Market Update Dallas

Market Update Dallas

The Big Story

Mortgage rates increased in February, but their strong effect on the market may be waning


Quick Take:
  • Mortgage rates rose in February, closing the month at 6.94%. However, the Fed will almost certainly cut rates at some point this year, so potential homebuyers would only need to service the current rate level for a short period of time before refinancing. 
  • Sales increased 3% month over month, which, although still low, is a sizable increase. More homes are coming to the market and quickly translating to more sales. Inventory increased 2%, as new listings rose by 25%. More supply and growing demand are good for the market, especially this time of year — right before the busier spring and summer seasons.
  • Months of Supply Inventory (MSI), which expresses the supply & demand dynamic, fell over the past three months, indicating the market is getting more competitive for buyers.


Note: You can find the charts & graphs for the Big Story at the end of the following section.


Near-term refinancing could relieve current rate woes

On March 6, 2024, Federal Reserve Chair Jerome Powell delivered remarks before the House Financial Services Committee regarding the Fed’s stance on inflation and the likelihood of rate cuts. In short, rate cuts are coming soon but not too soon. Essentially, the Fed is waiting for more positive inflation data before cutting rates, and cuts will almost certainly come sometime this year. At the start of the year, financial markets were speculating that rate cuts would begin after the Fed’s March meeting, but, with the information from Mr. Powell, we are now expecting rate reductions after the June or July Fed meetings. The Feds strategy makes sense: the benefits of waiting for more information outweigh the potentially negative effects of cutting rates in March only to raise them again in June. The Fed’s dual mandate aims for stable prices (inflation ~2%) and low unemployment. Employment is solid with unemployment at 3.9%, and the February jobs report showed that the labor market added 275,000 non-farm payroll jobs, considerably beating analyst expectations of 200,000. Unless something truly disastrous happens in the labor market, inflation is the primary factor in the Fed’s decision making in the first half of 2024. 

The good news for the housing market is that potential home buyers and sellers have a much clearer picture of where rates will go in the next 12 months. The bad news is that rates likely won’t meaningfully decrease until after what is traditionally the most active time in the housing market (March to August). However, because we know there is a high probability of mortgage rates declining this year, home buyers could easily decide to buy now and refinance in the near future. The average 30-year mortgage rate has been above 6% since September 2022, and the housing market has been slower, especially on the selling side, which of course feeds into the buying side, since buyers can’t purchase what's not for sale. The rate-induced market slowdown has given potential buyers more time for a down payment. Many buyers were priced out of the market in the second half of 2022 but have now had over a year to save more money for a down payment. Buyers and sellers are also a little more accustomed to higher rates so aren’t as emotionally tied to the sub-3% mortgage rates seen in 2020 and 2021. We expect the market to heat up more than it did last year because of these factors and aren't so worried about buyer demand because it’s high relative to supply so more sellers could definitely come to the market.

Different regions and individual houses vary from the broad national trends, so we’ve included a Local Lowdown below to provide you with in-depth coverage for your area. In general, higher priced regions (the West and Northeast) have been hit harder by mortgage rate hikes than less expensive markets (the South and Midwest) because of the absolute dollar cost of the rate hikes and limited ability to build new homes. As always, we will continue to monitor the housing and economic markets to best guide you in buying or selling your home.


Big Story Data


The Local Lowdown — Greater Austin, Greater Houston, Dallas-Fort Worth Metroplex, and Greater San Antonio

Quick Take:
  • The median single-family home prices rose across the selected markets month over month in February 2024. We expect price trends to follow a more normal seasonal pattern this year so expect continued price growth through the spring and summer months.
  • Active listings, sales, and new listings rose month over month across most Texas markets. Higher supply only benefits the selected housing markets as we enter the busier spring season. 
  • Months of Supply Inventory fell across markets in February 2024. Currently, for single-family homes, MSI indicates that Greater San Antonio is balanced, while Greater Austin, Greater Houston, and Dallas-Fort Worth favor sellers. For condos, MSI indicates that the markets favor buyers except for Dallas-Fort Worth, which is balanced.

Note: You can find the charts/graphs for the Local Lowdown at the end of this section.


Median single-family home prices increased month over month across the selected Texas markets in February

In Texas, the home prices haven’t been largely affected by rising mortgage rates with the exception of Greater Austin, which has had a major price contraction since May 2022. Broadly, price contractions are normal in the fall and winter months of any year, so it’s hard to conclude that higher rates have had any meaningful effect on price across most of Texas’ major metros. We expect prices to remain below peak in the winter, but as seasonal demand increases this spring, prices will almost certainly reach new highs in the first half of 2024 in all the selected major markets except Greater Austin. Additionally, the inventory buildup in 2023 will create a healthier market in 2024, satiating demand as it grows. We expect single-family home prices to continue to rise next month, as the rising inventory and new listings attract more buyers to the market. More homes must come to the market in the spring and summer to get anything close to a healthy market, and we are already seeing more new listings.

High mortgage rates soften both supply and demand, but at this point rates have been above 6% for 15 months, and rate cuts will likely occur sometime this year. Potential buyers have had longer to save for a down payment and will have the opportunity to refinance in the next 12-24 months, which makes current rates less of a limiting factor. However, high demand can only do so much for the market if there isn’t supply to meet it.


Single-family home and condo inventory and sales increased across markets

Inventory trended higher into the fall of 2023 and winter 2023/2024, which is far from the seasonal norm. Typically, inventory peaks in July or August and declines through December or January. Inventory levels in Texas are unusual in the United States, in that they actually built up to pre-pandemic levels in 2023, moving higher primarily due to softening demand caused by higher interest rates. 

During Q4 2023, inventory peaked in October before falling in November and December, as sales and new listings declined. In 2024, inventory has begun to increase once again. Notably, inventory reached two-year highs across condo markets except for Greater Austin in February. The number of new listings coming to market is a significant predictor of sales, and the substantial increase in new listings over the past few months has led to an increase in sales. In February, sales rose in all the selected markets for both single-family homes and condos. The next three months will be critical to our understanding of whether the market has truly reverted back to pre-pandemic norms.


Months of Supply Inventory declined across markets in February 2024

Months of Supply Inventory (MSI) quantifies the supply/demand relationship by measuring how many months it would take for all current homes listed on the market to sell at the current rate of sales. The long-term average MSI is around four to five months in Texas, which indicates a balanced market. An MSI lower than four indicates that there are more buyers than sellers on the market (meaning it’s a sellers’ market), while an MSI higher than five indicates there are more sellers than buyers (meaning it’s a buyers’ market). MSI trended higher from May 2023 to January 2024 largely due to the decline in sales and longer time on the market. However, in February 2024, MSI declined across markets as sales rose and homes sold at a faster rate. Currently, for single-family homes, MSI indicates that Greater San Antonio is balanced, while Greater Austin, Greater Houston, and Dallas-Fort Worth favor sellers. For condos, MSI indicates that the markets favor buyers except for Dallas-Fort Worth, which is balanced.

We can also use percent of list price received as another indicator for supply and demand. Typically, in a calendar year, sellers receive the lowest percentage of list price during the winter months, when demand is lowest. Winter months tend to have the lowest average sale price (SP) to list price (LP), and the summer months tend to have the highest SP/LP. The January and February 2024 SP/LP were higher than last year, meaning we expect sellers overall to receive a higher percentage of the list price throughout all of 2024 than they did in 2023.


Local Lowdown Data


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