The Texas Squeeze: A series examining the high cost of high growth in North Texas.
Homebuilders in Dallas-Fort Worth and across the country are feeling the effects of this year’s significantly higher home costs on demand for their communities.
Builder confidence in the market for newly built U.S. single-family homes fell 8 points to 69 from April to May, according to the National Association of Home Builders and Wells Fargo Housing Market Index. That is the lowest reading for builder sentiment since June 2020.
The index is based on a monthly survey the NAHB has been conducting for more than 35 years that measures builders’ perceptions of current home sales and sales expectations. Builders are still generally optimistic, as scores higher than 50 indicate that more buyers see conditions as good than poor.
In the survey, builders reported that they experienced the lowest level of buying activity since July 2020.
The NAHB said the index’s steep drop in May is a sign the housing market is slowing as rising interest rates, material costs and home prices take a toll on affordability.
“The housing market is facing growing challenges,” said NAHB chief economist Robert Dietz. “Entry-level and first-time home buyers are especially bearing the brunt of this rapid rise in mortgage rates.”
Combined with already skyrocketing home prices, rising mortgage rates have made a significant impact on buyers’ budgets over the past few months.
The average rate for a 30-year fixed-rate mortgage loan reached 5% for the first time in more than a decade in April. As of May 19, it was 5.25%.
“Those are real dollars that are exacerbating the affordability crisis, and I think leading a lot of people to feel — between the rising cost of the house itself and the cost of borrowing money — that maybe it’s time just to stay on the sidelines,” said Phil Crone, executive officer of the Dallas Builders Association. “That’s not the way we want to cool off this market. I wish we were able to cool off the market by supplying it with the housing that it needs and it deserves.”
Ted Wilson, principal with Dallas-based Residential Strategies, said builders are seeing traffic down at new home communities but that the buyers still out shopping are “very intent and qualified.”
“A lot of people compare what’s happening now to when the market turned back in 2008, and it’s a very different situation now,” Wilson said. “Back then, the quality of the traffic was pretty abysmal. The traffic today is still very good.”
Wilson said communities targeting first-time buyers may see more of an effect from the rates than those in neighborhoods that are more popular with people from out of state, and that some communities are beginning to offer discounts.
Richard Costello, chief financial officer of Plano-based Green Brick Partners, said salespeople may have to go deeper into their lists of interested buyers, but “they know who to call because they know who can qualify and who has a good debt-to-income ratio.”
Costello said his company’s inventory is largely in higher price points, which helps insulate it from the effects of higher mortgage rates.
“Although we expect higher mortgage rates to have some impact on demand, over the long term we continue to believe that demographic shifts in our very strong high-growth markets, together with record-low existing housing inventory, will sustain a healthy housing market,” Green Brick CEO James Brickman said in the call.