Metrostudy reports new lot deliveries exceeded the new home starts pace during the second quarter of 2014 for the first time since early 2008. “Lot development activity has lagged home starts in Dallas-Fort Worth since inventory hit a peak of over 90,000 lots in March 2008. Lot inventory in the region fell to 46,000 lots earlier this year, and less than 40,000 lots if you exclude the stranded lots in less desirable locations,” said David Brown, Regional Director of Metrostudy’s Dallas-Fort Worth office.
Developers delivered 6,300 lots during the second quarter, up 20% from the first quarter and up 68% from the second quarter of 2013. However, lot supply in the high demand submarkets continue to remain constrained. “The most active submarkets in Dallas-Fort Worth that account for 75% of the new home demand only have a 14.6 month supply, well below the 20 to 24-months considered to be equilibrium,” said Brown.
The tight lot supply and strong demand has driven up lot costs in the most active submarkets forcing builders to sell homes at much higher prices. The median price of a new home in Dallas-Fort Worth has risen from $216,700 in 2011 to $269,400 in 2014, a 24% increase. Only 25% of the new home closings in the second quarter were for homes priced under $200,000, down from over 40% in 2011.
The NWNC Dallas submarket (South of LBJ and West of Central Expressway) has seen the largest increase in median price due to a large drop in sales of townhouses priced under $500,000 and a surge in sales of single family homes priced over $1,000,000. The suburbs north of Dallas, including Frisco, McKinney, Plano, Allen and Prosper, experienced a significant jump in median price since 2011. The higher prices are forcing many buyers to the nearby submarkets of Melissa, Anna, Celina, Little Elm, Oak Point and unincorporated areas of Denton and Collin Counties.
The increased prices are also beginning to affect the growth in starts in Dallas-Fort Worth as some buyers in certain submarkets are beginning to get priced out of the new home market. Starts during the second quarter in DFW were only up 2% compared to a year earlier. Some submarkets including Frisco and McKinney (which led the recovery in 2012 and 2013) have seen starts dip slightly this year due to tight lot supply and much higher lot and new home prices.
“We are expecting a 10% to 15% increase in starts during 2014 with the largest share of the increase coming from the first quarter,” said Brown. Metrostudy expects the growth pace to remain slower through the remainder of the year because of low lot inventory and higher prices in prime submarkets.
Relief from the lack of supply is not on the horizon. Options for homebuyers continue to remain limited during the summer. Finished new home inventory is 12% below the prior year and represents only a 1.6-month supply, below the 2-months considered to be equilibrium. Additionally, the existing home market has only a 3-month supply of homes on the market, with many high demand submarkets at a 2-month supply or less. New and existing home inventory is expected to remain low through the remainder of 2014, putting continued pressure on prices.
The Metroplex continues to have strong housing demand due to the highest job growth in the nation, up 113,100 jobs in the last twelve months. 2014 is expected to be another strong year for homebuilding, but the growth rate is moderating because of lot constraints, increased prices and higher interest rates. “Metrostudy will be watching the inventory level closely for the remainder of 2014 for any signs of easing. Until the supply begins to rise or the job growth slows significantly the market should remain very strong,” said Brown.
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