inventory.
“Lenders that finance this inventory are watchful that inventory levels remain near the current two-month supply and that builders do not accumulate excessive amounts of unsold houses,” Wilson said.
D-FW’s median new home price in the second quarter was just under $345,000. That compares with the $270,000 price tag on mid-priced preowned homes sold in the area in June.