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United Commercial Realty

D/FW New Homebuilders Set Another Record for Home Starts

Dallas-Ft. Worth new homebuilders set another record for home starts during 1Q05. Starts for the period were 10,897 units compared to 9,842 units in 1Q04. The annual pace for the period 2Q04-1Q05 similarly hit a record high with 44,670 units started.

Residential Strategies, Inc. (RSI) also noted that closings for the period 2Q04-1Q05 climbed to 41,459 units, a record level.

Qtrly Annual Starts Starts
1Q05 10,897 2Q04-1Q05 44,670 (+9.4%)
1Q04 9,838 2Q03-1Q04 40,850
1Q03 8,838 2Q02-1Q03 38,435
1Q02 8,495 2Q01-1Q02 37,218

"Builders saw an increase in sales and traffic back in mid-January, 2005", states Ted Wilson, partner with RSI. "The momentum followed through into February and March allowing the builders to re-establish sold backlogs".

"Builders reported favorable, but more moderate results for the last few weeks, a period marked by slightly higher mortgage rates", reports Wilson. "While higher mortgage rates may affect some entry level buyers, the good news is that sales at the higher price points have improved and led to solid performances for the high-end production and custom builders". According to Freddie Mac, the 30-yr mortgage rate (conforming) was 5.77% on Jan 6, 2005 and 6.04% on March 31, 2005.

Market Drivers Appear Strong While mortgage rates have edged up slightly at the end of 1Q05, from an historical perspective they still remain very attractive:
Freddie Mac 30-Yr mortgage rate
March 31, 2005 6.04%
March 24, 2004 5.40%
March 27, 2003 5.91%
March 28, 2002 7.18%

More important, job formation is also improving. According to the Texas Workforce Commission, DFW increased area employment by 50,000 workers (CES Survey) for the 12 months ended Feb, 2005. This is a dramatic improvement over previous employment changes:

Net Change in CES Employment (Year-over-year according to TWC)
Feb 2004-Feb 2005 +50,000
Feb 2003-Feb 2004 +300
Feb 2002-Feb 2003 -42,200
Feb 2001-Feb 2002 -80,600

Higher Price Points Showing Solid Growth "The re-emergence of job growth coupled with domestic in-migration to the DFW area (relocation buyers) has stimulated sales of houses at the higher price points", states Wilson.
Housing Starts Over $300,000
2Q04-1Q05 5,873 +33.6 %
Increase 2Q03-1Q04 4,397

Competition Remains Fierce "Competition will continue to be a challenging issue for the production builders", states Wilson. "DFW is home to 19 of the top 30 builders in the United States. Many of these builders continue to approach the market aggressively in 2005 with large speculative building packages." Finished vacant housing inventory stands at 8,505 units (2.5 months supply) at the end of 1Q05, the highest level seen this housing cycle. RSI considers a 2.5 months supply to represent theoretical equilibrium.
Niche Products RSI has also noted more activity in specialty housing product types over the past year. "With increased competition in the suburbs, many builders have focused on introducing townhome product in infill locations", notes Wilson. "In most cases the builders have found that there is strong demand for well-conceived, right-priced townhome communities." Residential Strategies, Inc. (RSI) is a Dallas-Ft. Worth based market research and consulting firm specializing in new home activity. RSI maintains offices in Dallas and Austin