Rising Interest Rates Put a Squeeze on Dallas-Fort Worth Homebuilders, But is The Market Bottoming Out?

Business for Dallas-Fort Worth homebuilders has changed drastically since the onset of the COVID-19 pandemic. While demand for new housing stock created market conditions that had builders canceling contracts with buyers and cutting out agents, a new report from the National Association of Home Builders shows a steep decline in outlooks for homebuilders in the nation.

According to the NAHB/Wells Fargo Housing Market Index, builder confidence has dropped for the ninth straight month to its lowest level since May of 2014 — save for the spring of 2020 when we were all terrified of a microscopic virus that would decimate our economy. The report lays the blame for the housing market slowdown on a combination of factors: elevated interest rates, persistent building material supply chain disruptions, and high home prices.

“Buyer traffic is weak in many markets as more consumers remain on the sidelines due to high mortgage rates and home prices that are putting a new home purchase out of financial reach for many households,” said NAHB Chairman Jerry Konter, a home builder and developer from Savannah, Georgia. “In another indicator of a weakening market, 24 percent of builders reported reducing home prices, up from 19 percent last month.”

To combat the slowdown, NAHB Chief Economist Robert Dietz says more builders are employing tactics such as “using incentives to bolster sales, including mortgage rate buydowns, free amenities, and price reductions.”

Dallas-Fort Worth Homebuilders

While builder confidence may be bottoming out for the bigger production builders that rely on scale to maintain profitability, it’s definitely not what luxury custom builder Tom Cusick is seeing.

“It’s less applicable to us,” said Cusick, principal of Thomas Cusick Custom Homes. “But it’s a very niche market. I’m not trying to build all over Dallas or all over Fort Worth.”

While he wasn’t asked to complete the NAHB survey, Cusick says the report is likely only relevant for larger production builders such as D.R. Horton, Taylor Morrisson, and the like. His colleagues, some of which are project managers for large-scale production builders, are seeing more canceled contracts due to buyers who, due to whatever circumstance, no longer qualify for the new home that they had their hearts set on.

The market is very challenging for entry-level buyers, Cusick said, who have very little wiggle room when putting their home under contract. Many new homes are starting at $425,000, and with interest rates driving up the cost of new homes, fewer and fewer will qualify.

Company is Coming

“As long as companies keep moving to Dallas, there’s going to be demand for housing, and because of that, I think that our housing market is going to fare better here than elsewhere,” Cusick said.

Dallas Builders Association Executive Officer Phil Crone agreed. As long as more companies find Dallas-Fort Worth as a favorable location, demand for new homes isn’t going anywhere.

“Our region is poised to add another 615,000 people and 430,000 jobs in the next five years so it is imperative that we keep building,” Crone said. “Of course, that’s easier said than done as we face a massive affordability crisis made worse by rising interest rates. If D-FW is to remain the epicenter of our nation’s growth we need to work even harder at the local and state levels to ensure everyone has a roof over their head and an affordable place to call home.”

Adapting to The New Normal

Part of the issue with home building is the lag in the supply chain. Though horror stories of paying out the nose for framing lumber and months-long waits for basic items such as garage doors have yet to lose their sting, there are ways builders can work around the issues, Cusick has found.

“We’re still going to see supply chain issues. We’re going to have to learn how to order things differently in a post-COVID world,” he said. “When we get a set of plans, some of the first things we’ll order are garage doors, appliances, and windows.”

Additionally, the wait for paint-grade bricks is approximately 60 weeks — more than a year. While Cusick used to be able to build a home within a year, it’s become a much longer process. To make it less painful, Cusick has learned to adapt.

“To make things easier for our clients, we offer complimentary storage for all their materials,” he said. It’s not a service that is commonly offered by builders, he added, but because he has the ability to offer it, he does. Now, when Cusick is building a luxury custom home, he has everything he needs on hand to help expedite the process.

Well, as long as the garage door arrives on time.