Is Dallas becoming LA?
We have been harping on this for quite some time, but now the mainstream media seems to have taken a whiff of real estate smelling salts. First-time homebuyers (who don’t get lump sum down payment help from Mom and Dad) are out of luck finding affordable homes and will continue to be out of luck, maybe forever.
But shocker: none of those homes are coming in at affordable entry-level prices.
With the median LA County home topping half a million dollars, it sometimes feels like all of Los Angeles is the luxury market, but when we focus on just the fancy parts of town, the number get even wilder. All the rich people parts of town had a great first quarter of 2016 in terms of home sales. The median price for single-family houses and condos in what the report calls Greater LA saw a record for the fourth consecutive quarter—a heartstopping $1.035 million—and enjoyed their 15th quarter in a row with a year-over-year rise, says a new quarterly report out from Douglas Elliman. (In the report, Greater LA applies to the high-end areas of the region, like the Westside and coastal cities including Malibu, plus Downtown, but leaves out lower-priced areas like South LA. The full list of communities included is here.)
There were 7,015 new DFW home starts in the first quarter of 2016 –which is good, it’s up 39.1% from the same time period in 2015.
Of course, last year we had terrible spring weather, ice and never ending rains that severely delayed home building.
But most of those homes are in pricier brackets, or aimed at downsizing Boomers. Millennials and cash-poor first time homebuyers have to find something they can afford, wait, or lease. The bulk of new housing starts are in homes priced above their reach.
“First-quarter starts data presents further evidence of Dallas-Ft. Worth’s market shift in price,” said Paige Shipp, regional director of Metrostudy’s Dallas office. “Historically, most of DFW’s starts and closings occurred below $200,000. The new normal reflects a meteoric rise in starts above $200,000.”
Housing starts priced between $300,000 and $349,999 jumped 81.2%; home starts below $200,000 dropped 14.6% from last year, while closings in this bracket plummeted 31%.
And sorry, but there is not much hope on the horizon for new homes priced under $200,000. The reason: land and material costs.
“Due to rapidly rising land and development costs, developers argue there is little hope for the revival of the sub-$200,000 new-home market,” Shipp said. “This will remain an issue until municipalities, developers and builders understand and deliver higher-density lots and smaller homes to the market.”
According to Metrostudy, buyers looking for affordable new homes in the DFW area are out of luck, as builders cater to the price points carrying the highest demand: $250,000 and $400,000.
The Metrostudy report also shows that builders really are focusing on pricier homes: 31.6% of housing starts occur above the $400,000 point. That’s also because their margins are higher the pricier the house.
Homes to be priced between $250,000 and $299,999 rose 51.8% year-over-year in the first quarter, while homes to be priced between $300,000 and $349,999 rose 81.2% from last year.
“For the first three months of the year, builders and developers report that prices are stable but anticipate an increase in the cost of concrete in April,” Shipp said.
If builders are not able to pass these cost increases onto buyers, margins may be affected, Shipp says. If land costs, development costs, labor and materials continue to climb, it’s going to be tougher and tougher to herald young people into home ownership. The only answer, says Shipp, is smaller homes and density:
“Land prices, development costs, fees and home-building costs cannot be controlled. The only way to provide new homes below $300k will be by increasing home density and decreasing home square footage,” she says.
Well, look at Los Angeles: the average price of a home
As we know, more affordable housing tends to be further away from the urban core, which leaves buyers with no choice but to commute IF their jobs are in the urban core.
As for those hot inner core neighborhoods where Millennials crave home ownership, all I can say is, maybe forgo the wedding and put that money towards a down payment. Look at this Hollywood Heights honey for… are you sitting down? $869,000. This in a neighborhood where the average home price is about $399,000.