As such, our Founder & Managing Director has put together a telling and insightful market report for you about what’s happening, what to expect and where you opportunities lie in the Dallas-Fort Worth Residential and Commercial Real Estate Markets today. There is a lot of good information we are going to pass on to you, from meetings we have attended, what we see happening in the market each day and more that we cannot wait to let you in on. So we have a lot to cover today.
First, in the residential market – even if you are in commercial real estate, you probably own a house and will find this interesting. Residential is dealing with some dynamics that are unknown. No one can tell you exactly what’s going to happen in the residential real estate market over the next few months.
What we’re dealing with is the pressures of high interest rates, high inflation (high inflation being higher prices in real estate, values of homes), and how long is this going to last? Is it going to correct? That’s the question I am asked all the time is whether or not the housing market is going to correct and when is it going to correct, as well as when is it going to be a good buying opportunity? And I will tell you right now, the consensus is out there, this is the new, “new.” It’s going to stay this way. We don’t expect to see any correction at all, even with this interest rate environment we are in…
So what all is happening right now in residential real estate? Well, interest rates have increased from 3.1 percent to 5.5 percent since December on a 30-year mortgage. So that’s a borrowing increase cost of well over 50 percent, which lowers the ability of the buyer to be able to buy. And at the same time, we have prices going up as much as 35 percent in the area. In Rockwall County, home values have increased 31 percent and in Collin County, 35 percent. Jut unbelievable price appreciation, inflation in prices, and then you’re borrowing costs are going up…
In a normal market, that would immediately start the shift…Which we are in a shift right now, but how long will that last and what exactly is this shift going to do? Nobody knows because the Dallas-Fort Worth Metroplex has never seen anything like this. That is because we have another dynamic.
We have a fundamental supply and demand issue. In other words, we have a huge demand for housing in North Texas and property for that matter, which I’ll talk about commercial in just a minute. Huge demand. Because so many businesses are moving here which means people are moving here because they are relocating from the Northwest and Northeast, or from the western coast and eastern coast because of things like tax issues, lockdown issues and more. That was already happening previously, but then COVID just really put that all in high gear. California just ranked #1 in net loss of population over the last year, at 270,000 people lost from California in 2021. That is a huge number if you think about how many neighborhoods that is that are going elsewhere. And that’s just one state. Massachusetts was ranked #2, New York was #3, then Illinois was #4 in net population loss. So in all of those areas, people are in high/mass exodus.
North Texas and the whole state of Texas is seeing that demand for housing now from those who are relocating; North Texas especially. That, there, is the question mark. When are the California, Illinois, Massachusetts and New York buyers going to get tired of paying these 30 percent year over year increases? Well, we’re starting to see that.
We are beginning to see the signs of buyer fatigue. That’s actually good news. But we are not quite seeing enough of it yet. We still have super low inventory and there is simply not enough houses on the market right now. We have got to see that inventory build. In order for that to happen, we have to first see the buyer fatigue. And buyer fatigue is happening because those people, they are tired of making offers well over asking and not getting the property. We also need to see prices getting out of control. And we’re beginning to see prices get out of control as well.
If you’re looking for a home, you’re going to begin to see price decreases, but it is because people are asking $1 million dollars for a 2,000 square foot home here in the North Texas Metroplex. We are beginning to see unrealistic expectations from the sellers, who are simply starting to price them a little too high… But that’s what we need, though, along with buyer fatigue for something to change.
Me personally, I am looking for a home right now and I’m thinking “No way, I’m not even going to look for a home right now.” In fact, we are also having a firm meeting today and that is what everyone is seeing is the consensus. Everyone’s buyers are just fatigued.
Then, being the season for it, we are seeing all of these listings come on the market more and more and people are listing their homes right now. But they are listing them at ridiculous prices, and that is what should allow the inventory to start building. That pivot usually happens pretty fast. But that is the big question mark.
How long will it take before we see inventory begin to build? I want to say, between 60 and 90 days…possibly 30 days but most likely 60 to 90 days. What is that going to look like? Will it look like a big correction like you would normally see in this environment? Probably not, because of the demand issue, I don’t think we’re going to see that. I think we’ll get back to a more normalized growth rate and pricing more likely, and then we’ll see buyers come back in the market. But the key thing is we don’t want them to come too soon back in the market and then cause it all over again…
How long is this going to last? And are you going to have a buying opportunity? You obviously have a seller opportunity! But then where are you going to relocate? I as a homebuyer myself am having to come to grips with paying higher prices.
