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Hey everyone! It is time for a residential market update. As always, I’m excited to bring to you guys what’s going on here in D-FW in our real estate markets. So, let’s get right to it and talk about what prices are doing.
In D-FW as a whole, we are seeing prices continue to decline. Prices are currently down about 4.5% in North Texas from what they were this time last year. But, what’s interesting is that if you go drill down by county, it’s different. And we’re going to go over that here in a minute. It’s as high as 11% down in some counties, while in other areas, prices remain flat. So, it just depends on where you’re at and what the inventories are… But overall, we’re seeing a price correction year over year from July of last year.
The biggest news I want to bring to you today is something that just came out recently regarding the difference in existing home sales and new home sales.
If you look at the blue line in the chart above, the blue line is the median price for existing homes. The orange line is for new construction homes. And there has always been a differential there because people will pay more for a new home, the fresh smell of paint, etc.
But, if you look at there at the end of the lines, the blue line jumps above the orange line recently – showing that existing homes are surpassing new construction homes in price. And I wanted to point this out to you because this is one of the big problems we have here with existing home sales. And the reason we’re seeing that invert is because the average person (including 70% of homeowners) have an interest rate that is 4% or less right now and no one wants to move because they would have to go from a 4% interest rate to a 7% interest rate. That’s number one. But number two is, whenever they actually do put their house on the market, that homeowner is unwilling to lower that price because they have no incentive to. Because on the purchase side, they have to pay so much for the interest rate, they’re really trying to make up for that on the sale of their home. And that’s held prices up, and prices aren’t coming down at a steep rate.
But on new construction, it’s really just a straight business decision. They’re businesses, so they also have a certain amount of equity built in based on the cost of the build of the home – and then they have more room in a lot of cases to come down on prices and offer incentives to get people to buy what they’re building. In some cases, they don’t. But it’s a business decision for them; it’s not a personal decision.
“Well, I don’t have to move,” you might say. Well, for them, they have to move that home and sell it. So, what’s happening is the price of new construction is coming down faster than the price of existing homes. And this has really slowed down our market on the existing home sales.
But now, let’s take a closer look and let me show you an actual breakdown of the numbers across our area.
The average sales price in Rockwall County is down 13 percent, Kaufman County 12 percent, and then you look at Collin County. It’s flat. And you look at Hunt County. It’s up. There’s value there. The prices are lower, there’s more value in Hunt County. So, it’s really all over the place.
It’s such a finicky market. And for somebody to come in and tell you exactly what’s going to happen, it’s very difficult to do. But I can tell you based on what we’re seeing, new construction coming down, I’m sorry but existing homes are going to have to come down because new construction will always bring a premium to existing homes simply because the fresh smell of paint, it’s a new home, nobody’s lived in it.
There’s always been a premium to that and that isn’t going to change. So, what’s going to have to happen is the price of existing homes are going to have to correct more. I really feel like going into the end of the year here, we’re going to see more price appreciation slowdown or actually even a correction.
Getting into corrective territory like we’re seeing with Rockwall and Hunt County here, 10 plus percent, I think we may see 20 or 30% for a month or two of price correction.
Maybe I’m wrong, but every indicator is leaning that way…
A buyer is not going to pay more for an existing home. So, what has to happen? The price of existing homes has to come down further. And so, the good news, Mr. and Mrs. Seller, is that when you get it priced right, and we see this every day… When you price it right, we’re seeing multiple offers. So, the good news is that D-FW is still the top market in the country. Businesses are moving here every day. Headquarters, 120,000 people moved here last year. We’ll probably have about that many move here this year. So, the demand is there. Affordability is not. So, until the correction in price gets down to the demand of what buyers are willing to pay, you don’t see any movement.
But, when you do make that move and you make that move big, it isn’t a $10,000 drop, Mr. Seller. If you’re on the market right now, it’s not a $5,00 or $10,000 drop. Unfortunately, it is is a $30,000 or $40,000 drop we’re talking — 10 plus percent here in some cases of prices going downward year over year, so you have to use that number to calculate your home sale price.
What is 10 percent? $50,000 dollars? What is it? Then, do I still want to sell? And, maybe you don’t want to sell. And that’s my message to everybody… Maybe right now is not the time to sell. That’s what we’re advising our clients. Let’s look at it next year. Let’s take it off the market, and let’s look at it next year if you do not want to meet the market where it is at right now (which, in all cases, you still retain a really great amount of equity in your home from the giant price jumps of the last few years).
But, the reality is, that getting that price down is what is going to move the property in this market, and it simply has to be priced right. That’s the tough thing. The good news, though, is that the demand is there. You’ll sell your house when you get it right. But again, you still have a lot of appreciation if you’ve had the property any longer than two years, even one year in a lot of cases.
