Homebuilders in Dallas-Fort Worth started more than 53,000 homes last year — the second-best in history, according to data from Dallas-based research firm Residential Strategies.
But the market cooled to end the year and new starts slipped in the final quarter as builders battled higher mortgage rates. The stock of finished but unsold homes grew. Concerns linger as rates remain high to start the new year.
These builders will continue to buy down mortgage rate buydowns to kickstart the market.
Builders prepay part of the home buyer’s interest to lower their mortgage payments. Just a 1% rate drop on a median-priced D-FW home could save a household roughly $210 a month.
The trend first emerged in force in 2022 when interest rates skyrocketed. They’ve continued to hang around, changing and expanding in scope. One of the region’s largest homebuilders told The Dallas Morning News that these buydowns will see even higher usage in 2025.
“I’m concerned right now that if rates stay around 7%, we’re going to have a chilly spring market,” said Ted Wilson, principal of Residential Strategies. “Demand is not growing. It may be even shrinking a little bit, but we have all these finished units out there. You got to move that and to create the urgency. You’ve got to discount, incentivize and do all the rate buydowns to get it to move.”
Home start data in 2024
The annual home start rate in 2024 was 53,169 units, up 5.4% over 2023. It was the second-most active year for starts, trailing only 2021, Wilson said.
Builders started construction on just over 11,000 homes in the final quarter, a more than 8% drop from Q4 2023.
New home closings were flat in the final quarter at just over 12,000. The annual closing rate for 2024 was 53,278, up 1% year over year.
Vacant housing inventory continued to increase. By the end of the year, there were 11,264 finished, vacant homes in D-FW — up more than 10% from the previous quarter.
As inventory piles up, builders are trying to reduce the number of speculative homes built — move-in ready homes with predetermined floor plans and features chosen by the developer. Fewer homes were under construction at the end of the year.
In the third quarter of 2024, there were more than 27,500 homes under construction. By the end of the year, the number fell to just under 25,700, a 6.7% drop.
Existing home sales in North Texas remained mainly flat for the year. For the 12 months ending in November, more than 90,379 existing homes were sold, less than a 1% yearly increase.
The supply of vacant, developed lots in D-FW grew by just over 5,000 in the final quarter, ending the year at 106,059. This represents a balanced 23.9-month supply.
What does 2025 hold? Can rate buydowns steer the market?
Those who monitor the market say the push on speculative homes will slow, and builder incentives will remain key as mortgage rates remain high.
Median home prices remain high. The median price of a D-FW home was $400,000 in December, well above the pre-COVID pace. In January 2020, the median price was just over $267,000.
Mortgage rates continue to rise as well. As of Jan. 9, the average 30-year rate was 6.93%. It was 6.66% this time a year ago.
To offset the rising costs and help clear inventory, new home builders have an advantage — the mortgage rate buydown.
“Homebuilders that offer mortgage rate buydowns maintain a competitive advantage over preowned housing inventory,” Cassie Gibson, Residential Strategies’ executive vice president, wrote in the report. “Housing affordability is a challenge for many households that are considering an existing home purchase. Inflated home prices, coupled with a 7% mortgage rate, have pushed home ownership out of reach for many moderate-income households.”
Nearly every house Don Dykstra’s Bloomfield Homes sells has some incentive attached to it now. Bloomfield is one of the region’s top five home builders by volume.
Dykstra, the firm’s co-founder, said the rate buydown became more popular in D-FW following home price and interest rate increases in 2022.
Bloomfield works with a team of lenders to lock rates on sets of homes that are nearly finished. If a buyer has taken out a $500,000 loan on a home, Bloomfield offers one of its lenders $15,000 to drop the mortgage rate by roughly 1% for the life of the loan. The buyer is required to use the preferred lender in the transaction.
That maximum contribution differs based on loan type, down payment and other factors. Higher seller contributions are allowed on FHA and VA loans. The result: a more affordable monthly payment for prospective buyers.
Buydowns were used more heavily in 2024 than when they were first introduced, and Dkystra said he anticipates even higher usage in 2025.
“Buying down the rate moves the monthly payment more than dropping the price by $15,000,” Dykstra said. “Everyone is conditioned for rate buydowns.”
The rate buydowns in D-FW have expanded since 2022, Wilson said. Originally, builders offered lower rates for the first three years of the mortgage before adjusting higher. That’s when everyone thought lower rates were right around the corner. It gave buyers a chance to refinance.
“Now, builders have to consider buying down 30-year mortgages,” he said.
Builders may change strategies in 2025. To offset the supply of finished inventory that accumulated at the end of the year, Wilson said he expects builders to back off speculative homes, bringing a more balanced blend of spec properties and custom-built homes to D-FW next year.
“During the 2021-2022 period of construction cost uncertainty, many builders adopted a 100% speculative building strategy,” Wilson said in the report. “While this approach proved effective initially, it became less sustainable by late summer 2024 when housing demand began to weaken.”
The increased builder incentives eat at margins and profitability, but Dykstra remains optimistic about the upcoming spring.
The situation is a far cry from COVID-induced supply chain problems when they could get the needed construction materials, he said.
“We sell lots of houses. People buy houses in the spring. They do their tax return… They make a New Year’s resolution that this is the year they’re going to buy a house. They just, for whatever reason, get out and improve their situation in the spring,” Dykstra said. We’re motivated to sell them. …We’re willing to spend incentive money.”