The 2020 Real Estate Gold Mine

I wrote this article as a comment on MetroDepth’s article about the DFW Real Estate Forecast into 2021.

1 . Zillow Predicts a Slow Down

Article:

“According to the real estate information company Zillow, the median home value for the Dallas-Fort Worth metro area rose to around $256,000 as of June 2020. That was an increase of 2.4% from the same month a year earlier, by their estimation.

The chart below, created by Zillow, shows the median home value for the DFW area over the past year or so. As you can see, prices began to climb steadily in 2014 and followed that trajectory for several years. The company’s forecast for Dallas home prices is shown in the green shaded area.

In June, Zillow’s research team stated: “Dallas-Fort Worth-Arlington Metro home values have gone up 2.4% over the past year and Zillow predicts they will fall -1.9% within the next year.”

My thoughts:

I can appreciate an easy-to-interpret chart as much as the next guy but lets remember what this is and isn’t saying. This is showing us median home values for all types of homes and all types of areas in DFW. The $200,000 condo in South Dallas is included with the $4MM estate in Southlake. Simply stated, don’t let this chart rule your life and real estate decisions. Be sure to talk with a real estate professional to get neighborhood specific information.

2. Low Inventory Makes a Difference

Article:

“According to a report from the Real Estate Center at Texas A&M University, the Dallas-area real estate market had about a 2.5-month supply of homes for sale in March 2020. Note the decimal there; that’s two and a half months. That is well below what’s considered to be a balanced housing market.

So from an inventory standpoint, at least, the Dallas-Forth-Worth housing market still favors sellers over buyers. But that’s a metro-wide assessment. Conditions can vary quite a bit from one neighborhood or area to the next. Supply levels vary as well.

According to a May 2020 article from The Dallas Morning News:

“And in the Dallas-Fort Worth area, property listings with real estate agents are down more than 18% from this time in 2019, according to a new report from Realtor.com based on data as of May 23.”

My thoughts:

This would be the part where I remind you that the article and Zillow data is looking at market averages across a wide array of data points. Helpful, but only to a degree. So let’s scratch the surface just a bit more. What if we looked at different price points and how they relate to months supply (otherwise known as the inventory of homes available if no new homes hit the market and sales activity stays the same…balanced markets are between 5 and 7 months supply).

Price Point: Between $170,000 and $250,000

Price Point: Between $275,000 and $400,000

Price Point: Between $400,000 and $600,000

It ain’t balanced folks. This shouldn’t be a major surprise though. Most people know the DFW market has favored sellers over the past several years and this year was no different. What’s interesting is how the more expensive markets have been affected and how the months supply has dropped dramatically. You can almost hear your neighbor mumbling “Those dang Californians!” But I will have you know that I just helped my California clients get their house for $30,000 under list price so we know at least some of them care about what they spend. And for anyone thinking $30k is a drop in the bucket, it represented 7% of the total purchase price.

So what do these charts really say? There are not many houses…there are still plenty of buyers. What doesn’t it say? It still isn’t specific enough. For example, if you want to sell your $250,000 house in Carrollton and buy a $400,000 house in Plano these charts will not accurately tell you how easy or difficult that sale or purchase might be. If you are looking at a situation like this then talk to a professional and get SPECIFIC information.

3. The Starter Home = The Gold Mine

Article:

Last year, a report published by a housing research group showed that supply is tightest at the lower end of the pricing spectrum. That’s partly because there are more house hunters and buyers on the more affordable end. As you up the pricing spectrum, the number of eligible buyers drops off.

The 2019 report was published by Harvard University’s Joint Center for Housing Studies (JCHS). Among other things, it revealed that construction of moderately priced “starter homes” has lagged over the past few years.

To quote that report:

“…construction of modest-sized single-family homes has been particularly weak. Despite increases in 2017, small homes under 1,800 square feet represented just 22 percent of single- family completions [in 2018], down from 32 percent on average in 1999 – 2011.”

While that report is a bit dated, the conditions it outlined are still occurring to this day.

Land prices are one reason for the construction lag in lower-priced homes. According to Ted Wilson of Dallas-based Residential Strategies, “developers cannot get cheap enough land and lots to get the house price down enough.”

My thoughts:

This is a big ole truth bomb! The single-family starter home market is very underserved in DFW but it is no one person’s fault. We have the resale market (homes sold that are not new construction) but in times of low inventory where else can someone get affordable single family homes? New construction is an answer for many people…but, only if you’re comfortable with a commute. Take a look at what the outskirts of cities have become. What do White Settlement, Melissa, Forney, and Saginaw have in common? Besides you never having heard of them they are cities on the fringes of DFW that are home to homes…lots of homes! Large developers have put hundreds and thousands of single family homes in large master-planned communities starting in the $200s.

Why don’t they do that with affordable homes in cities inside the metroplex? Lack of land or…lack of affordable land. It’s really that simple. A developer can not purchase land for $50,000 / acre and expect to make a profit off “starter home” prices. And it is unfortunate because there is a huge demand for the sub-$300k homes inside the metroplex. That is why my 2020 Gold Mine goes to the starter single-family resale home. She may be built in the 80s with wallpaper (the not in-style kind) and brown wall paneling in the living room but dangit…she’s still beautiful. If you are in the possession of one of these beauties then you’re in luck! You can hold on tight and hope for more appreciation or if you're thinking of cashing out, you can talk with me for more information on your specific area.

I hope you enjoyed reading this article as much as I enjoyed making it! These opinions are my own and it is important you form your own too. Feel free to drop a comment below.

- Austin Wyble, Realtor & Co-Owner

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