Tough Times to Continue in Dallas-Fort Worth

This month, we feature two dramatically different markets with almost identical home prices, Dallas-Fort Worth and Jacksonville, Fla. The Dallas-Fort Worth housing market is struggling with low demand and high supply, while demand and supply continue to grow in the very pro-growth Jacksonville market.
By By John Burns, John Burns Real Estate Consulting | March 31, 2004
Recipe for Disaster

This month, we feature two dramatically different markets with almost identical home prices, Dallas-Fort Worth and Jacksonville, Fla. The Dallas-Fort Worth housing market is struggling with low demand and high supply, while demand and supply continue to grow in the very pro-growth Jacksonville market.

Major Market: Dallas-Fort Worth

The Dallas-Fort Worth market has significant problems that likely won't go away soon. While the job losses of the past several years might turn into job growth this year, far too many homes are being built in the Metroplex, and they're increasingly being constructed in the area's outermost regions.

I wouldn't call the Metroplex, which includes the eighth-largest (Dallas) and 16th-largest (Fort Worth) housing markets in the country, a disaster. But the market sure has fallen on tough times, and we don't foresee an imminent turnaround.

On behalf of Ivy Zelman and Carlos Ribeiro at Credit Suisse First Boston, we performed a revealing analysis of the Dallas-Fort Worth market. Zelman asked us to determine whether builders were flocking to the far regions of metropolitan areas in search of volume. As usual, Zelman's intuition was correct, at least in the Metroplex.

We divided the 12-county Metroplex into three regions based on their proximity to job centers. Region 1, which we call the DFW area, includes Dallas and Tarrant counties. Region 2, which we call the Northeast, includes Collin and Denton counties. Region 3 comprises the remainder.

Supply is high in all three regions (Figure 1, page 14), which eliminates any argument that the inner areas are becoming supply-constrained. It's amusing that builders in Dallas-Fort Worth and other areas call markets "supply-constrained" when building activity is near an all-time high. What they really mean is that competition for land is severe because so many builders expect to sell homes in record numbers.

What's most interesting in the Metroplex, however, is how each region's market share has changed. Region 1, the area closest to the Dallas and Fort Worth employment centers, has the highest level of construction — a level approaching the peaks of the early 1980s (Figure 2) . However, this region's market share has declined steadily, from 72% of the market in 1989 to only 54% today.

Region 2 has experienced a slight decline in supply lately but has grown from 24% of the market to 36% during the past 14 years. Clearly, home builders have been focused on Collin and Denton counties.

Eight-county Region 3 has grown from 4% of the market to 11%. Most of the increase in activity has occurred in the eastern counties of Rockwall and Kaufman and the southern counties of Johnson and Ellis.

With supply high both near the employment centers and in the outermost regions of the Metroplex, and job losses exceeding job gains, Dallas-Fort Worth builders with significant investments in Region 3 communities could be in for continued tough times.

Up-and-Coming Market: Jacksonville

Home building opportunities in Jacksonville are no longer a secret. Jacksonville is now the 18th-largest housing market in the country, with more than 12,600 single-family permits issued in 2003. It also has the 10th-best rate of job growth and an unemployment rate of only 4.9%.

In 2003, four of the top 20 GIANTS (M.D.C., KB Home, Standard Pacific and Toll Brothers) joined six others (Pulte Homes, Centex, The Ryland Group, Beazer Homes, Taylor Woodrow and Technical Olympic) in the battle for market share.

We attribute Jacksonville's emergence to well-organized economic development groups. In addition to landing an NFL team in 1985, Jacksonville has been ranked as the No. 1 city for business expansion by Expansion Management magazine twice in the past five years. Citizens have approved funds to build more infrastructure under a strategic growth management plan.

A median home price of $141,000 also is appealing, to employers and builders alike.

Top 25 Metro Areas
Short-Term Outlook/Grade1-Year Payroll Employment Growth1-Year Growth RateUnemployment Rate
1AtlantaA67,900 3.1%4.1%
2PhoenixB+39,800 2.5%4.1%
3RiversideB14,800 1.4%5.7%
4HoustonC4,000 0.2%6.3%
6WashingtonB+38,500 1.4%3.1%
7Las VegasB33,600 4.2%4.5%
9OrlandoB23,200 2.5%4.5%
11TampaB12,200 1.0%4.0%
16Fort WorthC(5,000)(0.6%)5.5%
18JacksonvilleB7,100 1.3%4.9%
19DenverC10,400 0.9%5.8%
20PhiladelphiaB15,500 0.6%5.2%
21St. LouisC(4,500)(0.3%)5.3%
22AustinB+7,100 1.1%4.8%
23Kansas CityD(10,000)(1.1%)5.3%
25NashvilleB+2,000 0.3%4.5%

Top 25 Metro Areas, continued
Median Resale Home PriceResale Housing Costs as % of IncomeHousing Cycle Barometer12-Month Single-Family Permits1-Year Single-Family Growth12-Month Total PermitsTotal Permits as % of Peak Permits
1Atlanta$157,500 23%1.653,956 8%65,993 99.2%
2Phoenix$156,100 27%1.046,731 17%54,893 100.0%
3Riverside$228,900 42%5.435,832 20%41,926 72.7%
4Houston$139,200 24%5.134,121 17%50,376 100.0%
5Chicago$249,100 36%5.431,281 5%46,990 100.0%
6Washington$296,200 37%5.730,804 3%38,728 81.0%
7Las Vegas$184,300 34%5.230,289 23%39,890 100.0%
8Dallas$142,600 22%0.926,881 8%36,515 91.8%
9Orlando$154,000 28%4.322,398 30%28,716 97.0%
10Minneapolis$208,200 29%5.420,480 18%27,985 99.7%
11Tampa$150,200 30%5.120,083 14%29,690 91.5%
12Charlotte$161,600 26%1.517,111 (1%)20,018 81.8%
13Sacramento$240,000 40%5.617,061 4%21,085 100.0%
14Detroit$156,285 24%2.615,428 9%19,203 84.3%
15Raleigh$166,958 26%0.013,984 (0%)16,936 78.9%
16Fort Worth$113,896 19%0.313,710 1%16,989 99.0%
17Indianapolis$127,600 21%2.112,987 (1%)15,949 92.3%
18Jacksonville$141,100 25%4.412,636 16%15,663 100.0%
19Denver$250,800 36%6.412,517 (11%)16,478 61.3%
20Philadelphia$181,800 30%3.912,441 (6%)17,731 68.1%
21St. Louis$130,700 23%2.912,136 10%14,708 80.3%
22Austin$154,454 23%0.011,862 65%14,822 67.7%
23Kansas City$150,400 25%3.911,750 10%14,196 77.2%
24Columbus$151,000 26%2.111,578 11%15,998 96.7%
25Nashville$141,046 24%1.711,4899%12,899 82.3%


Recipe for Disaster

  • Several years of weak housing demand because of sustained job losses
  • Construction activity that's near an all-time high
  • Rising building activity in the farthest corners of the Metroplex