Dallas-Fort Worth’s 38% Decline in New Home Construction Is the Largest Since 2009

A lower level of homebuilding could bring lower costs for buyers and help relieve supply-chain issues.

The end of 2022 marked the largest decline in quarterly North Texas home starts since the Great Recession as buyers pulled back due to higher mortgage rates and affordability challenges.

Builders began construction of almost 8,000 new homes in Dallas-Fort Worth in the fourth quarter, down 38% from a year ago when they started just over 12,900 homes, according to a new report from Dallas-based housing analyst Residential Strategies.

The third quarter’s decline of 33% from a year earlier was the first decline of more than 30% since the Great Recession, according to Residential Strategies data. The last time the region saw a steeper drop in home construction was in the second quarter of 2009, when starts fell almost 50%.

For all of 2022, builders started about 48,700 homes, down 16% from a year before.

“Today builders are primarily focused on completing and closing housing inventory,” said Ted Wilson, principal with Residential Strategies, in the report. “Builders are adjusting to lower levels of housing demand brought about by higher mortgage rates.”

Sales of new homes were up last quarter as builders worked to complete the record amount of new construction they started earlier this year and in 2021. In the fourth quarter, builders closed almost 12,000 home sales, up 3% from the fourth quarter of 2021. Builders closed about 50,300 sales in all of 2022, up 9.2% from 2021.

About 32,400 homes were still under construction at the end of 2022, down 33% from the peak of roughly 43,000 homes underway in the second quarter.

Given the uncertainty of construction costs in the market over the past few years, many DFW builders took a “spec-and-release” approach, starting homes in anticipation of demand and releasing them for sale late in the construction process when costs and margins were more clear.

Builders who took this approach are now having to provide incentives like mortgage-rate buydowns and discounts to get the homes to sell.

“Buyers that were waiting for more affordable opportunities compared to earlier in 2022 will find that many communities offer compelling house prices today,” Wilson said.

The lower level of home starts will increase construction capacity, shortening the amount of time it takes to build a house and lowering costs, Wilson predicts.

“With starts slowing, competition among subcontractors, trades and suppliers likely will reverse the inflationary trends that have dogged the industry since mid-2020,” Wilson said. “Savings that can be achieved in direct construction costs likely will be passed onto the consumer in 2023.”

Existing Dallas-Fort Worth single-family home sales also saw their biggest decline in more than a decade, with a 30% fall from November 2021 to 2022 amid the higher mortgage rates. As of November, about 83,000 single-family homes had sold in Dallas-Fort Worth, according to a Texas Real Estate Research Center at Texas A&M University report based on data from REALTOR® associations. That represents an 11% decline from the same period in 2021.

Source: The Dallas Morning News