North Texas homebuilders continue to push, getting off to a strong start in the first three months of 2024.
Builders started construction of 14,217 units, an improvement of 44.7% from 9,828 units in the first quarter of 2023. The annual construction start rate rose to 54,706 units, the highest annual pace since the second quarter of 2022, according to the latest estimates from Dallas-based Residential Strategies.
Group principal Ted Wilson said while it was a very strong quarter, there was a deeper meaning behind the numbers.
“There's a story behind this story,” Wilson said. “If you go back to the end of 2022, there was a lot of completed housing inventory on the market. When we entered the first half of last year, builders were making huge sales, but they were focused on selling off that inventory. They didn't start as many units. That's why the start was up as much, relatively speaking.”
A big key to the start was mortgage rates falling below 7% in December after the Federal Reserve signaled a potential rate cut in 2024. Anecdotes from area home builders say traffic and sales were strong in January and February, but March was a mixed bag. Here are the results, Wilson said.
Areas north of Dallas and Fort Worth performed particularly well. However, builders reported declining profits and many challenges finding qualified buyers in southern DFW.
The number of contracts for new homes increased slightly compared to the end of last year, but remained flat compared to the first three months of 2023. Builders closed on 12,965 homes in the first quarter, down slightly from 13,069 in early 2023.
There were 28,525 units under construction at the end of the first quarter, a slight increase from 27,781 units at the end of 2023. North Texas saw an increase in the level of completed vacant homes, up to 9,807 units. This is an increase of 1,257 units, or 14.7%, compared to a year ago. Wilson said this is part of the rebuilding process due to the housing shortage caused by the COVID-19 pandemic.
In the first quarter, 1,002 rentals were started, bringing the annual pace to a total of 5,669 rentals. Rental housing accounts for 10.4% of new housing starts in North Texas.
Sales of existing homes remain limited. There were 91,131 existing home sales in the 12 months ending Feb. 24, according to data from the Texas A&M Real Estate Data Center. This is a 4.6% annual decline.
Wilson said these weak sales will continue until 30-year mortgage rates drop significantly. For the week ending April 11, 30-year interest rates averaged 6.88%, an increase of 0.61 points from a year ago, according to Freddie Mac.
While homeowners with interest rates locked in at 3% or 4% are unlikely to sell, builders have several tools at their disposal to get others interested in their new home. have. A builder buyback program could lower mortgage rates to 4.5% or 5% for several years. Mr. Wilson said buyers who believe interest rates will fall over the next two years will be motivated to consider refinancing at lower rates in the future.
As of the end of February 2024, there are 20,757 existing home listings, with a tight supply of 2.73 months.
According to the company's estimates, new home sales currently account for 40% of the combined new and existing home market.
“I think they're jumping on it,” he said.
But there was bad news for builders and buyers earlier this week as sales season approached. Inflation rose more than expected in March, according to the latest Consumer Price Index data released by the Bureau of Labor Statistics. This could force the Fed to raise interest rates. Mr Wilson said builders were hoping for a 30-year rate cut later this year.
“This is likely to cause mortgages to rise a little bit, probably over 7%,” he said. “I think there will still be more entry into the market, but if interest rates rise above 7%, there could be a dampening effect.”
