National home construction giants could snap up market share in Dallas-Fort Worth as other builders deal with financing challenges, local housing market analysts say.
Tighter lending standards following the failures of Silicon Valley Bank and Signature Bank amid higher interest rates could make it more difficult for smaller, private residential homebuilders and developers to get funds to acquire and develop land and start home construction.
“Public builders have been increasing their market share nationwide, and we anticipate this trend to accelerate in the short term as financing becomes more restrictive, including terms for private builders who are more likely to rely on financing from regional banks,” said Bryan Lawrence, a vice president in Dallas with John Burns Research and Consulting.
Executives at Arlington-based D.R. Horton, the nation’s largest homebuilder, see capital constraints for private and smaller builders as an opportunity to pick up more land and home construction sites nationally.
“It’s going to help us aggregate markets,” David Auld, president and chief executive officer of D.R. Horton, told investors in a recent quarterly earnings call.
Still, the company’s co-chief operating officer, Paul Romanowski, said this has not drastically shifted smaller private and regional builders’ operations yet as they are focusing on selling homes that may have had sales cancellations in the slower market instead of starting construction on a large number of new homes.
“We certainly have picked up a few land positions, lot positions here and there,” Romanowski said. “But no significant shift in how they’re addressing the market.”
Robert Dietz, chief economist for the National Association of Home Builders, said in a statement that pressure on regional banks and continued tightening by the Federal Reserve would create constraints on lending for homebuilders nationwide.
Stricter loan conditions for builders can constrict the inventory of home construction sites and add an additional hurdle to housing affordability, he said.
Smaller builders are seeing higher rates from lenders while large publicly traded builders have access to inexpensive bond money, said Ted Wilson, principal of Dallas-based housing analyst Residential Strategies.
“There is a mismatch in the market that we really have not seen in some time because of that,” Wilson said.
Public builders made up just over half of all single-family homes built from April 2022 through March 2023, according to Wilson. That share hasn’t changed since 2019. In 2014, they had a smaller 43.6% share of the market.
“I don’t think it’s changed much, but I think it’s going to change going forward,” Wilson said.
Even though builders may not see a need right now for more home sites, there are concerns that land development will be expensive when they do because of still-high land prices alongside the higher cost of financing, Wilson said.
“What we’re hearing is that the lenders are much more frugal and conservative in their approach,” requiring developers to come out of pocket for more costs, he said.
Phil Crone, executive officer of the Dallas Builders Association, said builders have not seen any significant evidence the pressure on regional banks has made the lending environment worse for builders and land developers. Because of low inventory in the market, lenders aren’t hesitating from underwriting residential construction projects, he said.
Still, Crone said larger builders will have more options and better terms, giving them an advantage in home-lot positions and land development. He said more stable materials prices, along with buyers bringing a significant amount of their own cash, are helping many small, custom builders keep moving.
Crone said this is nothing like in 2009 and 2010, when his association’s most-attended meetings were filled with frustrated and desperate builders who could not get access to financing.
“The spigot from the regional banks or any bank was just entirely turned off at that point,” Crone said. “Unfortunately, we lost a lot of businesses during that time.
“I think that those memories are still in the back of a lot of people’s minds, but we’re nowhere close to that now,” he said.
