5-6 months of supply – that’s how a balanced housing market is frequently defined. Any less than that suggests a seller’s market; a situation where sellers have the advantage in housing deals. Over 6 months of supply is a buyer’s market, as there are many properties to choose from.
So, where does the Dallas housing market sit at the moment? In Texas, the housing market is sitting at roughly 3 months of supply. According to the previous figures, that should make the Dallas real estate market clearly a seller’s market.
But as always, there’s more at play.
At the moment, interest rates are far higher than usual. Even worse, they’ve climbed steeply and quickly. How does this affect the market?
First of all, it limits buyers’ choices.
High interest rates encourage buyers to keep their loans low, meaning they’ll consider a smaller range of properties. Therefore, sellers will receive less interest in their properties than usual.
Secondly, it slows down the market.
As interest rates have climbed so quickly, potential buyers may be stepping back from the process to re-evaluate their options. With higher interest rates, they may hold off on making offers to recalculate what they can afford. They may even hold off for a while, hoping that interest rates will drop.
Therefore what should be a seller’s market becomes less predictable. Buyers are cautious, even though sellers have the advantage.
But there are signs that it will soon be more stable. The future for the Dallas housing market looks promising and is worth investing in. To learn more, read on for four expert opinions on where the market is heading this year.
1. New Construction Is Down 38%
The first piece of data to consider is how many new houses are being constructed in the Dallas-Fort Worth area. Mitchell Parton, Residential Real Estate Reporter for Texas, recently reported the following.
In 2022, just under 49,000 homes were started by builders. While this sounds like a lot, it’s actually 16% less than the year before.
And this trend is continuing. For example, in the fourth quarter of last year, 8,000 new home starts began. This is a 38% decrease on the fourth quarter’s construction last year.
While 38% seems like a shocking number, it isn’t as serious as it seems.
The statistic has made headlines as a 38% drop in new house starts between quarters hasn’t happened since 2009. But this drop is almost to be expected, as the number of house starts had been growing so rapidly.
In other words, a large number of houses are still being built. Supply has not dramatically dropped to some kind of all-time low. If anything, it’s returning to more reasonable levels.
What This Means for Buyers and Sellers
First of all, houses will likely complete sooner, providing a more steady supply to the market. This will give buyers more choices as many of these houses become available for purchase.
Secondly, home prices in Dallas-Fort Worth may decrease. This is due in part to the number of current construction projects decreasing.
When the demand for skilled tradesmen and materials is so high, they can charge more. These increases are passed on to the buyer.
In contrast, as fewer projects are underway, those working on the projects will have to be more competitive with their pricing. When this happens en masse, the savings will likely get passed down to the buyer.
At the same time, we are finally emerging from supply chain issues that have lingered since the start of the pandemic. A backlog of demand has lasted for years but seems to now be settling back to normal levels. And an improved supply chain means more affordable materials, delivered faster.
Therefore, although there were 38% fewer house starts in Q4 2022 than in Q3, it is good news for buyers. It may well lead to having more options sooner, and at a better price.
For sellers, this translates into more competition. But as we’re still in a seller’s market, it shouldn’t cause significant issues for selling your home.
2. Home Prices Will Start Flattening
Connected to the reduced number of home starts is the flattening of house prices. Want to learn more? Sami Sparber reported the following insights based on real estate expert predictions.
House prices are predicted to flatten or even fall this year. But this does not indicate a crash in the housing market. If anything, it shows that the housing market is stable.
Sparber mentions that the small drop in house prices suggests a return to usual seasonality. That is a return to the normal pattern of when house sales increase and decrease.
If anything, flattening house prices suggest a more normal, predictable market is ahead. And that’s impressive, considering the DFW housing market is already one of the most stable in the country.
Slowed Sales in 2023 Q1
Because price fluctuation is returning to normal, so will buying real estate in DFW. The beginning of the year is generally a slow time for house sales. 2023 will likely follow this pattern.
In fact, it may even become slower than usual. Sparber attributes this to consumer awareness of economic issues and recession fears.
Less Price Growth
A seller’s market often leads to increased prices. Sellers can set their property’s price higher than usual as there’s little competition.
However, house prices have already increased significantly in recent years. During the pandemic, many areas achieved prices far higher than usual.
Therefore, 2023 will see a reduction in this growth. While prices may not flatten completely, the growth will definitely slow. Sparber even predicts that this leveling phenomenon will continue into the next few years.
