Market Balance: Home construction, sales seeking stability in 2019

TC homes

After a dramatic drop in home sales in 2018, the outlook for 2019 looks more promising for new and existing home sales.

Industry insiders predict that sales will rebound based on continuing strength of the economy, marked by continuing population growth, low unemployment and high demand for housing in the Dallas-Fort Worth area.

Factors contributing to the sales decline, including rising interest rates and affordability, are on track for improvement, particularly in the new home market, where developers and builders are responding, experts say.

“The last half of 2018 was very slow for builders,” said Paige Shipp, Dallas regional director of Metrostudy, a housing analyst firm. “I attribute that to both the rainfall in September and October as well as rapidly rising interest rates.”

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But after the mid-term election and throughout December, “sales of new homes picked up,” said Shipp, who presented a new home forecast Jan. 31 to the Greater Fort Worth Builders Association.

“So far, January has been reasonably good for the new home industry,” she said. “I say ‘reasonably’ because we are not close to the high sales in 2015, 2016 and 2017.”

Nevertheless, 2019 looks better because developers and builders are delivering more affordable homes, in the sweet spot of $200,000 to $300,000 in the Dallas-Fort Worth area.

Prospective buyers pushed back against rising home prices, combined with higher interest rates, because they felt homes were overpriced or they were priced out of the market.

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In November, the Real Estate Center at Texas A&M University reported that sales fell 12.8 percent in Dallas compared to November 2017 while Fort Worth’s sales declined 4.3 percent, the latest available data. Homes remained on the market longer compared to earlier years when homes sold at a record pace and sparked bidding wars.

Affordability remains a major concern throughout the Dallas-Fort Worth area and the entire state.

Texas leads the country in the largest number of households priced out of the market by a $1,000 increase in the median home price, with 11,152 price-outs, according to data from the National Association of Homebuilders. California ranked second with 9,897 households priced out followed by Ohio with 7,341.

“Affordability will remain the forefront issues in the DFW market, particularly on the Dallas side where it is close to a record low,” said Laila Assanie, a senior business economist for the Dallas Federal Reserve. “For builders, headwinds to affordability include elevated land, labor and construction costs.

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“Meanwhile, high mortgage rates and rising prices will continue to damp affordability for buyers,” she said. “Home sales will remain flat this year.”

Across the Dallas-Fort Worth area, 34,586 new homes were started in 2018, up 4 percent from 2017, according to Metrostudy data. Closings in the region were 32,582, up 2.6 percent. Both starts and closings declined slightly quarter over quarter.

North Fort Worth and Denton County led the DFW region in starts and closings in starts and closings in 2018, according to Metrostudy data. Nearly 3,000 new homes were started in North Fort Worth and followed by Denton County with nearly 2,500 starts and closings, slightly edging out McKinney and Frisco.

The top homebuilding community based on annual starts in 2018 was Harvest in the North Tarrant County/Argyle area. Hillwood’s 1,200-acre development will include 3,200 single-family homes and 120 acres of shopping, dining and other amenities.

Also in the Tarrant County area, Viridian in the Euless/Arlington area ranked fifth and Hawthorne Meadows in the Haslet area ranked seventh.

In second place on Metrostudy’s ranking was Westridge in Prosper, followed by the Trains at Riverstone in Princeton at third. Both communities are in Collin County.

The data underscores the affordability gap between the Dallas and Fort Worth sides of the region.

A major reason Fort Worth is more affordable is the abundance and availability of land. Fort Worth’s reputation for better affordability is also driving population growth, with more than 106,000 newcomers to the county, according to Metrostudy.

Of the total newcomers, 42 percent come from outside of the Texas and 35 percent from other parts of the Dallas-Fort Worth area. Nearly 20,000 of Tarrant County’s newcomers migrated from Dallas County.

Tom Woliver, Hillwood’s director of planning and design, said Hillwood is dedicated to developing affordable housing in its developments across the DFW market.

With Harvest, nearly 60 percent complete, Hillwood is launching its newest development, Pecan Square in Northlake, which will have 3,000 new homes.

Hillwood’s developments include a range of housing types, including starter homes, townhomes, patio homes and move-up homes for growing families.

Faced with escalating costs for materials, a tight labor supply, higher energy efficiency standards, municipal density regulations and rising land costs, building houses at a cost of less than $300,000 is a continuing challenge, Woliver said.

But with that price point being in highest demand, Hillwood, its builders and other developers and builders have responded by creating smaller lots and building slightly smaller homes.

“In Texas, the mindset has been to build bigger because the state has so much land,” said Woliver, who serves as vice chairman of the National Community Development Council of the Urban Land Institute. “We’re trying to change that mindset to get lot sizes down to keep costs down.”

The shift means a “40-foot lot is the new 50-foot foot lot, a 50-foot lot is the new 60-foot and a 60-foot lot is the new 70-foot-lot,” he said. “When you reduce the lot by 20 percent, the lost cost goes down 20 percent.”

Likewise, when the average 2,400-square-foot home is reduced to 2,200 square feet, there is even more savings.

With tweaks such as lower roof pitches and imaginative floor plans, the reduced space isn’t noticeable as long as amenities remain intact, he said.

In the Austin area, where prices tend to be higher than DFW, downsizing to contain costs already translates to 1,700-square-foot homes selling for $300,000.

“Less size doesn’t mean less quality,” he said. “The quality has to be there.”

The North Fort Worth area leads the top 25 sub-markets within Dallas-Fort Worth in building affordable homes, according to Metrostudy data. The area leads in in the $250,000 to $299,000 price range with 1,105 annual starts and 1,117 closings. In the $200,000 to $249,000 price range, North Fort Worth accounts for 912 annual starts and 800 closings.