On October 4th, I awoke as giddy and excited as a kid on Christmas morning. The day had arrived. It was the day of the MetroTex 2020 Market Forecast. If you think it’s weird that I would be so excited about hearing some boring economists speak, I’m okay with that. I’ve loved reading article about the economy and attending presentations about the economy ever since I started in real estate. Having this knowledge helps me guide my clients and execute my business plan for the next year.
There were five speakers lined up for the 2020 Forecast: two economists, one market analyst for home builders, and two journalists. The economists were George Ratiu of Realtor.com, Dr. Jim Gaines of the Texas A&M Real Estate Research Center, and the Market Analyst was Paige Shipp from Metrostudy. I am going to focus on the comments of these three speakers as they were most relevant. Here are a few of my key take-aways from their presentations:
Our market is normalizing. We’ve become so accustomed to homes selling with multiple offers, for over list price, or before even hitting the market that we’ve forgotten that it is totally and completely normal for it to take 30, 60 or 90 days to get an offer on a property.
Dallas/Fort Worth population expansion will continue but at a slower pace. Immigration reform and greater retention efforts on behalf of states that have lost businesses and residents to Texas are actively working to keep people in their states. Nonetheless, the Dallas/Fort Worth area population is projected to grow to 16 million residents by 2050.
The Millennial Generation is driving much of the home buying traffic in DFW and the US. There are 88 million Millennials in the US and they are the most educated cohort of our population. They have had a delayed start to life events like marriage, having children and buying a home because they’ve focused on pursuing higher education, building their careers and paying down student loan debt, but now the oldest Millennial is 38 years old and they are driving much of the home buying traffic in DFW and the US. They need affordable housing, good schools and activities outside of the home for their children to participate in.
First-time home buyers make up 40 percent of the market. Many have spent over a year looking for a home and still cannot find what they want in their price range. Even after looking for a year, they are still optimistic that they will find and purchase their first home.
Affordability has become an issue for our local housing market. Over the past 5 to 6 years, our home prices have increased 50 to 60 percent - more than ever in any real estate cycle in Dallas/Fort Worth. Income growth has not kept pace with rising housing costs. Essentially, over the same 5 to 6 year period, incomes have only increased 15 percent. This is part of the reason we are starting to see prices level off (not drop) despite relatively low levels of inventory and low interest rates. It is also why home builders have turned their focus toward building homes in the $250,000 to $300,000 price range. Sixty percent of the lots home builders have in development are allotted for the $250,000 to $300,000 home buyer.
Annual property price appreciation is moving back toward normal levels. The economist from realtor.com anticipated 4 to 5 percent appreciation of DFW home values in 2019, and 2 to 3 percent appreciation in 2020. Dr. Gaines agreed with that forecast as well.
Regarding the “R” word…..recession. Well, I have to talk about it. It would be irresponsible for me to post this market forecast without mention of the word that’s been floated around news related to the national, state and local economies the past month or so. Here are the key take-aways regarding a recession:
Four in 10 Americans own their home free and clear. Fewer home owners are using the equity in their home as an ATM machine, like they did in the last cycle. This will be advantageous to home owners if and when a recession comes.
The US is now the number one producer of oil in the world. Much of that production comes from Texas and the Permian Basin. Oil prices are expected to stay relatively neutral.
Is a recession coming? The answer is yes because it is a normal part of our economic cycle. Do we know when or what will cause it? No, we do not at this point. Additionally, these economists did not think that it was likely to be as bad as the 2008 recession/financial collapse.
As goes the national economy, so goes the DFW economy. One of the attributes that has helped our local economy weather past recessions is our economic diversity - we are not completely reliant upon one industry. Economic diversity is a strength for our local economy. Another strength for our economy and the housing market is that home builders have not over-built the market and lending standards have remained relatively high, unlike the last cycle.
In closing, purchasing a home in the Dallas/Fort Worth area remains a solid investment. Texas and D/FW in particular offer a lower cost of living than either the east or west coasts. From a regulatory standpoint, we also offer a business-friendly environment and no state income tax. These attributes, along with steady job growth, will continue to attract individuals and businesses that are looking for opportunity and considering relocation. It is still a good time to sell as well. Home values are still on the rise, albeit at a more normal rate of three to 5 percent per year. My personal forecast calls for continued growth throughout the Metroplex.
Call me today so that we can discuss your personal and professional goals, and develop a real estate plan that works for you.