Harbaugh Real Estate

Dr. Mark Dotzour Says Housing Market Will Likely Stay Flat in 2024

Dr. Mark Dotzour thinks the housing market has likely bottomed out but will not accelerate for at least another year.

Mark Dotzour speaking at the Old Republic Economic Forecast 2024

Last week I talked about the fact that the Texas A&M Real Estate Research Center (TRERC) is forecasting a flat real estate market for 2024 in Texas. In essence, they expect that prices and volume will remain about the same as they were in 2023.

This week I had the privilege of sitting in on a presentation by real estate economist Dr. Mark Doutzour (presented by Old Republic Title) as he talked about his economic outlook for 2024, and his comments essentially reflected the theme presented by TRERC with a few interesting caveats and details thrown in.

Why We Are Where We Are

Dr. Dotzour first gave a great explanation of where we are and why we are where we are.

For those who may be unaware, the housing market in our area (DFW) as well as in the state of Texas has been a bit flat for about the past year or year and a half. By this, I mean that prices have not moved much (unlike other parts of the country who have seen more significant price declines), and inventory remains relatively tight. Additionally, the number of homes selling is down quite significantly since the peak of the market in June of 2022.

graph of median home prices in DFW

The overarching reason for this scenario is multi-pronged:

  1. The Federal Reserve kept mortgage rates artificially low for an extended period - After the mortgage crisis of 2008/2009, the Federal Reserve stepped in and began buying mortgage-backed securities in quantities no one else is capable of. The result of this was that mortgage rates sank to historic lows and stayed that way for many years - until the Fed started raising the Fed Funds rate in early 2022. The extremely low mortgage rates created a buying frenzy in the housing market that started in the early to mid teens and reached fever pitch just after covid. This buying frenzy is the demand that created such a steep rise in home prices that you can see in the graph above that represents median home prices in the entire DFW extended area.
  2. $4.6 Trillion was given away - In response to Covid, the US Government gave away $4.6 Trillion! These funds allowed many homebuyers to further take advantage of the low rates that were in place at the time, which partly explains why there was such a steep rise in home prices during late 2020 through early 2022.
  3. Housing shortage - As the price of land, labor, and building materials has risen, home builders have stopped building as many new homes. The result is that we have a chronic housing shortage, not just in our area, but in the whole country.
  4. graph of building material costs

    You can see from this chart how building material prices rose steadily but gradually until 2020, at which point they shot up and have not returned to levels anywhere near where they were. The result of this housing shortage is that home prices are staying quite elevated. The only way we would likely see any relief in the supply of new homes is if congress were to act to provide relief for homebuilders.

Dr. Dotzour Thinks We Have Hit Bottom

Since the Fed began raising rates in 2022, the housing market has slowed tremendously in terms of transaction volume. There simply aren't as many homes selling as there were just a few years ago, and prices have generally stayed level or declined slightly.

Mark Dotzour expects that we have already hit bottom in terms of price declines. In his estimation, we are currently in a period of price discovery. What he means is that prices in general have declined slightly since the peak in 2022, and no one really has a handle on what prices should be at this point. Because volume has been so low, there often isn't enough sales data to justify one price over another. However, as people begin to grow more accustomed to the "new normal" of higher mortgage rates, the market will begin to thaw as many have to make moves due to lifestyle changes (i.e. divorces, job changes, empty nesters, etc.). As this process begins to pick up steam, more sales data will become available, and price levels will be more readily discerned.

As price discovery takes shape, Dr. Dotzour expects that prices will begin to move back up once again, albeit at a slower pace than the frenetic price increases we saw immediately following Covid.

Conclusion

The Texas real estate market and the DFW real estate market are both in healthy condition. While we have seen some price declines (although some areas such as Mansfield have continued to see price appreciation), it appears that prices are not going any lower from here. The difficulty that buyers are facing at the moment is a small supply of available housing. However, as time continues to move further away from the days of super-low mortgage rates, more people should start to list their homes as they search for new places to live. This in turn should provide some relief to housing supply, although noticable relief may still be more than a year away.