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Residential: Could DFW housing market overheat in 2018?

🕐 5 min read

The Dallas-Fort Worth housing market in 2018 is shaping up to continue the trend of the last few years as one of the strongest markets in the United States.

Sales are projected to keep rising along with prices. New and existing homes will continue to be in strong demand, according to industry predictions.

But the outlook isn’t completely rosy as the problems that have plagued the local market will persist, including further erosion of affordability along with fierce competition for houses and properties selling above asking price.

“What we’ll see is what we’ve been seeing – demand for houses outstripping supply for resale and new homes,” said Don Allen, president of the Greater Fort Worth Builders Association and a development partner with Lackland Holdings, which is affiliated with Riverside Homebuilders. “We expect a healthy market for the foreseeable future.”

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The Dallas-Fort Worth area ranked second in a national forecast of sales and price growth in 2018 by Sales this year are predicted to growth 6 percent while prices are expected to rise 5.57 percent. Only Las Vegas ranked higher, with sales projected at 4.9 percent and price growth at 6.9 percent.

Growth in price and sales is linked to demand driven by a population boom that has brought about 100,000 newcomers to the Dallas-Fort Worth area during the past few years, according to the U.S. Census Bureau.

The influx, the result of a healthy economy that added 100,400 new jobs to the region in a year, has increased demand for housing at a time when inventory was lagging and builders struggled to deliver quickly.

The result has been home prices that have escalated to record levels. The median sale price for a house in Dallas-Fort Worth rose 6.31 percent from $236,100 in November 2016 to $251,000 in November 2017, according to the latest data from the Texas A&M Real Estate Center.

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The median sale price rose 57.8 percent in the past five years, up from $159,000 in November 2012 to $251,000 in November 2017, according to the real estate center.

Sales volume for single-family homes increased 5.51 percent between November 2016 and the same month in 2017. Year-to-date sales through November 2017 reached 93,812 for a value of $28.9 billion.

Despite some fluctuations in the market, demand and sales have continued to climb at a feverish pace for more than two years and show no signs of stopping.

Some analysts and industry insiders worry that the Dallas-Fort Worth market is overheating and might eventually harm the area’s booming economy.

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“One thing that really concerns me is that prices keep accelerating and homes are becoming less affordable,” said Mike Berry, president of Hillwood Properties and Hillwood Urban. “We have companies expanding and new companies moving in that need to hire workers.

“The less affordable [that] homes are and proximity of the homes isn’t close to where workers need to be, then we lose our edge as a destination for new employers,” he said.

Challenges persist for prospective resale buyers and for builders trying to deliver new homes quickly and affordably.

The resale market continues to be plagued by inventory shortages that have produced fierce bidding wars and resulted in sales above the asking price, a situation that is familiar to buyers like Daniel Borczuch and his partner, Fernando Turcios.

The two were hoping to begin looking for a home to buy in the spring but decided to start earlier on advice for a real estate agent who told them the winter was slower and might be an easier time to buy.

Four times, the two were outbid or lost out before they got to view prospective houses just hitting the market. Finally, they found a house within their budget but still had to haggle with the owners and pay about $2,000 above the asking price. The two paid about $300,000 for a 2,100-square-foot home with four bedrooms and two bathrooms in Arlington.

“We were very surprised at how competitive the market is,” Borczuch said. “I guess there is no easy time to look for a house.”

Nearly one-quarter of homes sales in the United States during 2017 were above the asking price, according to a new report from Zillow. In Dallas-Fort Worth, nearly 40 percent sold above asking price in 2017 by a median amount of $12,023. That is second in Texas to Austin buyers, who paid a median of $15,311 above asking, but far below the median $41,000 paid above asking price in San Francisco.

The competition in the resale market drives many prospective buyers to the new home market, where activity picked up in 2017.

Dallas-Fort Worth homebuilders started 33,891 houses in 2017, an increase of 4,488 houses or 15.3 percent above 2016 home starts of 29,403, according to a report from the housing analysis firm of Residential Strategies.

New home starts priced over $500,000 grew by 340 units or 8.5 percent while houses priced between $250,000 and $500,000 increased by 3,623 units or 19.6 percent, according to the report.

“The DFW homebuilding industry is very focused on affordability,” the report stated. “Builders continue to pursue locations and product lines that intersect with the consumer’s budget.”

Nevertheless, the entry-point for new homes continues to rise as builders have to absorb increases in land, material and labor costs.

“Builders find it increasingly difficult to produce new homes priced under $200,000. Over the past year, the number of new home starts under $200,000 has fallen by over 650 units,” according to the report.

Scott Sandlin, president Sandlin Homes based North Richland Hills, said the labor shortage and the delivery of developed lots has improved some in the past year.

“It’s not nearly as bad as it was two years ago,” Sandlin said. “We’re seeing an uptick and huge demand for homes priced between $250,000 and $400,000.”

Allen of the homebuilders association said low interest rates help keep mortgage payments in check against rising home costs. Cities such as Fort Worth are also careful about “balancing impact fees increases to keep the price of homes more affordable.”

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