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Regional Spotlight: Glut of Homes Won’t Stop New Dallas-area Starts

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RISMEDIA, March 5, 2007-(MCT)-Homebuilder Terry Woldt is worried about the number of unsold houses on the market.

But he'll probably be starting construction on more homes soon.

"I want to be prudent, but we can't sell houses if we don't have them," said Woldt, who builds high-end homes in exclusive Dallas-area neighborhoods.

With almost 12,000 unsold homes, the Dallas-Fort Worth area has a record number of new houses on the market.
The overhang of new homes puts builders in a pinch. Typically, they ramp up construction in the early months of the year to have houses ready for the busy summer market.

But if buyer traffic doesn't rebound, more starts will only add to the oversupply in some neighborhoods.
Homebuilders have already sharply reduced the number of homes in the pipeline. Dallas-area starts were down 33% in November and fell by 48% in December compared with a year earlier.

"There needs to be some discipline in the market," said Ted Wilson, with Dallas-based housing analyst Residential Strategies Inc. "And I think most builders are refraining from starting too many houses."

Even so, Wilson said, "some builders have way too much speculative inventory."

Builders say that banks have raised loan requirements and are limiting construction funding.

"The lenders aren't going to lend you any more than enough for two speculative homes," said longtime Dallas custom builder Bill Long. "They've really tightened up."

But builders also point out that if they don't start houses now, they won't have product to sell when buyers come calling.

Jay Wysong, who constructs houses in Dallas' M streets neighborhood, recently sold several of his completed homes. So he's preparing to start more.

"There is a lot of inventory," he said. "If I hadn't sold these houses, I wouldn't be replacing them.
"I just bought three more lots."

Other builders say they are reducing the number of vacant lots they hold because they expect to construct fewer homes this spring. Lot prices have been in flux in some areas.

"We have been reluctant to purchase any more lots until we see if lot prices are going to continue to inflate," Woldt said. "We are trying to sell one of our lots because I am concerned there are too many spec homes.

"But if I can't get my money out of it, I'm going to go ahead and get started on a house."

Nationwide, a record 175,000 finished, unsold new homes are on the market.

And Dallas-Fort Worth area new home inventories have now surpassed the numbers seen in the 1980s housing bust. Of course, the market here is almost twice the size it was in the late 1980s, Wilson points out.

More than half of the unsold new homes on the market in North Texas are priced at less than $200,000. But there are plenty of houses going begging in the upper price ranges, too.

Often builders don't plan on constructing a speculative house. Big builders are reporting that a record 30% to 40% of their contract homes wind up unsold.

"They start houses and get well into the construction and find the buyer cancels on them," Wilson said.
Residential Strategies estimates that sales in January and February-normally slow months-were off slightly from a year ago. The research is predicting that overall home starts will be off at least 10 percent this year in the D-FW area.

"It's an OK market," Mr. Wilson said. "But we are not out of the woods yet."

If there is good news in the housing slowdown, it's that builders report that prices of some construction materials are falling after years of increases.

Builder T.W. Bailey, president of the Home Builders Association of Great Dallas, said prices for some wood products are down from last year. Costs and availability of labor have also improved.

"But there are still items like concrete and copper that are up a little bit in price," Bailey said.

Builders are also paying higher transportation costs because of rising fuel prices. "I got a fuel surcharge the other day on some appliances I had ordered," Bailey said.

Copyright © 2007, The Dallas Morning News
Distributed by McClatchy-Tribune Information Services.

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