Builders pull back on construction starts as higher mortgage rates turn buyers away.
In the second quarter, Dallas-area builders began construction on 14,871 new homes — a 7 percent drop from the first quarter’s 16,012 starts, which was a record, according to Dallas-based Residential Strategies, which tracks new home building activity.
“Progressively, as we’ve gone through the last three months and the traffic and sales have moderated, the builders are changing their approach to the market,” said Ted Wilson, principal with Residential Strategies. Wilson expects construction starts to slow even more in the third quarter, according to the Dallas Morning News.
For the past eight quarters, builders started construction on almost 22,000 more units than they have sold.
Many home builders in the DFW area rushed housing starts to expand inventory while mortgage rates were low and demand was high, but supply chain-related delays prevented them from finishing and closing on many of the homes at the pace they anticipated, according to Residential Strategies’ Cassie Gibson.
The slowdown has been swift, with June sales activity down 30 percent to 35 percent from April’s levels, based on field reports from builders collected by the firm.
There are several reasons as to why the pool of homebuyers has shrunk. Chief among them is sky-high mortgage rates. Since hitting record lows of less than 3 percent in 2020, the average rate for a 30-year fixed-rate mortgage has ballooned to 5.3 percent as of July 7, 2022, adding hundreds of dollars to potential buyers’ monthly payments and shutting many out of the market.
Home lending activity for new purchases in Dallas-Fort Worth fell about 20 percent year-over-year in the first quarter, according to Attom Data Solutions.
Despite the lower number of prospective buyers, Wilson says there are still enough who are able to buy that builders have generally not had to cut prices.
“There’ll be a limited amount of [price reductions], but builders are still making pretty decent margins,” he said.
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