OKC-area home starts decline for second time this year
New housing starts fell hard last month in the Oklahoma City area for the second time in 2022, but the market has been especially volatile, with both double-digit ups and downs this year.
Mortgage rates are higher, more than twice what they were at their lowest in January 2021, hitting 6.66% early this week in Freddie Mac’s regular assessment, but surpassing 7% later, according to Mortgage News Daily.
Higher rates mean higher monthly house payments for new buyers. For people still shopping, the good news is that enough home shoppers have bowed out of the market that the inventory of homes for sale is rising, so there’s more to choose from.
Latest home start stats for the Oklahoma City metro area
According to Norman-based Dharma Inc.’s monthly Builder Report:
● Construction starts were down 36% month to month, from August, with 519 building permits issued, to September, with 332 permits.
● Construction starts were down 30.7% year over year in September, with 479 permits that month last year, and 332 permits last month.
● Construction starts were down 7.3% year over year through September, with 4,822 permits issued the first nine months of 2021, and 4,472 permits the first nine months of this year.
Here are some extremes in month-to-month home starts
Disruptions in building supply chains, and volatile but generally rising mortgage rates combined to add irregularity to construction.
● Construction starts were up
36.1% from February, with 467 building permits issued, to March, with 589 permits.
● Construction starts were down
32.7% from May, with 620 permits, to June, with 417 permits.
Home building was even more volatile month to month in the second half of 2021.
● Construction starts were up 49% from September (479 permits) to October (713 permits).
● Construction starts were down 42.8% from October (713 permits) to November (408 permits).
● Construction starts were up 65.4% from November (408 permits) to December (675 permits).
What shape is the market in for new homes and construction?
Here are six sets of observations from Dusty Hutchison, owner of Alder Fine Homes and president of the Central Oklahoma Home Builders Association:
● Election season: “New starts experiencing a reduction from last year isn’t too far off from many of our expectations given the fact that midterm elections are upon us (and the uncertainty
surrounding national elections tends to cloud housing demand).”
● Supply chain strain: “I have not heard about discounts or (home builders) unloading any product as of yet. Supply chain and materials are still strained. HVAC components are experiencing delays. Plumbing fixtures are experiencing delays. Lighting and hardware same story. We are also still in a correction period of planning and ordering materials with our new shipping expectations on key components such as windows, brick and appliances, to name a few.”
● Settling down: “Higher interest rates indicate to me that the idea of ‘Let’s put our house on the market and see what happens’ will be coming to an end quickly. There are always two ways to look at anything, and I see that as possibly a good thing for the new-construction market. Homeowners will begin to settle in for the next couple of years in their current home if the conditions are appropriate for their family. While our local homeowners reduce the amount of available secondary homes on the market, the need for new construction will hold for the time being.”
● Oklahoma advantage: “While rates are an equalizer across the nation, Oklahoma’s lower cost of living is extremely attractive to both individuals who are looking to relocate due to remote work opportunities, and real estate investors.”
● Boomer cash: “One more factor that we have on our side is the aging Baby Boomer population and their true CASH buying power, which removes the mortgage interest rate discussion altogether. Unfortunately, the rate increases will not likely stop for the next two to three quarters. First-time home buyers and first-time move-up buyers are going to be the ones who are restricted most during this time.”
● Construction costs: “Housing affordability is always at the top of our concerns, so we do keep a watchful eye on the related markets. Lumber has nearly corrected back to acceptable prices, but the end user does not actually realize those prices for three to four months after the prices have (changed). So, what we see as board-foot costs today will not be realized until late fourth quarter 2022 or first quarter 2023. If there is an opportunity to hold off on new starts in deference to lower material costs, some builders may choose to do so.”
State trade group executive weighs in on home construction
“There still is a decent demand for new homes. Interest rates have caused some slowdown in traffic, but it still exists,” said Mike Means, executive vice president of the Oklahoma Home Builders Association.
He noted that “many folks” are opting for adjustable-rate mortgages, which have an initial lower fixed rate and then periodically reset higher, “betting that rates will come back down soon.”
Means said the labor shortage is causing construction delays and is another reason for starts to go down.
“The subcontractors are having difficulty in locating and keeping workers. Many crews are smaller. As one builder told me, instead of one week to frame, it is taking two weeks to frame. This slows down the whole process,” he said.
Means added, “I do not know for certain, but have heard some builders are selling at almost cost just to keep cash flow going, hoping to ride things out. This will hurt in the long run because of how that affects appraisals.”
How did the Fall Parade of Homes go in Oklahoma City?
The Fall Parade of Homes turned out with more entries than expected by the organizer, the Central Oklahoma Home Builders Association, although some homes were incomplete, Hutchison said.
“In planning for material delays and workforce limitations, there were more ‘nearly finished’ homes than usual, but our builders still realize the need to share their products with the public,” he said. “The parade is our version of sowing seed for future buyers, so this actually makes sense. We were fortunate enough to have nearly every day rain free and beautiful weather, so traffic was right in line with our expectations.”
Actually, the parade had more homes entered than the last three, said Elisa McAlister, executive officer of the association.
“We are close to being back to where we ‘normally’ land with the number of participating homes, but still under that average. But we were very pleased and encouraged with our registration for this fall. We’d anticipate the spring 2023 parade to be about on par with this fall,” she said.