Buyers shopping for new homes may be in for some sticker shock. But the increase in prices of new houses is being offset by record low mortgage rates.
Homebuilders hit with higher costs are passing them along to buyers. Nationwide, more 56% of new home communities raised their prices in July.
And in the Dallas area, more than 60% of new housing communities were increasing their prices, according to a new report by Meyers Research, which tracks thousands of new home projects across the country.
“Builders are raising prices for two reasons,” Ali Wolf, the chief economist with Meyers Research, said in the new report. "For starters, costs are going up.
“Lumber prices are up over 100% since mid-April, and that’s putting pressure on margins,” she said. “On top of that, builders are raising prices to temper demand.”
A shortage of lots in some markets and rising land costs are causing builders to be more cautious, Wolf said.
“Builders need to be careful to not sell through all of their lots too quickly, so many will slow sales intentionally,” she said. “Today’s low mortgage rates allow builders to raise prices without crushing demand.”
A surge in demand for North Texas homes caused by the record low mortgage rates is causing builders to ramp up production.
The price tags are going up, too.
“We are hearing from our builder clients that lumber costs alone are adding $14,000 to $16,000 of cost for a typical new home,” said Ted Wilson, principal with Dallas-based housing analyst Residential Strategies. "Additionally, other component prices have risen as well.
“Many of our clients today are reporting weekly increases in their new home offerings in order to keep up with construction material inflation,” Wilson said. “Thus far, there does not appear to be any significant slowdown in sales from these price increases.”
A shortage of some building materials has caused costs to rise. Many lumber mills and building materials plants shut down during the early days of the COVID-19 pandemic to reduce infection and in expectation of slower new home demand.
But with long-term mortgage rates falling below 3%, homebuying has exploded.
Dallas-Fort Worth new home sales were up more than 16% year over year in the second quarter.
And home starts were up almost 18% from last year.
“Housing affordability was a significant challenge that peaked in late 2018 as the 30-year rate approached 5%,” Wilson said. “We are hopeful that material prices can level out as supply chains catch up to the recent surge of housing demand so that housing prices can remain within reach of the surge of first-time buyers.”
The median price of a new home in the D-FW area is almost $323,000 — ahead of the median preowned home price, which was at a near-record $292,000 in August.
Wilson said builders are being cautious not to underprice houses, given the rapid increase in costs.
“A few of our clients have also shared that margins were squeezed on houses that were sold back in May and June,” he said. "Builders were able to reestablish strong order backlogs early in the summer.
“But those builders that delayed construction starts on these homes have found that the cost to build these homes has climbed more than anticipated.”
Even with charging higher prices, builders have sold much of their standing inventories this summer.
And preowned home listings in North Texas are at a record low, with 45% fewer houses in the area listed with real estate agents than at this time last year.
“There is ample housing inflation on the existing home side as well due to the shortage of listing inventory,” Wilson said. “We remain watchful regarding these inflationary housing trends.”
