More confirmation that Dallas has pricey dirt in this latest report from Metrostudy: While housing starts are up to the tune of 12.4 percent year-over-year and 8.3 percent over last month, few of those have been in more affordable price ranges. More people who would have preferred to buy new construction have turned to the existing home market, and those unable to find an affordable home in the market have turned to renting in droves.
“New home starts below $200,000 dropped as starts between $250,000 and $400,000 surged,” said Paige Shipp, Regional Director of Metrostudy’s Dallas Office. “Although starts between $200,000 and $250,000 increased, a diminishing supply of homes at that price point is a concern. Buyers seeking affordable housing near employment and urban core are forced to buy from the limited resale market or into the rental market. Starts during the third quarter surged 38.9% and 74.5% higher than the second quarter for homes priced $250,000 to $750,000. The most notable increase in starts was in the $300,000 to $350,000 range, which is quickly becoming DFW’s new “affordable” price point.”
That’s exactly what we heard from the Real Estate Center at Texas A&M University last month, as economist Dr. Jim Gaines noted the gap in the less-than-$200,000 bracket:
“For years in Texas, we have had the most affordable housing for a major metro area,” said Dr. James Gaines, chief economist with the Real Estate Center at Texas A&M University. “Affordability and workforce housing are going to be a major issue.
“We are not building enough houses in the $150,000 to $200,000 bracket.”
So what fallout could we expect from that? What is the increased demand for leases in Dallas-Forth Worth doing to rents?
Slower-than-normal inventory growth was attributed to our rainy spring, which brought construction to a screeching halt. That was a big problem for custom builders doing teardowns in East Dallas and Lakewood.
Total inventory increased, as well, this quarter and homes priced from $250,000 are all above 6 months of supply. As builders finish and close their homes under construction, the months of supply will drop. Existing home sales grew 6.3% during the third quarter despite inventory dropping by 15.5% to another record low. The median price of existing homes decreased slightly since last quarter to $202,000, but is still 9.0% higher than twelve months ago.
“Builders pushing new homes from start to closing can be compared to forcing a bowling ball through a pipe,” said Shipp. “After the weather cleared, concrete and foundation companies were in high demand, and had difficulty keeping up with demand. As home construction proceeds, pressure shifts to framers, then drywall, and then painters. The effect of the spring’s rain continues to impact builders and is expected to do so through the end of 2015.”
According to this report from the Joint Center for Housing Studies at Harvard University, demand for rental housing has increased by 9 million households between 2005 and 2015 — the fastest increase in recent history — up from 34 million in 2005 to nearly 43 million in 2015. . Likewise, the share of households that rent versus own their residence has increased from 31 percent to 37 percent in the same time period.
And rental prices show now slowing despite new multifamily construction is at levels equal to those before the economic downturn.
- The consumer price index for contract rents shows an average nominal growth rate of 3.5 percent for the 12 months ending September 2015.
- Rents for professionally managed apartment rents grew even faster – according to MPF Research’s same-store measure, nominal apartment rents were up at a 5.6 percent annual rate in the third quarter of 2015.
- All major metro areas saw rent growth exceed overall inflation in the third quarter of 2015. Year-over-year increases in markets in the South and West were especially large, with real rents in 32 metros climbing 5.0 percent or more.
And I am being told that homes in Dallas-Fort Worth are sitting on MLS for a few days or weeks longer since about the beginning of February. Some homes in the $250,000 to $400,000 range are slashing prices in hopes of faster sales. Of course, many write this decrease in activity off as a symptom of the holiday season, and expect the market to pick back up in the spring, or as Ken Lampton says, when “the peeps have hit the shelves.”
What do you think?