February 2022: real estate market update
First off, my heart goes out to the people in Ukraine. Please be praying for them. We actually have an employee at our firm who is from Ukraine, who has family there and siblings in Kyiv and we also have some other contacts we know from Ukraine who are there now… Our hearts are broken. Please pray with us to bring this to a quick resolve and take out the evil. That is the simplest way to put it… I just wanted to share that with you…
Now for your latest Market Update… Let’s start there. How does the conflict in Ukraine affect our markets here as far as real estate goes?
The simple answer is, it does affect our markets. How much it will affect everything will depend on how escalated the conflict becomes. More than anything, it will affect the commercial markets more than the residential markets. The commercial market seems to be the first one always to pull back during any uncertain times, because commercial real estate is nothing more than investing. Just like the stock markets go crazy, the Dow, all those open stock markets, go crazy when you have uncertainty. People start selling, going to safety, and so what I would expect to see is a deal here or there fall apart with uncertainty, or perhaps one lose funding because of the uncertainty if this continues… If it continues and gets out of control, we might even see some cancelled contracts like we saw when COVID happened for instance.
On the residential side, it is more of a “Oh yeah, we’re thinking about buying our dream home but I’m going to stay where I am and wait this out and see…” which really makes the inventory situation already worse than it is. Any situation will affect both, but it will affect commercial quicker. People just want to hunker down instead of making a move during uncertain times.
But right now, we’re not seeing any issues with commercial or residential transactions currently. But if this were to escalate and continue on, especially with the sanctions, it can affect different markets in different ways, especially on the commercial side with items like getting funding or if something is supported by something else that now has a sanction on it, etc. So hopefully that helps you understand a little about how what’s going on in Ukraine and how it can affect what’s happening here in our markets.
NORTH TEXAS RESIDENTIAL MARKET UPDATE!
Local builders filed 3,223 new house permits in December, which was 27 percent more than a year earlier. So homes are starting to ramp back up. One thing on new construction homes, not only are homes for sale ramping up, 25 percent of those permits are for rentals! The new trend we are seeing is builders are building entire communities, whole subdivisions, that are rental communities/rental homes that act more like an apartment complex. We just don’t have enough houses, whether it’s rentals or buying a house, so that has created a demand for this type of rental community where you have the home life of a home and neighborhood, but you are renting as if you in an apartment instead of having to buy the house. We will see a lot more of this coming in the next year of delivery and in fact, we are managing some properties like that. This is a brand-new thing coming to the DFW Metroplex. I know DR Horton has eight or nine of these communities they have committed to doing this with, so here we have just another way to live in the Dallas Fort Worth Metroplex and even more options.
The average house payment, due to the interest rate increase over the last few months is up by $351 dollars, about 30% more than a year ago for the average home price or home monthly payment! Affordability is beginning to become an issue at hand for buyers right now. That is usually the first sign of “buyer fatigue” or what causes buyer fatigue and is a sign for buyers to start pulling out of the market to create more inventory. But we have not seen that yet at this time or any buyers completely pulling out to such a large extent.
In fact, area home prices rose over 26 percent since last year, and that’s the highest year over year gain we have ever had in North Texas. Dallas area rents are also up 18 percent. That’s the biggest increase we have ever seen, too!
DFW is leading the home building markets, so we are building more homes here in DFW than any other major city. More homes, more businesses, more people are coming to this area. That pendulum has shifted and it’s not going to shift back! I talk about this each time because it has had such an effect on our markets here.
We are also seeing still record low inventory. We are down 27 percent in Rockwall and 50 percent in Dallas County. So that is mind blowing! January of this year vs. Since January of last year in Dallas and Collin County, inventory has decreased by 50 percent. Last year was when we saw lines wrapping around open houses because inventory was so low, and now we are 50 percent lower than that! It is mind boggling. Kaufman County has seen a little bit of an uptick in inventory because they are building more homes in Kaufman and there is more room to grow there and in Ellis County, which is the southern part of the Metroplex.
