DFW Home Prices Continue to Decline Slightly
Over the past few months, we have seen a year-over-year decline in home prices across the DFW metroplex.
Key Takeaways
- Home prices have declined on a year-over-year basis for each of the last four months.
- Months supply remains elevated.
- Though rates had come down some this year, they are starting to trend up again.
It's hard to believe I'm saying this, but home prices in the Dallas/Fort Worth metroplex are declining! Now that I've said it, let me qualify that statement by saying prices are not dropping precipitously. The decline we are seeing is only -1.26% year-over-year. Still, considering these numbers happened in the middle of summer - the middle of prime real estate selling season - I think it's remarkable we are seeing any decline in prices at all.
Home Price Details
First, let me give you some details. Per the S&P Case-Shiller Home Price Index, home prices declined -1.26% year-over-year in July in DFW. Nationwide, prices were up 1.68%. The Dallas/Fort Worth metroplex was not the only metro area to see price declines. Denver, Miami, Phoenix, San Francisco, San Diego, and Tampa also had price declines in July.
As a reminder, the Case-Shiller index is a robust measure of home prices that seeks to weed out various price anomalies. Because of its robustness, there is a two month lag in the index, which is why we are just now seeing numbers from July.
What Gives?
So why are prices declining in DFW?
The simple answer is that we have finally reached a point at which supply is outstripping demand. For years, you have heard that sellers always had the upper hand in real estate transactions - specifically home sales. This was because we had so many more people here looking to buy homes than were available. Now the roles have reversed somewhat.
During the go-go years, months supply - a measure of supply/demand balance - was extremely low. At one point it dipped into the 2.5 range. Today, the metro-wide figure is around 5.5. If you don't understand what those numbers mean, just understand that the higher the number, the more supply there is relative to demand. And when supply outpaces demand, prices naturally move lower. Until very recently, we had been stuck in the 2.5 - 4.0 range. Now, for the first time in quite a while, months supply is telling us that it's basically a buyer's market.
The broader question is: Why is supply higher than demand? What has happened to all the people moving here and needing a home?
The answer to this question is a little more complex. First, people are still moving to DFW. According to the latest census numbers, there are still 14,000+ people moving to DFW every month. The issue is that affordability appears to not be improving.
Simply put, people's incomes have not risen to match the increase in home prices we've seen over the past decade. Though many people want to move, doing so has become nearly impossible.
Then, there is the fact that the number of homes hitting the market has increased even though sales haven't increased. This is likely due to some residents trying to wait out the flattening market of the past couple of years and now being forced to sell anyway. Many people had thought that if they just waited a couple of years, the housing market would roar back to life again, and they would be able to sell for a higher price. In reality, things simply haven't worked out that way, and now many people are probably being forced to sell no matter what.
Mortgage Rates
Then there is the mortgage rate factor. While rates have come down some this year, they have begun heading back up again over the past several weeks. Right now, the national average for a 30-year fixed rate loan is 6.34% according to Freddie Mac.
Many people have been looking for rates to fall back around 4%-5%, but we are nowhere near that level. And I'm not sure we will go back to that level any time in the near future. Buyers who are waiting for vastly lower mortgage rates continue to be disappointed.
Conclusion
When you put it all together - continued high prices (yes, prices have come down some, but on a relative scale, they have not come down much), continued high mortgage rates, more people listing their homes and more builders listing new homes - you end up with our current scenario: a somewhat stagnant housing market in which prices are starting to decline slightly.
Where do we go from here?
We are about to head into the holiday season, and typically that is the time of year that home sales lag. Most people are thinking about turkey and presents and family time, and buying or selling a home tends to get put on the back burner. Though we cannot say for sure what will happen, it seems reasonable to expect that home prices will continue to decline for the next few months.
Of course, declining prices means there is potential opportunity for buyers. If you are looking to purchase a home, this could be the time to do so at somewhat of a discount. If you have more money to put down, this could especially prove beneficial to you, as the higher mortgage rates won't impact you as much.
If you are a seller, you have to be patient right now. Homes still sell, but they are taking longer to sell, and you don't have the same leverage you had a few years ago with buyers. You should not expect multiple offers - though it does still happen sometimes. And you should not expect the notorious bidding wars. The DFW housing market is not dead; it's still very much alive, but it's definitely more challenging to sell a home today.