Facing slower traffic in sales offices with buyers facing higher mortgage rates, North Texas homebuilders are hitting the brakes at a pace not seen since the Great Recession.
Dallas-Fort Worth homebuilders took out 2,564 single-family building permits in October, a 33.4% decline from October 2021, according to data from the Texas Real Estate Research Center at Texas A&M University and the U.S. Census Bureau.
October was the sixth consecutive month of year-over-year declines in the number of single-family permits and marked the steepest drop since 2009.
Builders saw a sharp slowdown in the pace of sales as rates soared from less than 3% last year to more than 7% at their peak this year, adding more than $700 a month to a $300,000 loan. In response, they have dramatically slowed down construction starts and opted out of future land contracts.
The sudden slowdown in home starts followed several years of huge gains in housing construction and sales. Dallas-Fort Worth builders started 9,603 homes in the third quarter, according to Dallas-based housing analyst Residential Strategies. That is down sharply from the 16,000 homes builders started in the first quarter and 15,000 in the second quarter.
Ted Wilson, principal of Residential Strategies, said homebuilders are focusing now on selling unsold inventory. Builders who built a large number of homes speculatively when the market was busier have been discounting prices over the last few months, he said.
“There’s no sense of starting extra units if you have a bunch of unsold units that you have to move,” Wilson said.
Builders are still having some success in communities that cater to first-time homebuyers and people relocating from other markets, Wilson said. The challenge, he said, is selling bigger lots or higher-end homes that would have been aimed at people upgrading for the first time.
Many people locked into 3% mortgage rates are not willing to move. Those who are may be looking at less-expensive options.
“The guy that might have been buying a $500,000 house now is focusing on a $400,000 house, because that’s all they can afford,” Wilson said. “Those more expensive neighborhoods in the outer-ring locations are very slow right now.”
Wilson said the lower number of homes being built could lead to materials suppliers and subcontractors charging less, bringing down overall construction costs next year.
“We hear that a lot of consumers are waiting for prices to come down; well, they’ve come down a lot already,” Wilson said. “And they’re likely to come down a little bit more. This next generation of houses is less expensive to build.”
