Homebuilder

With Western Texas Intermediate oil hovering around $45 a barrel, folks have been speculating about new home construction in Midland-Odessa and how layoffs and budget cuts might affect the spectacular boom of the past few years.

But while economists might raise a red flag, local homebuilders say pent-up demand and a more diversified economy are keeping the phones ringing and people signing on for new home construction.

“The demand is still the same as it has always been—everyone wants their home built yesterday,” said KC White, owner and president of KC White Homes, Inc. “More people outside of the oil world are calling my phone. There are more than just oilfield-related jobs here.”

Last year, 917 single-family building permits were issued to homebuilders for new residences in Midland, and 430 in Odessa, according to the U.S. Census Bureau and Real Estate Center at Texas A&M University. With the ink still wet on those contracts, builders don’t see a slowdown anytime soon. Many even have a waiting list.

Single family construction permits

Tight inventory is one of the biggest factors at play. With only 3.8 months of inventory in November 2014 (the most recent data available), the average home price in Midland was $301,500. Odessa had an even tighter market in that same month, with only 2.4 months inventory, and an average home price of $231,100. Jump to read more!

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New House under Construction

Recent reports show that new home sales are at their highest since 2008, while prices of existing homes are up year-over-year.

New home sales are up 17 percent from the same time last year, according to Residential Strategies, and new home starts are up 11.4 percent, too, at 6,511. Builders are trying to keep up with demand while also trying to keep new homes affordable for buyers, according to a story from Steve Brown:

“Start activity remains strong as builders maintain healthy sales backlogs and are working to reestablish depleted speculative inventory,” Residential Strategies’ Ted Wilson said in the report. “Robust job formation, in combination with tight housing inventories, has kept builders optimistic about sustained new housing demand.”

Rising new home prices have caused a slowdown in sales for some buyers.

Since 2007 the median price of a new home in North Texas has increased $69,000 – 33 percent – to $275,000.

“Affordability continues to be a primary concern for new home builders,” Wilson said.

“Many are anticipating that at some point down the road, interest rates will increase, and they want to ensure that their housing prices are still within reach of the consumer.”

Additionally, a new report from CoreLogic shows that the Dallas-Plano-Irving area is posting an 8.5 percent increase in home price appreciation according to the firm’s most recent HPI.

“Home prices continue to rise, albeit more slowly, across most of the U.S., ” said CoreLogic CEO Anand Nallathambi. “Major Metropolitan Areas such as Riverside and Los Angeles, California, and Houston continue to lead the way with strong price gains buoyed by tight supplies and a gradual rebound in economic activity.”

In Texas, that means we’re holding steady at our return-to-peak price levels, with no major increases. With new home construction up, a positive outlook for investors in several niche markets, and with prices still on the rise, are you optimistic about the Dallas/Fort Worth real estate market going into Q4 2014?

Brad Hunter MetrostudyThe big takeaway from this morning’s homebuilding panel at the National Association of Real Estate Editors spring conference is that land — more specifically, the lack thereof — is responsible for our lagging new home inventory and the dearth of new home starts in the nation. And while the pool of potential homebuyers is relatively large and stable, low inventory is driving prices up, making starter homes out of reach for many first-time homebuyers.

“Housing starts are down because land is not available where builders want to build,” said Metrostudy’s chief economist, Brad Hunter. “Builders are plowing golf courses under and building houses.”

According to Hunter, the new home market is no longer suffering from distressed properties and demand is improving, but tight inventory is a huge problem. According to his figures, the Dallas/Fort Worth region has just less than 3,000 units of available housing inventory, which is approximately seven weeks of supply. Yikes!

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Perhaps the new sign of fully recovered economy should be a McMansion? Or maybe our economy would be better judged by the size of the middle class?

In 2010, while we were still trying to figure out what went wrong with the federal stimulus and which bank was to blame for it all (answer: none of them, or all of them, or just Bear Stearns, depending on your perspective), Time wrote a piece on Aug. 20 entitled “The End of a Housing Era: McMansions Losing Their Luster.” The brief article starts with this interesting bit:

“New research delves into a harsh reality — with tough economic times in the background, large residences are no longer a given.”

I am pretty sure that large residences were never really a “given.” Still, let’s move on:

“Trulia.com’s 2010 American Dream survey notes that from 1950 to 2004, the average size of an American home jumped from from 983 square feet to 2,349 square feet.

But according a July 2010 Trulia-Harris interactive survey, that figure is poised to drop for the first time in six decades. Among individuals polled, only nine percent were looking in the McMansion range: a house covering at least 3,000 square feet, built in proximity to other palaces. In contrast, 64 percent of those polled were looking for dream homes of 800-2,600 square feet.”

Now, 800 to 2,600 square feet is by no means a small range, and even at the low end, 800 square feet is a far cry from a trendy “tiny home.” But, houses were getting smaller, Time said, and the economy wasn’t nearly as forgiving as it was in 2004.

But in a piece in the New York Times this weekend entitled “McMansions Are Making a Comeback,” we see the sprawling suburban home holding fast to the ropes, giving it the old college try, and truly pulling off a Rocky-esque revival.

“When the housing bubble burst in 2007, there was a glut of unsold inventory on the market, and the size of newly built homes began to shrink. In both 2008 and 2009, Census Bureau figures show, the median size of a new home was smaller than it had been the previous year. It seemed that after more than a decade of swelling domiciles, the McMansion era was over. But that conclusion may have been premature.

In 2010, homes starting growing again. By last year, the size of the median new single-family home hit a record high of 2,306 square feet, surpassing the peak of 2007. And new homes have been getting more expensive, too. The median price reached $279,300 in April this year, or about 6 percent higher than the pre-recession peak of $262,600, set in March 2007. The numbers are not adjusted for inflation.”

But how are people buying these homes, if the economy is, as the article in the NYT claims, “weak”? NAHB’s Rose Quint says that people who can get a loan, an altogether evaporating pool of Americans, are fueling the numbers behind home sales.

“People who are less affluent and have less robust employment histories have been shut out of the new home market. As a result, the characteristics of new homes are being skewed to people who can obtain credit and put down large down payments, typically wealthier buyers.”

So, what do you glean from all this? Is it that the economy is recovering and housing is reaching a natural equilibrium? Or is it that the size of homes skews toward the wealthy, which means fewer people are able to buy homes due to a shrinking middle class?