You still have a lot of price appreciation you’ll be able to capture. And that’s the good news, that you’ll be able to make that next move! So, I hope that helps you, Mr. and Mrs. Seller, on what you’re thinking of doing right now. If you’re sitting on your home right now and you’re just very frustrated, that’s what your frustration is. It’s along with everybody else, and we just have to get the price down to what the buyer is willing to pay. And the buyers ARE there. I promise you that. They are there, you will sell your house when you get it listed at the right price point.
The average number of days on market is going up year over year…substantially… It is up 94% in Rockwall, 1475 in Kaufman, 53% in Collin County, and 114% in Hunt County.
And then, you have month’s supply, which basically tells us if we’re in a seller’s, balanced, or buyer’s market.
We’re still in a seller’s market, but we’re teetering into that balanced market in some counties. Rockwall county is at 3.5 months of supply, Kaufman County currently has 4 months of inventory, Collin County is still a strong seller’s market at 2.2 months of supply, and Hunt County is at 4.2 months of inventory.
You get above that 4 months supply, you’re starting to go more towards a balanced market. Anywhere from 4 to 6 or 7 months is probably a balanced market. That’s kind of what we’re teetering to right now.
The amount of homes for sale, year over year, is always the culprit. We don’t have enough inventory in D-FW and that’s not going to change anytime soon. It’s going to be that way, and stay that way, for the foreseeable future. Rockwall County is only up 13% year over year, Kaufman only 8% over a year ago, and these are off of anemic levels. A normal market looked like the curve shown in the chart in 2018. And look how far we are on inventory from there. But inventory is rising. It’s headed in the right direction. So, that’s good news.
Why we can’t just see the flood of inventory come in? Because 70% of homeowners have a 4% or less interest rate. So, they are not willing to sell. They don’t want to put the house on the market and then have to pay 7% in interest for the next home purchase. I would say more people are getting used to the 7%, and it’s human nature to want something new and want to make a change. We just do that by nature in our personal homes. So, everybody is getting used to the new, new.
Compared to October of last year, where it was just a screeching halt in the home sales market, we’re seeing more transactions come in now. Because more people are getting used to the new, new. But, we just don’t have enough listings coming in. You can see we’re in a peak area… The peak should be much higher, what we saw in 2018 and 2019 for listings. And we’re not seeing those new listings come in right now in 2023. Everyone says, “No, I’m not selling.”
So, Rockwall County is down 25%, Kaufman County is down 13%, and Collin County is down 25%, while Hunt County is also down 13% on new listings.
Here is the proof that real estate is in a recession, and if you know anybody in real estate, or close to the real estate industry, you understand that people are laying off within title companies, mortgage companies, etc. Real estate agents are finding different jobs and careers. Over 60,000 agents have left the industry recently. We have jobs ads out for different things at M&D Real Estate right now, and it’s real estate agents applying for those jobs because we’re in a recession and transactions are at a slowdown and we have been really for about a year. Transactions year-over-year have been down, and they’re down 17%. This is a leading indicator for August. They’re down 17% for Rockwall, 18% for Kaufman, 17% for Collin, and 20% down in Hunt County. So, that’s an indicator into this month that we’re going to be down again. This recession’s going to continue.
Look at closed transactions for July. They are down almost 30% in Rockwall County, 36% in Kaufman county, 16% even in one of the hottest counties in the country, Colling County, and still down 15% in Hunt County.
So, with all of that being said, I want you to understand that we have a very strong fundamental market in D-FW because of all the commerce and the people that are coming to our area for real estate. It’s the strongest it is ever going to be, and it’s only going to grow. But with interest rates rising, unless you’re a cash buyer, you’re not really willing to make that leap and sell and move right now. That’s the difficult thing. We are seeing this in commercial real estate, too. Commercial transactions are down 60% year over year. So, if you think residential’s bad, commercial’s just come to a screeching halt.
There’s no personal appeal to make somebody move. It either makes sense or it doesn’t. And, when you have on the commercial side 8, 9, 10% interest rates, they’re not going to buy that property until you bring the price down. So it’s just a big standoff in commercial right now between buyers wanting one thing and sellers wanting another. And in residential, we’re seeing the same thing with existing home sales. New construction, they’re breaking records still every month, and it’s out there in the news. Well, this is because they’re adjusting to the market.
What hasn’t adjusted is existing home sales. So, I encourage you.. If you want to sell your property, you’re going to have to make an adjustment and it’s probably not a price drop of just $5,000 of $10,000 dollars, it’s probably going to be a 10 to 20% price reduction if you’re going to move it and sell the home.
I do believe we’re going to see more of a reduction in prices through the end of the year. That’s what the consensus is out there. In order to get this inversion of the price of an existing home to a new home back to normal, that’s what’s going to happen for properties to start moving again.
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