Metrostudy reports homebuilders started 27% more homes in the first quarter of 2014 than the prior year. “We were surprised by the large jump in starts during the quarter," said David Brown, Regional Director of Metrostudy’s Dallas-Fort Worth office. “We are only expecting a 10% to 15% increase in starts during 2014 based on the availability of lots and our client’s plans for the year. Part of the large first-quarter increase was caused by weather and lot delivery delays during the fourth-quarter of last year pushing some starts into this year.” Starts during the first-quarter were the highest they have been since 2007 in the region. Metrostudy expects the growth pace to slow somewhat through the remainder of the year because of low lot inventory and higher home prices in prime submarkets.
Builders continued to report delays in completing homes during the quarter due to a shortage with many trades. The extended construction timeline negatively impacted the number of closings for the quarter, leading to only a 14% increase in closings compared to a year earlier. “Supply constraints have been the headline story in the homebuilding business over the last year and a half and will likely remain the story in 2014," said Brown. The tight supply is extending the construction cycle and driving up construction costs, lot costs and ultimately home prices.
Options for homebuyers continue to remain limited as the spring selling season kicks into gear. Finished new home inventory is 10% below the prior year and represents only a 1.7-month supply, below the 2-months considered to be equilibrium. Additionally, the existing home market has only a 2.6-month supply of homes on the market, the lowest level in over twenty years. The low inventory points to another very tight market through the spring and summer. “Homebuyers this spring are being greeted with fewer choices and much higher prices than a year ago. They won’t find certain price points available in neighborhoods that were available last year. It will force them to look at other locations to find a home within their budget,” said Brown.
Lot development activity picked up substantially in the Metroplex with lot deliveries up 25% over the fourth-quarter and 43% higher than a year ago. This is the first quarter since 2007 that lot deliveries met the starts demand. However, the newest generation of lot prices is continuing to rise substantially and will continue to put upward pressure on new home prices in the coming quarters. The higher lot prices are pushing builders to more affordable submarkets to meet buyer demand at certain price points. Even with increased lot development activity in 2014, these constraints are not likely to be alleviated during 2014. There are currently about 15,000 lots under construction in the DFW Metroplex. Only about 3,000 lots were nearing completion at the end of the quarter; thus it is unlikely lot inventory will jump in the coming quarter.
2014 is expected to be another strong year for homebuilding activity, but the growth rate will likely moderate because of lot constraints and home affordability pressures due to rising prices and higher interest rates. The Metroplex continues to have strong housing demand due to the significant job growth. “Metrostudy will be watching the inventory level closely in 2014 for any signs of relief. Until the supply begins to rise or the job growth slows significantly the market should remain very strong," said Brown.
For information contact: david brown @ 214.891.5602 or 214.207.7535
Metrostudy, a Hanley Wood company, is the leading provider of primary and secondary market information to the housing and related industries nationwide. Established in 1975 in Houston, Metrostudy provides research, data, analytics and consulting services that help builders, developers, lenders, suppliers, retailers, utilities and others make investment and business decisions every day. www.metrostudy.com
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