D-FW Builders Slash Starts As High Mortgage Rates Scare Off Buyers
With higher mortgage rates sending more homebuyers to the sidelines, builders scaled back construction in the most recent quarter.
The number of Dallas-Fort Worth single-family home starts fell by more than a third from third-quarter 2021, according to a new report from Dallas-based housing analyst Residential Strategies.
It was the largest such year-over-year decline in D-FW home starts in almost a decade.
“With mortgage rates now topping 6%, housing affordability has become increasingly challenging,” Residential Strategies’ principal Ted Wilson said in the report. “Monthly payments on houses are now over 50% higher than they were in January of this year.”
With fixed-rate 30-year mortgages averaging near 7%, payments on a $300,000 loan have spiked by more than $700 a month — enough to lock many potential new home buyers of the market.
The sudden slowdown in D-FW home starts follows several years of huge gains in North Texas housing construction and sales.
Even with the cutback in starts, new home sales in the third quarter were up by more than 9% from a year ago. Many of those buyers had locked in their mortgage rates when they contracted to buy the house, before recent increases.
“The unfortunate reality for many first-time buyers is that for-sale housing is now out of reach for their budget,” Residential Strategies senior vice president Cassie Gibson said. “Furthermore, many would-be move-up buyers are now concerned about the economy and are likely house-locked, unwilling to walk away from their favorable ultra-low mortgage rate to purchase a new home with a 7% mortgage rate.”
For the 12 months ending in September, D-FW builders have sold more than 49,000 new single-family homes, setting a record.
The supply of finished, unsold new single-family homes remains low, even though some buyers have been forced to back out of purchases they can no longer afford.
More than 38,000 single-family homes were still under construction in North Texas at the end of the quarter.
Last year builders started a record 58,140 D-FW single-family homes as sales were fueled by low mortgage costs and demand that developed during the pandemic.
As home costs and loan interest rates have climbed, some builders have been forced to offer incentives and reduce prices in an effort to keep up sales.
The fall-off in third-quarter D-FW home starts comes as sales of existing homes in North Texas are also declining because of higher mortgage costs.
Preowned home sales in September were 17% lower than a year earlier — the fourth month in a row of year-over-year declines, according to the Texas Real Estate Research Center at Texas A&M University and North Texas Real Estate Information Systems.