I was at a breakfast at the Dallas Country Club the other day, a really neat event by Stewart Title they had put on, and they were talking about the market. Even if you’re looking at new construction, whether commercial or residential, construction costs are not coming down anytime soon. That’s just the consensus. Just like home prices aren’t coming down.
As you’re preparing to make a move in the next year or two, you must consider these things. What is it going to look like in the next year? Well, I would say we’ll probably have the same prices and higher interest rates, probably even higher prices than where we are right now. Will they be 30 percent higher, like we’re seeing this year from last year? No, I don’t think so. But you’re borrowing costs will likely be higher because there is supposed to be five more interest rate hikes to get all this inflation under control. The only way to rebuttal that is if we go into recession and lose jobs.
Another thing discussed at this breakfast I was at is that we had a GDP loss last quarter, so we could technically go into recession this quarter if see this one in the negative as well. But the difference between if we deal with a recession right now, versus 2008-2009 recession is the or even the recession of 2020 with COVID, is the job loss factor. We are not seeing jobs lost. It’s just going to be what they call a “paper recession.”
So as far as home prices go, unless we have a war or a nuke fired, we will see them remain stable in this area because we are really insulated here. I think some places in the nation will see some different things. The point is, get used to the “new normal.” And I hate to tell you that. No one wants to hear that! Obviously, we want to sell our houses at high prices but for when buying, we have to be ready. I’m going to have to be ready to pay more for a home than I want to pay, and I’m in real estate. There’s simply no way around it. I’ve thought of it every which way, and there’s no way around it. So ultimately, wait for some inventory to build. You don’t want to compete too much. I think we are going to get some opportunities toward the end of year. But I don’t think it’s going to be at a lower price.
DFW was ranked #4 in the nation for office building with almost 8 million square feet of office space being built. Why is that and what is going on? It is because so many businesses are coming to this area. While COVID created a new normal for office, as far as making it almost obsolete in a lot of areas, that is not the case here because we have so much demand for businesses here.
North Texas had a record-breaking quarter last quarter at $13 Billion dollars in apartments and industrial property. We lead the nation in both of those categories in sales. It is unbelievable. We cannot build enough Class A apartments. We can’t build enough apartments, period.
So in commercial, where do you look for the opportunities right now? At the breakfast I was at, a couple of opportunities were discussed.
One is multi-family, but it’s not Class A. Because the problem is that finding multi-family to develop at Class A is very difficult… But where the biggest opportunity now can be seen is actually C and D properties, because there have not been C and D properties built in decades. But there’s still a huge demand for C and D properties. The land doesn’t support building C type properties because the land value is so high it doesn’t make sense after construction. So, for you looking to invest in multi-family, looking to build that class A, maybe instead start looking into that C and D opportunity. You may be thinking, “I don’t want to pay a 4 or 5 percent cap rate.” But the fact is, you’re paying a 4 or 5 percent cap now, yes, but we know where rates are going in the next few years. That’s the consensus. If you want to be looking for opportunity in multi-family, that’s the biggest opportunity out there right now.
The other commercial opportunity is of course, industrial. Everything is online, that has to do with logistics and space for server rooms, all of our web stuff these day, online orders, etc., everything we have gone to. The North Texas area is just a mecca for data centers, and distribution and logistics is just growing and growing into the biggest in the nation.
In DFW, we are also ranked #3 in the nation for residential and commercial new construction.
I end with this. I have been saying the past year that the pendulum has shifted. I emphasize that again now. Talking with everyone at the breakfast I was at, and everything we are reading, know and agree on is this, that the pendulum has shifted for North Texas and it will never be the same again. We are going to continue to see this growth. The jobs are here, the people want to be here in this environment.
So looking for that big buying opportunity, barring any worldwide catastrophe, there won’t be one for a while unfortunately. Not that it will never be there! It will be, of course. But will it necessarily be back like it was in the past? Is the buying opportunity going to be back to what it was a year ago?
You can see all counties here, below in this chart, up 32.7 percent on average. Look at these numbers. The average home price for Collin County at $550,00 now, when it was $370,000 last year… Are we going to get back to that at some point? We are up 60 percent from where we were just two years ago… So likely not guys. But we are in a thriving economy, and we’re fortunate here that we are insulated. Just like for example, we didn’t lose many jobs in COVID era when the whole nation shut down. We were not damaged near as bad as a lot of areas, so that’s the good news for us.
On timing, if you’re wanting to buy in residential, wait just a little bit.
On Commercial investment, C and D class if you are looking at multi-family is where the opportunity is right now — and of course, industrial properties.
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