Kings Hollow Builders

Dallas-Fort Worth quarterly home starts fall nearly 50%
By Steve Brown/The Dallas Morning News

Dallas-Fort Worth homebuilders slashed construction almost 50 percent in the fourth quarter as the housing slowdown deepened.

New home sales during the period fell almost 30 percent, according to a report released Friday by Dallas housing analyst Residential Strategies.

"This is the lowest amount of homes under construction in over 10 years," said Residential Strategies' Ted Wilson. "The mid-1990s were the last time construction was so low."

With the slowdown in the fourth quarter, total home starts in Dallas-Fort Worth for the year dropped more than 36 percent to 30,606 units the lowest annual total in eight years.

Last year's drop in annual home starts was first such decline since 1995 and the largest on record for North Texas

And the pullback in starts has continued into the new year.

"Looking around the area, it's evident that many fewer houses are being started," he said. "And this is the time of year you usually see a lot of construction."

Builders sold about 38,000 single-family homes in 2007, down 17.4 percent from 2006.

For the first time in years, builders started fewer homes than they sold in 2007. At the market's peak in mid-2006, area builders were starting about 5,000 houses a year more than they were selling.

"That's what let to the buildup in inventory," Mr. Wilson said. It's been more than a decade since builders started fewer homes than they sold.

"D-FW builders are well on their way to adjusting to the new levels of demand," he said.

The ;lunge in building is a big plus in the eyes of Mark Dotzour, an economist with Texas A&M University's Real Estate Center.

"I think the slowdown in starts is certainly difficult news for homebuilders, landowners, developers and related construction industries,” he said. “However, it is very good news for the longer-term health of the residential markets in the Metroplex region.”

Even with the cutbacks, there is a surplus of new houses.

At the end of the year, there were almost 10,000 vacant, finished new homes sitting on the market in North Texas.

Builders are offering a wide range of incentives to move unsold houses, and, with starts slowing, the inventory should decline, Mr. Wilson said.

"They should be able to mop up the excess inventory in the spring, "he said. "We could start to see starts pick back up in the second half of the year."

The oversupply of new houses and builders' giveaways have hurt the entire residential market, Mr. Dotzour said.

"It is important for the supply of new homes to decline substantially until the need for concessions is eliminated," he said. "The longer [that] concessions are a part of the market, the more likely it becomes that existing homeowners find it difficult to sell their homes as well - because most existing homeowners don't have enough equity to offer concessions. Hence, they are stuck in their home."

North Texas home starts have fallen much faster than the rate nationwide.

In November - the most recent month for which data are available - nationwide single-family home starts were down more than 24 percent fro a year earlier and at the lowest level since 1991.

The D-FW area has been hard hit by foreclosures.

And the shakeout in the mortgage market has significantly reduced the number of buyers who can get a loan.

"The discipline in the market with regard to qualifying buyers is as extreme as I've ever seen it, "Mr. Wilson said.

The national reports about falling home values-that's not happening in most North Texas neighborhoods-is also keeping buyers out of the home market, he said.

"We do not have the wholesale decreases in value they are seeing on the coasts," Mr. Wilson said. "The buyer here is less threatened with decreases in property values."

Indeed, the average price of new homes sold in Dallas-Fort Worth has risen from $190,872 at the end of 2006 to $202,529 in the fourth quarter of last year.

The bulk of the houses started in 2007 were priced between $111,000 and $200,000, Residential Strategies said.

Mr. Wilson predicts that the local homebuilding market will bottom this year.

"It's tough out there, and a lot of builders have long faces, "he said. "But there is an end in sight."

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