DFW MARKET CRASH – FACT OR FICTION?
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In today’s housing market, interest rates are on a rise but demand for homes continues to outpace supply. There is no argument that the housing market is in fact cooling nor should it be a surprise. Freddie Mac reported that home prices jumped 33% over the past two years (https://www.freddiemac.com/research/insight/20220609-what-drove-home-price-growth-and-can-it-continue). Whatever goes up must come down but due to a supply/demand imbalance, most experts forecast continued appreciation for at least the rest of the year.
MarketWatch.com, a website that provides financial data, interviewed the National Association of Realtors Senior Economist - Nadia Evangelou . She noted that home prices will continue to rise but at a slower pace. “Due to a housing shortage, home prices won’t drop in 2022. Remember that when there is a housing shortage, home prices don’t fall, in fact, home prices rose about 15% in May, although mortgage rates were about two percentage points higher than a year earlier,” says Evangelou.
According to an article written by Realtor.com, they expect home prices to continue to rise as well (https://www.realtor.com/news/trends/the-2022-housing-market-what-the-experts-predict-for-the-rest-of-the-year/).
LOCAL DFW MARKET TRENDS
The graph below includes sales data for the previous 12 months. This information was gathered directly from the North Texas Real Estate Information Service, a technology solutions provider serving the real estate community in North Texas. The numbers display average list price versus average sold price for Single Family Residences that were originally priced between 250k and 400k in Dallas County. On average, homes that sold in June 2022 sold for 1.5% to 2% below original list price. According to the graph (green bar represents original list price | blue bar represents sold price) , similar ratios existed in various months preceding December 2021. Although we are seeing price reductions, this data indicates the increase in interest rates that began in the Spring have not adversely impacted values to the point where the real estate market is plummeting.
ACTIVE INVENTORY
A balanced market is generally considered to be 6 months’ worth of supply. According to data provided by the Texas Real Estate Research Center, as of 06/09/2022 housing inventory remains historically low at 1.1 Months. As of the end of June 2022, inventory (single family residences) was on an uptick in Dallas County in comparison to previous months. However, based on data from the North Texas Real Estate Information Service, at the end of June we were still at historic lows with 3,444 units in comparison to 3 years prior (June 2019) where 6,000 + units were available.
MORTGAGE DELINQUENCIES FALL TO AN HISTORIC LOW
Due to the real estate crash of 2008, lenders have since tightened up their guidelines. According to an article published in June 2022 by housingwire.com, a leading independent source for analysis covering the entire housing economy, national mortgage delinquency dropped to an all-time low in May, continuing two consecutive months of a decline since March. Low delinquency levels points to an overall healthy housing market which was not the case in 2008.
Conclusion
As previously mentioned, there is no denying that at least in DFW, we are transitioning from a scorching Sellers’ Market to a market where there will be more opportunities for Buyers. Properties are sitting on the market longer, bidding wars are less common and more sellers are coming to terms with price reductions. However, considering a low supply coupled with low delinquencies, it is unlikely we will be seeing a crash as we did in 2008 but rather a cooling and a gradual decline of prices.
About the Author
Fernando is the Owner/Managing Broker for Selling Dallas, LLC and Simple Sell. He is also the founder of Blue Oak Capital, LLC a real estate investing firm. He is a Dallas native and received a Bachelor of Business Degree in Project Management from Amberton University, a globally accredited institution in project management. With over 20 years of combined industry related experience, Fernando has been involved in hundreds of real estate transactions ranging from corporate asset dispositions, residential contracts and investor acquisitions.
