As demand for housing continues to run ahead of available new and existing home supply levels, rising home prices are a focal point in the Dallas-Fort Worth area. In a market where home prices increased an average of 5% per year from 2010 to 2020, prices moved exponentially higher in 2021. The S&P/Case Shiller Home Price Index shows a 24% rise in prices over the past 12 months, while the North Texas Real Estate Information Services (NTREIS) MLS shows existing single-family home prices are up 19% year over year and Zonda’s own proprietary data indicates that new-home base prices are up 16% over the past year. While year-over-year increases are beginning to plateau as some normal seasonality returns to the market, the changes that occurred in 2021 in the Dallas-Fort Worth metroplex will be challenging to unwind.
The net result of the rapid price appreciation is that the bar has been significantly raised as it relates to the entry price point for new housing in the market. Interest rates falling to record low levels have masked much of the impact of rising prices to date. With that said, only around 51% of households in the Dallas-Fort Worth market can currently afford a median priced new home (down from 55% in 2020 and a peak 64% in 2012). According to Zonda’s new-home data, from 2017 to 2020, an average of 37% of new-home starts were priced below $300,000, including 16% priced below $250,000. A massive shift occurred in the second quarter of 2021 as just 17% of quarterly new-home starts were priced below $300,000, including only 3% priced below $250,000. With interest rates beginning to move higher, will entry-level buyers be permanently priced out of the new-home market?
The Dallas-Fort Worth metroplex has a significant arrow left in its quiver to offset the impact of rapid price appreciation: density. While a target of NIMBYism in many of the market’s 200-plus municipalities, it is a virtually untapped development answer to rising prices. From Q3 2020 to Q2 2021, only 12% of detached new-home starts in the market were on under 50-foot-wide lots. While higher density product is limited in Dallas-Fort Worth, under 50-foot-wide detached new-home product is prevalent in Austin (33% of starts), Houston (34% of starts), and San Antonio (52% of starts). Significant potential runway exists for this product option in Dallas-Fort Worth.
While the Dallas-Fort Worth metroplex is late to the party as it relates to density, rising prices and shrinking affordability might be the final shove municipalities need to approve more higher density housing options. With detached new-home starts on under 50-foot-wide lots increasing 93% over the past two years, this market segment is already finding more market acceptance across Dallas-Fort Worth. Builders and developers who can adapt quickly to this emerging market segment stand to benefit the most from strong demand and relatively low competition over the near-term.
