Dallas Unseats Houston in New Housing Starts

Saturday, May 28th, 2016 and is filed under Housing Starts

Though the Dallas-Fort Worth and Houston metros are both in Texas, they are vastly different. Houston’s weather is more humid thanks, in part, to its Gulf Coast proximity; it’s called the “Bayou City” for a reason. DFW gets an annual ice storm or two during winter. Houston is considered the energy capital of the world. Dallas and Fort Worth are fueled by industries other than oil and gas.

The Houston-The Woodlands-Sugar Land Metropolitan Statistical Area (MSA) led the nation single-family housing starts in the fourth quarter of 2015. But in 1Q2016, the Dallas-Fort Worth-Arlington MSA beat out Houston in housing starts.

According to recent metrics from Metrostudy, Dallas annual single-family housing starts in 1Q2016 stood at 28,878. [1] Houston’s starts numbered 27,263. [2] Earlier this year, many analysts predicted that DFW would end up leading the nation in housing starts in 2016. [3]^,[4] If the Metrostudy numbers are any indication, the Dallas metro, and North Texas in general, is well on its way to meeting that forecast.

The Permitting Game

The above numbers are interesting because Houston’s single-family housing permits have been outpacing those in DFW. According to the U.S. Census Bureau and the Real Estate Center at Texas A&M University, 36,786 single-family units were permitted in the Houston MSA in 2015, [5] while the Dallas metro recorded 29,038 [6] single-family unit permits. Even in light of Houston’s economic slump, the Houston metro still recorded 3,314 single-family permits in March 2016. During the same time, DFW’s total stood at 2,491.

Despite the continued high levels of permitting in and around Bayou City, builders seem to be holding off on actually breaking ground on any of these houses for several reasons.

1. Still-sluggish economy. While oil prices are starting to creep up once again, Houston’s energy industry continues to undergo consolidation, job cutbacks and, in many cases, the need for Chapter 11 restructuring. Until economic issues are sorted out, it’s likely that home builders are waiting on the sidelines before launching new developments.
2. Market peak. Metrostudy analysts point out that the market cycle for homes in Houston peaked in 4Q14, and the region is on a downward slide. As such, there will likely be a further decline of approximately 10% in 2016.
3. Vacant inventory. Metrostudy’s 1Q16 survey note that the number of finished vacant homes I n Houston’s inventory increased by 53% from 6,059 to 3,949. As such, Metrostudy analysts believe builders are reducing starts in an attempt to absorb some of the finished vacant inventory.

What it Means

Though Houston has the higher permitting numbers, builders are taking a wait-and-see attitude. But Dallas-Fort Worth builders aren’t showing any reluctance to develop. Whether DFW will end up leading the nation in home-building remains to be seen –– though current indicators show that the Dallas metro, and North Texas in general, is well on its way to garnishing the number one spot.

[1] Metrostudy. (2016, April 25). Dallas-Fort Worth Housing: Starts Show Explosive Growth; Market Prices Continue Upward Shift. Retrieved from http://www.metrostudy.com/dallas-fort-worth-housing-starts-show-explosive-growth-market-prices-continue-upward-shift/

[2] Metrostudy. (2016, May 11). Houston Housing 1Q16: Houston Drops to 2nd Place Texas Market With 10% YoY Decline in Annual New Home Starts. Retrieved from http://www.metrostudy.com/38027-2/

[3] Alexei Barrionuevo. (2016, March 3). Hot Houston Housing Market Chills as Energy Prices Dip . Retrieved from Curbed: http://www.curbed.com/2016/3/3/11154552/houston-dallas-housing-prices

[4] Steve Brown. (2016, January 19). D-FW Expected to Lead Housing Starts. Retrieved from Dallas Morning News: http://www.dallasnews.com/business/residential-real-estate/20160119-d-fw-expected-to-lead-housing-starts.ece

[5] Real Estate Center, Texas A&M University. (2016, March). Building Permit Data for Houston-The Woodlands-Sugar Land, TX. Retrieved from https://www.recenter.tamu.edu/data/building-permits/#!/msa/Houston-The_Woodlands-Sugar_Land%2C_TX

[6] Real Estate Center, Texas A&M University. (2016, March). Building Permit Data for Dallas-Fort Worth-Arlington, TX. Retrieved from https://www.recenter.tamu.edu/data/building-permits/#!/msa/Dallas-Fort_Worth-Arlington%2C_TX