A weak job market and elevated mortgage rates drove homebuilders to report slower third-quarter results in the Metroplex.
Between July and September, builders in North Texas started 13,327 homes. This represents a nearly 2% drop from the same period in 2023. Ted Wilson, principal of Dallas-based market research firm Residential Strategies Inc., says builders have expressed that competition has risen in the current market.
“While there continue to be plenty of home shoppers in the market, housing affordability remains a significant issue, and many prospective buyers are lacking urgency to purchase homes. Builders are required to provide mortgage rate buy-downs, discounts and incentives in order to convert traffic to sales,” says Wilson, according to The Dallas Morning News.
Despite the Federal Reserve implementing a half-percentage point interest rate cut in September, mortgage rates in the United States remain elevated. As of Oct. 10, the average 30-year fixed-rate mortgage in the country stood at 6.32%.
For comparison, rates were as low as 2.67% as recently as 2021.
For example, a $500,000 mortgage at current rates, excluding property tax and homeowner’s insurance, would cost you just over $3,100 per month. That same mortgage in January 2021 would have been just over $2,000.
In other words, a $500,000 mortgage today would cost roughly $1,100 more monthly, or about 55% more.
While the Fed’s interest rate decisions do not directly impact mortgage rates, they influence them. Presently, just over 86% of market observers expect the Fed to cut interest rates another quarter percentage point in November, likely creating further downward pressure on mortgage rates and incentivizing prospective buyers to shop.
“As interest rates subside and normalize, and now that the Fed has boldly begun to cut rates, we believe that pent-up demand will be activated, and we are well prepared with growing community count and growing volume,” said Stuart Miller, executive chairman and co-CEO of Miami-based homebuilder Lennar, during the company’s third-quarter earnings call in September.
Another factor impacting the housing market has been employment. Over the 12 months ending in August, North Texas added 58,700 net new jobs. That’s more than 40% lower than the 104,000 new jobs added during the same period last year.
“D-FW needs to maintain at least 100,000 new jobs annually to support its new home growth rate of over 50,000 annual starts… A slowdown in the tech sector has led to fewer relocations over the past year, but we remain optimistic that as rates come down, job growth will pick up,” says market researcher Wilson.