As home prices continue to rise it is no longer just hopeful buyers who are agitated about bidding wars and having to pay steep amounts above the asking price to own a piece of the American dream.
Now, policy makers and local business leaders are also sounding an alarm about escalating housing prices and their impact on the economy.
The median home price in Tarrant County reached an all-time high in March of $215,000, up from the March 2016 median price of $187,500. The average price of a home was also up, reaching $257,832 in March of this year, according to data from the Real Estate Center at Texas A&M University.
Soaring home prices have increased competition for affordably priced homes in the Dallas-Fort Worth area and other metropolitan areas of the state. More and more would-be buyers, particularly first-time buyers, are finding themselves priced out of the market.
Having available, affordable homes is a key component in maintaining solid and stable economic growth, said Brandom Gengelbach, executive vice president of economic development at the Fort Worth Chamber of Commerce. “A key component to growth in a community is the ability to operate a business in a low-cost environment. We have that advantage in the Fort Worth area. We also have this same advantage when you talk about cost of living. So not only can you save money by running a business here, but you can also save money by living here.”
But the rapid growth in North Texas is putting intense pressure on real estate, he said, pushing up prices for residential real estate.
“[W]hat was once a huge competitive advantage is now becoming less competitive. A key focus for us is to make sure we take necessary steps to create more affordable housing as to not price our workforce out of the market,” he said.
Some local industry leaders have similar concerns.
“Overall, the attraction of North Texas is still very, very strong,” said Mike Berry, president of Hillwood Properties, who has led the development of the 18,000-acre AllianceTexas development, which encompasses more than 43 million square feet of North Fort Worth and includes 10,000 single-family homes within the master-planned community.
“But I am concerned about the rising cost of living and that we’re not delivering new home products at the pace we need to,” Berry said. “There is a supply and demand imbalance that is running prices up.”
Berry, too, said, “We don’t have the labor to feed the machine.”
Economists at the Federal Reserve Bank of Dallas have issued several recent warnings that soaring home prices and a shortage of affordable starter homes has eroded Texas’ cost-of-living advantage as a leading destination for newcomers.
“Since the housing recovery began in 2011, Texas has seen unprecedented home price appreciation with home price gains here outpacing those nationally,” Dallas Fed economist Laila Assanie said in a statement in March. “Declining house affordability in the state has eroded the cost-of-living advantage, calling into question whether Texas can maintain its long-term economic advantage.”
The Dallas area has become the least affordable metro area in the state, she said.
In a recent statement, Dallas Fed economist Anil Kuman reiterated concerns of “home affordability and overheated housing markets.”
March data from the Real Estate Center at Texas A&M showed the largest expansion of housing statewide since 2011 but the supply of homes priced under $200,000 continues to lag other prices.
Demand for new homes in March was the highest in Fort Worth and Dallas, and the imbalance between supply and demand pushed prices for new home in Fort Worth up 2.5 percent, to $302,140, according to the real estate center. In Dallas, prices for new homes fell 4.5 percent to $355,903, but that was still above the national median of $313,410, according to the real estate center.
Meanwhile, homebuyers’ household income is declining, according to the recently released 2017 report on homebuyers and sellers from the Texas Association of Realtors. Median household income fell almost 3 percent from last year to $94,200, according to the report.
The median home price paid by Texas homebuyers was $215,000, exceeding the Real Estate Center’s estimation of $150,000 as a typical price for first-time homebuyers, according the Realtors report.
Although Fort Worth remains more affordable than Dallas, builders struggle with the same issue of trying to deliver a new home for under $250,000, the price with the highest demand and lowest supply.
Homebuilders such as Scott Sandlin attribute the problem to a shortage of skilled laborers, rising costs of building materials, higher development fees and longer waits to get developments approved by local cities, which are more closely scrutinizing new home developments to ensure that they produce quality neighborhoods.
“Labor costs alone have gone up 25 to 30 percent in the past four years,” said Sandlin, whose family-owned homebuilding firm is celebrating its 60th anniversary in Tarrant County.
The Dallas Fed’s Assanie said the current situation is unusual. Previously the homebuilding industry had been able to respond quickly to an increase in demand because of Texas’ vast supply of flat land and fewer regulations than many other states.
The labor shortage tops the list of concerns for many in the real estate and homebuilding industries. They often cite the aging and retirement of construction workers, better paying and less physically rigorous jobs for younger people and the aftermath of the recession that drove construction workers into more lucrative jobs in the oil fields or other industries.
But another key change is the drop in the number of illegal immigrants from Mexico, who have filled many of the jobs in the building trades.
“From 1990 to 2007, the authorized immigrant population tripled in size – from 3.5 million to a record high of 12.2 million,” according to a report from the Pew Research Center.
But during the recession, the number of illegal immigrants from Mexico – the largest group of unauthorized immigrants in the United States – dropped by more than 1 million and has not rebounded, according to the Pew study.
The impact remains to be seen from policy changes such as the Trump administration’s ramped up efforts to block illegal immigration with a border wall and increased security.
Regardless, Hillwood’s Berry and others said a bigger effort needs to be made to tackle the labor shortage through improvements in education, training and mentorship programs.
“We need to be concerned or we could lose the advantages we have,” Berry said.