Takeaways from Zonda’s Dallas Dealmakers and Future Place Conferences
This week we attended Zonda’s Dealmakers and Future Place conferences in Dallas. The sold-out events highlight the continued strategic importance of Texas and master-planned communities in the homebuilding industry. Having closed five transactions with Texas-based clients in the past four years, we intimately understand its market dynamics and were glad to reconnect with friends and clients to discuss the latest trends.
1. Homebuilding down nationwide, but dynamics vary widely across MSAs
Year-over-year activity has declined in essentially every market, but the magnitude of decline varies widely by submarket and even by community, with attractive assets still performing well
Consumer confidence remains the biggest constraint. Potential homebuyers have little sense of urgency given the slowing job market, widespread affordability challenges, and lack of rent growth
International immigration is at risk of falling to its lowest level in 60 years, while in-migration has also slowed given economic uncertainty
2. The dust is settling on the ‘new normal’
Homebuilder margins are under pressure due to higher land prices, home price pressure, and the continued need for incentives
Few builders are walking away from land positions, and finished lots continue to move quickly as well-capitalized builders stay focused on future demand. Overall vacant developed lot levels have increased substantially, and will take longer to normalize in some markets than others
3. Positive long-term outlook, with some short-term silver linings
Lower mortgage rates have increased consumer purchasing power by 8-11% per Ali Wolf, with potential future rate cuts providing incremental relief
Despite slower immigration, U.S. demographics are driving household formation which continues to suggest significant pent-up housing demand
Consumers continue to appreciate the value proposition of new homes versus resale, including warranties, superior design, incentives, lower maintenance, and energy efficiency
4. Financing tools are a game changer for builders
Municipal Utility Districts (MUDs) and Public Improvement Districts (PIDs) continue to give Texas builders a public finance advantage for community infrastructure and amenities
Land banking has improved capital efficiency for builders nationwide, despite the resulting margin erosion due to this higher cost of capital
5. Master-planned communities (MPCs) continue to outperform
MPC absorptions continue to outperform other housing developments. Builders are attracted to the scale and predictability of MPCs, while homebuyers are drawn by a greater sense of community
15 of the top 25 MPCs are active adult; MPCs perform ~50% better than other developments when serving this demographic
