Rebound For Dallas Housing Market in 2010

Home Values in DFW Headed UpSteve Brown, real estate columnist for the Dallas Morning News, published Dallas housing poised for a rebound – but how big?, most of which is reprinted below.  Although some in local real estate circles commented on his optimism, Steve is someone for whom I have a great deal of respect and is as close to a local authority on the Dallas real estate market as can be found. Therefore, I suggest, it’s time to stop the fence sitting and get in the game.  Or it’ll cost you.

After slogging through two years of decline, the North Texas housing market is headed for a rebound in 2010. The only question, analysts say, is how strong the bounce-back will be. And that depends on the economy, of course. “Any sustained turnaround in sales and construction activity will definitely depend on the economy and job growth,” said D’Ann Petersen, a business economist at the Federal Reserve Bank of Dallas. “We do see increasing signs that the local economy has bottomed out, and business contacts say they are through cutting staff.” 

Petersen said there are signals that the worst is over for the Dallas-Fort Worth housing market. Next year will look better for builders and buyers.  “It will be slow going in 2010, but I do think that Dallas’ housing market is in a better position than many other areas of the country to respond to positive economic growth,” she said.

During the last two months, sales of pre-owned homes have increased significantly from year-ago numbers, and price declines have slowed. At the same time, the number of homes for sale in North Texas has fallen to the lowest level in more than two years.

Given the demand from homebuyers, builders will have to start more houses in 2010, said David Brown, an analyst with Metrostudy Inc.  “There now is currently less than a six-month supply of homes priced under $250,000 and just over a six-month supply of homes priced between $250,000 and $500,000,” Brown said.

“If homebuilders are not able to start as many homes as they are closing because of lending constraints, then some of those buyers may be forced into the resale market and could cause new home closings to fall further next year.”

Builders started only about 13,000 homes this year in North Texas – the smallest production volume in almost two decades.

“The current annual rate of about 13,200 starts should prove to be pretty close to the bottom,” said Ted Wilson of housing research firm Residential Strategies Inc. “Interestingly, several builders have suggested that the bottom would have been closer to 11,000 starts – similar to the 1990 bottom – had we not had the $8,000 first-time buyer tax credit.”  Wilson is projecting about 15,000 home starts in the D-FW area next year.  “If job growth picks up sooner rather than later, starts could push as high as 17,000, but we are still feeling conservative about the market,” he said.

With many small builders cut off from construction loans, Wilson said that large public companies with better access to capital could have an edge in 2010.  “I wouldn’t be surprised to see some of the larger builders flex their muscles with regard to access to interim financing and pick up market share in 2010,” he said.

In the pre-owned home market, the number of properties listed for sale fell below the six-month supply point in November. That’s considered a balanced sales market.

Price outlook.  The decline in existing home prices in North Texas has all but stopped. Median home prices have actually inched up from their bottom in February.  National analysts agree that Texas – which for the most part didn’t experience the last housing bubble – is poised to see home sector gains in the year ahead.

“We expect the Texas economy to perform better than the national average over the next year,” said David Berson, top economist with mortgage insurance company PMI Group. “And because the bubble was less in Texas than in most other states, that’s positive for house prices in the state.”

“Price gains may be somewhat less in Dallas than some other parts of the state,” Berson said. “But they’re still likely to be at least equal to the national average and probably somewhat better.

Analyst Stephen Bedikian of housing consultant Real IQ is expecting an uptick in the market next spring.  “By March, we’re likely to see volume increase and prices firming,” he said. “That trend will continue throughout the summer, and then we will return to a market that treads water for the balance of the year. “I would expect people to be surprised by strength of housing prices between the March and August period.”

But foreclosures are unlikely to ease in 2010.  Dallas-Fort Worth foreclosure postings set a record at more than 61,000 filings in 2009 and could be up again in 2010, analysts warn.

“I expect foreclosures next year to be a tad above this year – they are not going down,” said George Roddy, president of Foreclosure Listing Service, which tracks local filings.  Roddy said that even when the economy rebounds in North Texas, the foreclosure market will lag. “It takes time after the job market comes back to help people who have been trying to hang on to their house.”

All of the above points are well taken, but what is the real take-away?  For me, the information which I found most significant is:

  • The supply of pre-owned homes in the Dallas area market has now dipped below a six month supply; traditionally considered equilibrium;
  • During the last two months pre-owned home sales have increased significantly from a year-ago;
  • the number of homes for sale in North Texas has fallen to the lowest level in more than two years;
  • New home starts (13,200 units in 2009) does not satisfy the demand for new homes in North Texas;
  • There is less than a six month supply of new homes on the market priced below $250,000;
  • There is slightly more than a six month supply of new homes on the market priced between $250,000 and $500,000.

The conclusion I arrive at from this data – or is it that the data found hereinabove finally supports my conclusion – is that home buyers are going to find a two-fold problem in the coming months when shopping for new homes.  First, the supply of new homes which will be available, will be far less than what they anticipate; there will likely even be shortages in some of the healthier submarkets. Second, they are going to find prices much stronger than they anticipate, with prices increasing beginning in the early Spring 2010.  As an additional hurdle, buyers will likely find that interest rates will be higher beginning sometime in the Spring.

Although it sounds self-serving, it really isn’t, self-serving arrogance was beat out of me by this market about a year ago, home buyers who are still sitting on the fence are encouraged to get in the game.  The opportunities which exist today are disappearing very quickly and waiting to buy a home will cause a rude awakening.  I have mentioned in previous articles, its just nice to have additional data which supports my point.  Buyers will likely also find the selection of new homes available by mid-2010 will be limited largely to homes built by large, public builders, with custom homes being in short supply.

Scott Schaefer, Managing Partner, Lexington Luxury Builders

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