Market Update Dallas

Market Update Dallas

The Big Story

 

Fed policy is working, but mostly just on housing

 

Quick Take:

  • The national median home price declined 3.8% in the third quarter, landing only 4.7% below the all-time high reached in June 2022 and reflecting typical seasonal trends. Prices didn’t contract significantly in Q3 2023 despite mortgage rates rising 0.6%. 
  • In October, the average 30-year mortgage rate reached its highest level since October 2020 at 7.79%. Higher and higher rates continue to price potential buyers out of the market and prevent sellers who are locked into hyper-low rates from entering the market.
  • The Q3 Real Gross Domestic Product (inflation-adjusted GDP) rose 4.9% quarter over quarter, indicating a broadly strong economy. Although unemployment rose 0.3% to 3.9%, the jobs market remains robust. Inflation, which rose in Q3, is nearly double the Fed’s target rate of 2%, so rate reductions won’t happen in the near future.
Note: You can find the charts & graphs for the Big Story at the end of the following section.
 

It’s all about interest rates

 

Home prices remain near all-time highs, largely due to the sustained low inventory levels, and despite the average 30-year mortgage rate hitting a 23-year high in October at 7.79%. It’s hard to overstate the full significance of higher mortgage rates on the housing market; but, in short, they are the primary driver of market slowdown. For example, when accounting for the cost of financing a mortgage, a buyer’s monthly cost for a median home today is actually 11% higher than in June 2022 when prices were at their peak. Looking further back to when the Fed began to raise rates at the beginning of 2022, the median monthly cost of a home has increased 76% from then until now. 

So why have prices stayed elevated even as the cost of financing has skyrocketed over the past 22 months? For sellers, prices have to stay high or else they wouldn’t enter the market. Approximately 75% of U.S. homeowners have mortgage rates of less than 4%, according to JPMorgan, which has kept sellers from entering the market. If prices broadly contracted, even fewer sellers would come to market because they likely couldn’t afford a new house because their profit margin would be too low. Although people move for all sorts of reasons, generally speaking, there are very few sellers who are selling because they have no choice. Even if sellers were breaking even on their home sale, transitioning from a sub 4% mortgage to a nearly 8% rate is completely unappealing. Sellers who are coming to market now need to make a profit so that they can finance less of their next home in order to counteract the higher mortgage rate. Of course, this is for existing homes, but new construction isn’t much different. Material and financing costs are higher for homebuilders, too, and when a house costs more to build, the prices increase as well. 

Inflation isn’t helping the market, either. People feel less wealthy than they did three years ago, and they’re right to feel that way. In just the three years from September 2020 to September 2023, the dollar has lost about 15% of its buying power, the same amount it lost over the preceding 10 years (September 2010 to September 2020). Even though inflation is declining, all that means is that prices are rising more slowly than last year — which is good, but it doesn't make anything more affordable. The combination of declining purchasing power and higher mortgage rates only reduces market participants, slowing the market. 

High mortgage rates aren’t going away anytime soon because inflation is still about twice as high as the Fed would like. So far, most of the economic slowing the Fed intended by raising rates seems to be isolated to the housing market. The National Association of Realtors (NAR) reported that the number of homes sold dropped 2.0% month over month and 15.4% year over year to the lowest number of sales in the four years that NAR reports. Real GDP rose significantly in Q3 2023, indicating strong U.S. economic growth rather than economic slowdown. It’s unlikely that the Fed will hike rates at the December meeting, and very unlikely that they will reduce rates in the near future. We can expect mortgage rates between 7% and 8% in 2024, which will continue to slow 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 and condo prices declined across most Texas markets in October. Minor price changes are typical in the fourth quarter, and we expect prices to remain fairly stable for the rest of the year.
  • Active listings rose month over month in October, hitting a two-year high for single-family homes and condos in Greater Houston and single-family homes in Greater San Antonio. Overall, inventory in the selected Texas markets has increased meaningfully this year.
  • Months of Supply Inventory rose in October as sales slowed and days on market increased slightly. It’s common for MSI to trend higher in the fall and winter, when fewer buyers are in the market.
Note: You can find the charts/graphs for the Local Lowdown at the end of this section.
 

Home prices decline slightly as we enter the fourth quarter

 

In Texas, the home prices haven’t been largely affected by rising mortgage rates with the exception of Greater Austin, which had a major price contraction from May 2022 to February 2023. Homes are still in the realm of affordable, at least for highly desirable markets, which generally leads to more market participants and price stability. Year to date, median prices have increased for single-family homes in Dallas-Fort Worth and Greater San Antonio, and for condos in Dallas-Fort Worth and Greater Houston. In the fourth quarter, we expect prices to remain fairly stable, but slight price contractions are normal this time of year.

Typically, demand begins to decline in the fall and bottoms out in January, so inventory may grow in the winter months. With mortgage rates at a 23-year high, buyers have more incentive to compete over the most desirable homes. Because of the cost of financing, homebuyers aren’t settling for less than the best home they can find.

Inventory increased as sales slowed in October

 

Single-family home and condo inventory has trended higher into the fall of 2023, which is far from the seasonal norm. Typically, inventory peaks in July or August and declines through December or January. As sales declined and new listings rose slightly, inventory increased across most of the selected markets in October, reaching two-year highs for single-family homes in Greater Houston and Greater San Antonio, and for condos in Greater Houston. Only Greater Austin single-family homes and Greater San Antonio condo inventory declined month over month in October. Even though inventory has increased overall this year, it’s still historically low, moving higher primarily due to softening demand caused by higher interest rates. New listings have been slightly lower than usual, so inventory growth has been driven by fewer sales. 

As demand slows, buyers are gaining slightly more negotiating power and paying less than asking price on average. The average seller is receiving a lower percentage of list price than they did in the first half of the year, but only by 1-2%.

 

Months of Supply Inventory rose meaningfully over the past four months, indicating the markets are shifting in Texas

 

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 rose significantly over the past four months largely due to the decline in sales and longer time on the market. Currently, for single-family homes, MSI indicates that Greater San Antonio favors buyers, Greater Austin is balanced, and Dallas-Fort Worth and Greater Houston still favor sellers. For condos, MSI indicates that Greater Austin and Greater San Antonio favor buyers, Greater Houston is balanced, and Dallas-Fort Worth favors sellers.
 

Local Lowdown Data

 

 


Let's Talk

You’ve got questions and we can’t wait to answer them.