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Sales Of Higher-Priced New Houses In Some Neighborhoods Have Hit A Wall

A report from the Dallas Morning News in Texas. “After more than doubling local home starts in the last decade, don’t expect Dallas-Fort Worth builders to increase construction by much in 2019. D-FW home starts are forecast to rise to 36,000 houses next year. ‘We believe that the housing market is generally flattening,’ said Residential Strategies’ principal Ted Wilson. ‘It will be difficult for the market to grow much larger from a start standpoint.'”

“Wilson said that rising mortgage costs and years of steady home price hikes in North Texas have caused buyers to pull back from the new home market in recent months.”

“‘Beginning back in mid July builders began to share with us that traffic was off in many neighborhoods and sales were down,’ Wilson said to a group of local builders this week. ‘The combined effects of higher mortgage rates and increased house prices have pushed consumers to the affordability limit. The speed at which rates have moved higher has caught many prospective buyers by surprise and is to blame for the recent market sputtering.'”

“‘With the 30-year mortgage rates climbing from 4 percent to nearly 5 percent and housing prices up 5 to 6 percent, the monthly payment to the consumer on the same house they may have seen 11 months ago is now 15 percent higher,’ Wilson said.”

“Builders could be staring at a long term mortgage rates close to 5.7 percent this time next year,” Wilson said. “If rates were to climb 5.7 percent from where they are today, that would mean the monthly payments would have climbed about 20 percent n the last two years.”

“‘Clearly there needs to be a cap on house price increases, as the rise in interest rates just themselves are making it increasingly challenged for the consumer to purchase a house,’ he said.”

“Median new home prices in North Texas have increased rose from about $200,000 in 2010 to just under $350,000. At the same time, household incomes in the area have risen only modestly.”

“‘The amount of house that a buyer can afford today continues to shrink,’ Wilson said. ‘Back in 2012 a household earning the median household income could purchase a home that was a little over 3,100 square feet.'”

“‘Today that same household can only by a house of about 1,833 square feet,’ he said. ‘The message we should read from the buyer today is their frustration comes not only from the fact that prices are high but the house that is affordable to them is much smaller than what was expected.'”

“And sales of higher-priced new houses in some neighborhoods have hit a wall.”

“‘The part of the D-FW market that has been most negatively impacted by market changes has been the northern, higher priced markets including Frisco and Prosper where housing prices generally are over $500,000,’ Wilson said. ‘Not only have the higher rates and housing costs put houses out of the reach of many local buyers, but there is also been a decrease in the number of prospects brought here through corporate relocations and the H-1B Visa program.'”

“No wonder local builders don’t expect to see substantial home sales price hikes in the year ahead.”

“‘Builders’ price increases have eroded significantly this year to 4.2 percent on average, down from their banner 2016 at a 12.8 percent increase and even lower from the 5.8 percent average increase indicated last year,’ Residential Strategies’ Cassie Gibson said. ‘There is growing concern from builders regarding their ability to raise prices to keep up with rising costs and mortgage rates.'”

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  1. ‘The part of the D-FW market that has been most negatively impacted by market changes has been the northern, higher priced markets including Frisco and Prosper where housing prices generally are over $500,000’

    I said here in 2014 I had seen the bubble and it was Prosper. Generally over 500k? How about generally over 700k? And that’s all they are building. Get this: it’s is half way to Oklahoma. There’s no jobs to support these shack prices. Well you did it again Dallas. Time to put your head between your knees and…

    The title: Higher mortgage costs, prices hammer D-FW new home market

    1. Living in a place like that often meant spending 2 to 3 hours hours a day on 380 and i-75, every day slogging it out. But damn, it wasn’t that long ago you could buy a house for $100-150k and have less of a commute than that.

  3. “The speed at which rates have moved higher has caught many prospective buyers by surprise and is to blame for the recent market sputtering.’”

    Long-term Treasury yields are in a protracted upsurge, with more Fed rate hikes dead ahead in response to early warning signs of inflation, and mortgage rates following in lockstep.

    Treasury yields rise for week amid Fed decision, higher inflation
    Thomas Franck
    Published 5 Hours Ago Updated 4 Mins Ago CNBC.com

    U.S. government debt yields were poised for weekly gains on Friday following the Federal Reserve’s decision to stand by its plans for further rate hikes amid signs of inflation among producers.
    …

    1. ‘rates have moved higher…and is to blame for the recent market sputtering’

      But it can’t be the 6 years of double digit price increases! So why not just back off to 2012 pricing? Oh, right, they paid too much for the land. Land that had cows on it last year.

    2. And the Fed aren’t even the main reason interest rates. It’s the historical supply of UST the US government is generating due to historical deficits.