Interest Rate Issues
As mentioned, increased interest rates are giving buyers pause. They may be less willing to spend as interest rates are so high. This is another factor that will stop house prices from continuing to climb, as buyers stick to the lower end of their price range.
A Balanced Dallas Housing Market
All in all, the flattening house prices ahead are good news all around. Buyers will be able to afford to invest in new properties as price growth slows down. Nonetheless, sellers’ properties will continue to grow in value.
3. Massive Developments Are Being Planned
As well as individual housing starts, the DFW housing market is expected to see the introduction of massive developments. These will bring thousands of new properties to the market over several years.
For example, Mitchell Parton reports that 5,000 new homes could come to the market from just one of these projects. The developments come complete with commercial space as well as parks and trails.
This ensures developments like these don’t put too much strain on surrounding areas. Their self-sustaining design means they are a long-term solution to demand.
What This Means for Home Prices in Dallas-Fort Worth
First of all, the addition of new developments should keep house prices stable.
Prices have been increasing year on year at a faster rate than usual. But this influx of property may help with the price flattening. It provides buyers with more options and adds to the housing supply.
If the developments build fast enough, this could even turn the tide into a buyer’s market. However, Parton reports that this isn’t a speedy project. Properties will probably release to the market gradually, meaning the market may not turn so drastically.
Still, this steady supply of new properties will stabilize the housing market. It could even protect Dallas home prices from ever falling or jumping out of control.
This steady market accommodates healthy growth. It contributes to the balanced market previously discussed. This is good for both buyers and sellers.
4. Rents Are Falling While Vacancies Increase
The Dallas rental market is intrinsically linked to potential Dallas housing market predictions. That’s why it’s so exciting to see dramatic shifts in rental data for the area.
Steve Brown reported for Dallas News that the decline in leasing is the first since 2007! Specifically, there were 6,000 fewer apartments rented in 2022 than in 2023.
On its own, this would be significant news. It could lead to a shift in investing in the Dallas-Fort Worth market. As demand for rental property decreases, the housing market fluctuates along with it.
Specifically, if the rental market has little demand, more properties may go up for sale. While some property owners will decrease their prices, others may sell their assets. They may prefer to invest in areas with higher leasing demand.
More Units Under Construction
However, there is even more at work here. Over 65,000 rental units are currently under construction. And roughly half should be finished within 2023. What will happen when these properties become available for rent?
One of two things.
The first scenario is a flood of property to the housing market. Developers may realize that their apartments won’t find a renter. Then they may choose to sell the property instead.
As we discussed earlier, a sudden increase in inventory can create a buyer’s market. Buyers may have thousands more properties to choose from, which will work against house price increases. In effect, it could continue to level the market.
The second scenario is where investors continue to lease their properties but drop their rates.
On average, rents have been dropping like this month after month since October. This will help landlords to fill their properties and keep an income. But a decreased rent may have another effect on the future of the housing market.
If rent rates fall low enough, many thousands of people will be in a better position to save part of their income. And once they’ve managed to save for a deposit, they become buyers.
A gradual increase in buyers to the market will keep it in the seller’s favor. More and more potential buyers trickling in lets sellers keep their options open.
However, what is most likely is a combination of these two factors. Ideally, both of these situations happening in parallel will keep the market balanced and stable for the next few years.
Where does that leave the Dallas housing market?
To summarize, less construction is starting in the area. This suggests house starts will complete quicker, offering more properties to the market. And because of increased competition, prices should fall slightly as well.
At the same time, house prices are flattening. After many years of growth, the market is finally slowing down to a place comfortable for both buyers and sellers. Sales are also likely to slow in the upcoming months, offering more options to buyers.
While house prices flatten, large developments are planned for the future. These will provide a gradual but steady stream of new properties to the area. This will likely balance the market even further, shifting it away from being a seller’s market into a balanced one.
Finally, the rental market is facing unprecedented changes.
Increasing rates have pushed many renters out, so occupancy is now as low as 94%. At the same time, apartment construction is booming. When these two factors play out, they will have a great impact on the housing market.
Either many new properties will come to the market or many new buyers. Most likely, it’ll be a balance of both. This will bring new life to the market, as well as further stabilize it for the future.
When considered together, these individual statistics indicate a stable market is ahead. Each of these factors balances the others, stopping the market from swinging too far in one direction.
If you’re considering investing in the Dallas-Fort Worth market, this year and the next look promising. Or if you’re looking to sell your house while the market is reliable, get in touch with us today.
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The post The Dallas-Fort Worth Housing Market in 2023: 4 Expert Opinions appeared first on iBuyer Blog.
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