Boosted by continued strong housing demand and low mortgage rates, Dallas-Fort Worth builders pushed new home starts to a near-record level in 2020.
DFW area builders initiated construction on 13,667 units in the fourth quarter of 2020, a 51.3 percent increase over the 9,034 starts in fourth quarter 2019.
For the year, builders started 47,919 units, a 33 percent increase over 2019’s total of 36,041 starts, according to Dallas-based housing market research and consulting firm Residential Strategies Inc.
“The housing market continues to be red hot,” said Ted Wilson, principal with Residential Strategies. “Low mortgage rates, combined with the emergence of millennials entering their home buying years, has created a pitched level of demand.”
DFW annual starts are within about 3,000 units of the all-time record level of 51,000 units reached in mid-2006. Entering 2021, North Texas builders are focused on getting houses built and replacing lots.
“They have very healthy levels of sales backlogs going into 2021,” Wilson said.
The key market driver that has contributed to homebuilder success has been the decline of the 30-year mortgage rate, Wilson said.
The 30-year rate hit another record low for the week ended Jan. 7 at 2.65 percent, according to Freddie Mac. A year ago, the rate was nearly a full point higher at 3.64 percent.
“The decline in interest rates has coincided with the period when the leading-edge millennial demographic has reached the age where many are starting families,” Wilson said. “The decline in mortgage rates makes first-time homes much more affordable.”
Other factors have contributed to the surge of new home demand. The existing home market, normally a more significant contributor of supply for first-time homebuyers, has been stripped of inventory, Wilson said.
According to the Texas A&M Real Estate Center, for the 12-month period ended November 2020, DFW produced 111,092 existing-home sales, an 8.52 percent increase over the previous 12-month period.
More significantly, however, was the fact that the supply of active listings had fallen to just 13,368 unit — a very tight 1.4-month supply. A six-month supply is considered balanced, according to Residential Strategies.
Another market shift this past year has been the embracing of “Outer Ring” markets, said Cassie Gibson, senior vice president with Residential Strategies.
“Prior to COVID, there was greater hesitancy about purchasing a home in a location that dictated a long commute,” Gibson said. “But with many households now working from home, prospective homebuyers are more accepting of exurban communities, especially those offering amenities such as trail systems, parks and open space. Moreover, housing is less expensive in these locations and the buyer gets much more house for the money.”
New home closings also climbed during the fourth quarter of 2020. Builders closed 10,968 units during the period, a 28.7 percent increase over the fourth quarter of 2019. For the year, builders closed 42,511 units, a 20.7 percent increase over 2019.
Finished vacant housing inventory fell dramatically at 2020 year-end as well. At the end of the year, there were just 4,828 finished vacant units, a very tight 1.4-month supply. Residential Strategies considers a 2.0 to 2.5-month supply to be considered a balanced level of finished inventory.
Information provided by the Dallas Business Journal