      If the Fed stopped raising rates tomorrow, interest rates will continue to go higher.

      1. Bond market vigilantes used to only punish the developing world. Seems like they are taking aim at USA’s profligacy.

    1. I don’t think oil is a big jobs thing in DFW. But construction is. Imagine how many jobs are involved in building 30,000 shacks every year. And that’s on top of 30,000-50,000 apartments. I fly in there often and the amount of construction is overwhelming, like Denver. Of course these booms turn to busts and that’s what we are witnessing right now.

      1. I have been trumpeting g,this all along. Think about it. When an existing home sells it benefits a realtor and possibly a mortgage guy. This results in spending on other stuff by 2 people. In construction, there are many, many people who gets paid when a property gets built. This results in spending for a wide variety of supporting products and services. When construction slows, many downstream beneficiaries are affected from some large purchases all the way to the taco trucks which patrol construction sites (saw one this morning on a job site).

        The contraction of economic activity that can result from new home sales/construction reduction is immediate and dramatic. This is why housing is such a bellwether for the greater economy. Seen it all before during the last go around 2006 through 2011.

        Regards

        1. Especially where they are creating entire cities. You need new roads, highways have to be expanded. Schools, retail, gas stations, post-offices, it’s all going up at the same time. Architects, engineers, surveyors, heavy equipment, cement, bridges: the amount of money sloshing around is incredible. And it’s all being taxed and insured!

          Yet even back in 2014 when I was there, the billboards read: “Now Selling from the $900,000’s – Zero Down!”

          1. “Especially where they are creating entire cities. You need new roads, highways have to be expanded. Schools, retail, gas stations, post-offices, it’s all going up at the same time. Architects, engineers, surveyors, heavy equipment, cement, bridges: the amount of money sloshing around is incredible.”

            And it’s borrowed. If all this money that is being spent had to be earned money then there wouldn’t be that much of it. But since it is borrowed money the supply of the stuff can be without limit – until it isn’t.

            And this the point when times become interesting.

  5. “Another threat lurks in the country’s [China] overheated property market.
    Prices have more than doubled in the past decade, according to research firm Gavekal, stoked by low interest rates and a shortage of housing in major cities.
    But the real estate market now “appears to be showing some cracks,” said Aidan Yao, a senior emerging markets economist at AXA Investment Managers. He pointed to some instances of big property developers slashing prices in the face of weakening demand.
    It is only a matter of time before the market cools,” Yao added.
    The real estate industry has been one of the few bright spots for China’s economy this year but turn into a burden if it slumps, according to analysts at research firm Fitch Solutions.
    “This will add another layer of pressure,”

    This was from CNN today. Can anyone else see the parallelism here with the US? I guess it should only be reported by the media if it’s happening abroad.

    1. Wow, that is astounding. 20% of homes vacant in China is surreal. They have a surplus of housing, we have a surplus of homeless. Somehow I think we should make a trade.

      1. The nightmare scenario for policy makers is that owners of unoccupied dwellings rush to sell if cracks start appearing in the property market, causing prices to spiral.

        Consider the pressure in China on unmarried men to own a home in order to better compete for a wife. If the bottom really falls out there (given their government, I’m not as sure their bubble popping will exactly mirror what happens here with ours), there could be some side-effects that we could hardly guess.

        1. Agreed. I read that long-form article in the Washington Post entitled “Too Many Men” and it was quite sobering. I was of course aware of the problem, but the individual stories and the knock-on effects that spread to other Asian countries as the result of China’s gender imbalance was startling. There was a professor at the local university here and she was a policy analyst advising the white house. She basically had some compelling evidence that showed that, historically, a surplus of men is usually dealt with through war. Not a good omen for global stability.

  7. I’m bummed that my Redfin put is not panning out. Yes I knew it was a gamble but I figured my odds were better than betting on red at the roulette table. My 0.95 put is now asking 0.75. I lowered my ask from 1.80 to 1.10 in the hopes of escaping with a few bucks. Right now I’m losing money. I feel like I’m trying to sell a house in this market. 7 days to D-day (expiration). Every day the time premium is going to work against me.

    1. I’ve noticed that options that seem like they should be a sure thing have a way of expiring out of the money just before the price moves to where they would have been in the money. Probably reflects a lack of market depth. Seems like a lot of the plot of The Big Short was about waiting for options to pay out before expiring.

      1. How deep does the rigging go? If enough options that are bought by ‘common people’ – i.e. not the big wall street firms (who get to cheat with naked shorts, etc anyway) and it looks like they are going to pay out, is there another way the big firms can make money by pumping or down the stock to prevent the big batch of options from paying out?

        tin foil hat? they used to say that about govt spying… just saying.

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