When we look at the overall picture of what’s going on with the residential update, we need to look at home prices, which averaged 26 percent for North Texas overall and Rockwall County was even higher at 28-29 percent growth. We are seeing so many showings, multiple offers and all over asking price – I would never have thought we would see this. Homes are $100,000 more to buy for the same home this year than last year for a $200-$300,000 home.
So, everyone is wondering, where is the relief for the buyer? We might see a little relief from price appreciation and more normalization from the rise of interest rates with those higher monthly payments up 30 percent. We might see this pull some buyers out at some point. But based on the demand here in the Metroplex, it will take a lot more than this to get us to more normalized growth.
The March interest rate height is priced into the interest rate market and that’s why mortgages are up so much. So again, it’s going to take a really high interest rate to slow down the DFW Metroplex because we have so many people and businesses relocating here that these prices are going to be a norm. Not as much price appreciation growth perhaps. But still – it might be a year from now at today’s prices.
The number of days a home is on the market is down 24 percent from last year. Pending sales are down 12 percent. The number of homes listed for sale are down 30 percent on average. We are seeing as high as 50 percent in some areas. So more of the same, home prices are going up…!
If you have an investment property, we are seeing a lot of people packaging up their homes and selling it right now with these great prices. Or, you can ride it out and see how much higher this will go. In this market you can look like a genius if you get it right or a fool, but with so much demand it’s easy to be a fool and hard to say this is going to slow down anytime soon. Because it sure hasn’t yet.
DALLAS-FORT WORTH COMMERCIAL MARKET UPDATE!
Again this month, DFW led the nation in commercial sales, surpassing New York City even, because of all the migration this way! One sale in particular, the Crescent in Uptown, sold for $700 million dollars, one of the top sales in the whole country! Then, we have Amazon putting another distribution center here, on top of the 12 million square feet already here from Kaufman County to the other side of Fort Worth. But this will be south on I-20 and it’s another one million square feet. We’re becoming the distribution capital of the world, it feels like here!
As for the DFW inflation reading, it is a little higher than what we are seeing nationally, currently at 7.8 percent. The reason it is higher is because it makes sense with all the housing and oil and gas demand, and just overall demand here in the area. Another proof to this point. Los Angeles will lose its largest publicly traded headquarters to DFW it was just announced. ACOM and another 1,200 people and their families are heading this way. That’s another two to three subdivisions right there in one company move!
Multi-family construction has been down the past two years. The news is that a lot of it is supply chain and labor issues – so getting the product and labor to do the work is a huge part of it. I would also argue land, and development of land, for multifamily is very difficult to come by – every investor we talk to says, “Let me know if you across any.” This is because most cities have had their stomach fill of requests for multifamily. So getting something approved for multifamily zoning is very difficult to find. So, all of that is constraining construction. We are still down for construction permits for units. What is interesting is that during the pre-pandemic levels, before the huge migration of people to this area, I remember reading all the multifamily pjections thinking we would be peaking out on supply. But now that we have had such a huge migration this way, that has completely changed. We don’t have enough land, so that’s why even multifamily is going to the subdivision model!
COVID put all of this on steroids, all of the growth of the DFW Metroplex – with restrictions and things that were happening in the eastern and western parts of the country, taxes of course always being an issue, all of these things really pushed a huge migration to this area. This is not what I think politically, it is just what I have been hearing — story after story of businesses moving here, people moving here because of those various issues.
So that’s the market – in general, interest rates are rising which will affect residential more than the commercial markets. But the big question is – how will that moderate our residential prices and how will it slow down commercial investment? It will be interesting to watch over the next few months as they try to get inflation in check.
As always, we are here to serve you however we can. At M&D, we offer leading residential, commercial and property management services! So if we can be of any help to you as you seek to sell, purchase or lease a property, please let us know.
We are also happy to answer any questions you have on the market! Thank you so much, and have a fantastic day!