North Texas homebuilders continue to work hard and are off to a strong start in the first three months of 2024.
Builders began construction on 14,217 units, up 44.7% from 9,828 units in the first quarter of 2023. The annual rate of starts 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.
The group’s president, Ted Wilson, said it had been a very strong quarter, but there was a lot more behind the numbers.
“There’s a story behind this,” Wilson said. “If you go back to the end of 2022, there was a lot of inventory of completed homes on the market. Homebuilders had big sales at the beginning of last year, and they were focused on selling off that inventory. There weren’t as many units starting. … So, comparatively, there was an increase in starts.”
A big key to the start was mortgage rates dropping below 7% in December after the Federal Reserve signaled that a rate cut was likely in 2024. Anecdotal reports from area homebuilders have shown strong traffic and sales in January and February, but mixed results in March, Wilson said.
Areas north of Dallas-Fort Worth performed particularly well, but the company said builders in south Dallas-Fort Worth reported declining profits and increased problems finding qualified buyers.
The number of new home transactions was up slightly compared to the end of last year but flat compared to the first three months of 2023. Homebuilders transacted 12,965 homes in the first quarter, down slightly from 13,069 at the start of 2023.
There were 28,525 homes under construction at the end of the first quarter, up slightly from 27,781 at the end of 2023. In North Texas, the number of completed and available homes rose to 9,807, an increase of 1,257 homes, or 14.7%, compared to a year ago. This is part of the rebuilding process after the housing shortage during the COVID-19 pandemic, Wilson said.
Construction began on 1,002 rental housing units in the first quarter, bringing the annual pace to a total of 5,669 rental housing units. Rental housing construction represents 10.4% of new housing starts in North Texas.
Existing home sales remain limited: There were 91,131 existing home sales in the 12 months ending Feb. 24, down 4.6% from a year ago, according to data from the Texas A&M Real Estate Data Center.
Wilson said those weak sales will likely continue until 30-year mortgage rates fall significantly. According to Freddie Mac, 30-year mortgage rates averaged 6.88% in the week ending April 11, up 0.61 percentage point from a year ago.
While homeowners who are stuck with 3% or 4% interest rates probably won’t sell, homebuilders have some tools to attract other people’s interest in their new homes. Homebuilder buydown programs can lower mortgage rates to 4.5% or 5% for a few years. Wilson says buyers who believe interest rates will fall over the next two years will likely consider refinancing at a lower rate in the future.
As of the end of February 2024, the number of existing residential properties was 20,757, representing a 2.73-month supply shortage.
The company estimates that new home sales currently account for 40% of the total market, including new and existing homes.
“I think they’re jumping on it,” he said.
But homebuilders and buyers got some bad news earlier this week as the selling season approached: The latest Consumer Price Index data from the Bureau of Labor Statistics showed inflation rose more than expected in March, which may force the Federal Reserve to raise interest rates. Homebuilders had been hoping for a cut in 30-year interest rates later this year, Wilson said.
“That would then cause mortgage rates to rise a little bit again, perhaps above 7 percent,” he said. “I think we’ll continue to see inflows into the market, but if rates rise above 7 percent that could have a dampening effect.”
