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Tuesday, March 2, 2021

Housing Puzzle: Equilibrium returns to market

After several years of being one of the hottest housing markets in the United States, with blazing rapid-fire sales and record price growth, the Dallas-Fort Worth area has finally cooled off.

A spate of new data for November shows that sales in the Dallas-Fort Worth area slipped 9.9 percent, according to data from the Real Estate Center at Texas A&M University.

A broader look at the entire North Texas region, stretching from Sherman to Granbury and from Rowlett to Abilene shows only 6,036 single-family homes were sold in November, a 13.8 percent decline from November 2017, according to the North Texas Real Estate Information System (NTREIS), based on MLS data.

Despite the gloomy data, there are indicators in the latest round of reports that continue to show that Fort Worth and Tarrant County remain stronger submarkets that continue to see more robust sales than other parts of the Dallas-Fort Worth and broad North Texas markets.

The Greater Fort Worth Association of Realtors reported that home sales fell 3.6 percent in Fort Worth with 951 homes sold and Tarrant County sales fell 5.1 percent with 1,977 sales.

“It’s not uncommon for the housing market to be slower this time of the year,” said J.R. Martinez, president of the Greater Fort Worth Association of Realtors. “Our sales are still going down, but we are starting to see more homes going on the market.”

But industry analysts and individual Realtors see the slide as more than a winter chill and holiday frenzy that keep buyers too busy for housing hunting. Some see it as the new direction of the local housing market heading into 2019.

Factors such as higher interest rates and rising home prices will continue to weaken sales, although demand and sales will stay healthy next year.

“I would say we are in a transition market,” said Clay Brants, who with his wife, Laurie, runs The Brants Group, a part of Briggs Freeman Sotheby’s International Realty. “We’re moving from where we have been as a record-setting national market to a market of sustainable growth.”

Without a doubt, Brants and others say, demand will continue be strong in 2019, propelled by continued job growth in the Dallas-Fort Worth area, which continues to attract droves of newcomers who will need a place to live.

Also making Dallas-Fort Worth, as well as the rest of Texas, more desirable for transplants, is the beginning of new tax laws that limit the amount of state and local (SALT) property taxes individuals can deduct from their federal income tax.

The change will cap SALT deductions at $10,000 and will be most impactful for residents of high tax states such as California and New York.

Although Texas residents who own high-priced homes will find the SALT deduction won’t cover their full local tax burden, it will make a larger dent than in coastal states where home prices and taxes are a lot higher.

“An average home in California might cost $800,000,” said Brants, who specialize in high-end properties in Fort Worth and Tarrant County. “For $800,000, you may lose 70 to 80 percent of your deduction there.”

Since property taxes are lower here and Texas has no state income tax, out-of-state people are finding they can own a larger home and pay lower taxes, Brants said.

While Fort Worth and Tarrant County remain more affordable than Dallas and Collin counties, prices and rising interest rates are hindering sales here as well as the Eastern part of the region.

At the beginning of 2018, prospective buyers could obtain a 30-year mortgage at below 4 percent but at the end of the year that has crept up to nearly 5 percent.

“Interest rates jumped to a seven-year high amid a booming national economy and rising inflation-expectations,” according to a December housing report from Texas A&M Real Estate Center economists. “Rising rates pulled down applications for new-home purchases, but year-over-year growth remained positive.”

But most Realtors and analysts say the biggest drag on sales is price. For more than two years, prices have escalated to the point that they are eroding affordability.

In November, median home prices hit $259,000 in November, up 3.4 percent from November 2017 in the Dallas-Fort Worth area, according to data from Greater Fort Worth Association of Realtors and Texas A&M.

Meanwhile, the median price in Fort Worth was $215,000, up 2.8 percent, in November compared to November 2017. Tarrant County median home prices spiked 4.2 percent to $225,000 in November compared to the previous year, according to the Fort Worth Realtors Association and Texas A&M data.

“There is a growing gulf between buyers and sellers,” said Laurie Brants. “There is a misperception on the part of some sellers that their houses are worth more than they are.”

Fueling that perception is the frenzy of the past few years where strong demand and short supply led to bidding wars and buyers willing to pay above asking price to be able to buy a house.

The supply-demand imbalance led to rising prices and the perception among sellers that buyers would step up.

“Now, buyers won’t make an offer unless the price is reasonable,” she said.

With interest rates and prices rising, more prospective buyers are being priced out of the market.

“Buyers are not going to shop or look at a house they can’t afford,” she said.

The result has been an uptick in inventory and homes remaining on the market longer.

The Dallas Federal Reserve reported in November that housing affordability remained “close to historic lows” in the third quarter, based on national indexes. Only 45.5 percent of homes were affordable for a median-income family, up slightly from the second quarter of 45.2 percent.

Dallas was the least affordable among Texas’ largest metro markets and well below the national affordability level of 56.4 percent in the third quarter.

Fort Worth’s affordability level was 55.8 percent in the third quarter, more in line with the national level and similar to Austin, which had an affordability rate of 54.5 percent and San Antonio with a level of 54.7 percent, according to the Dallas Federal Reserve.

Zareen Khan, chief sales officer for Briggs Freeman and based in Fort Worth, said homes in Fort Worth – as well as other parts of the DFW area – priced between $250,000 and $500,000 are “the sweet spot and moving to sales and closings quickly.”

Sales for houses priced above $500,000 are decreasing and homes in that price range are taking longer to sell.

“Homes price above $750,000 are static,” Khan said.

For the year ahead, Khan said she foresees the current pattern continuing, with more inventory available and sales still strong but slower than in the past few years.

“Sellers will become more reasonable and buyers will adjust to new prices and interest rates,” she said. “Well-priced houses could still see multiple offers.”

Prospective buyers, concerned about further increases in interest rates, may be more willing to stretch themselves if possible, she said.

Leslie Purvis, associate director of the Center for Real Estate in the Neeley School of Business at Texas Christian University, forecasts “a flattening out of the market” but nothing approaching a meltdown.

“Our market, and all of Texas, is still a bargain,” Purvis said. “Businesses are moving here and people are moving here because of the opportunity for good employment and a better standard of living.

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