Real Estate Forecast

Why Dallas-Fort Worth’s sizzling real estate market may start to simmer

Why Dallas-Fort Worth’s sizzling real estate market may start to cool

9870 Mixon Dr. for sale in Dallas
The craziness of buying a house in Dallas-Fort Worth is slowing down, experts say. Photo courtesy of Ebby Halliday Realtors

At the MetroTex Association of Realtor’s annual “state of the DFW Real Estate union,” Dr. James Gaines, chief economist with the Real Estate Center at Texas A&M University, told 300-plus Dallas-Fort Worth real estate agents that they might expect a slowdown in the frenetic market we are experiencing, to what he called a “new norm”: 2.3 percent growth instead of the 3, 4, or 5 percent we have been seeing.

Gaines said prolonged lower oil prices and job cuts in the energy industry will result in slower growth in Texas. But the impact hasn’t really been felt yet, he said.

“We went through this in the ’80s — there is a lag effect of when those prices come down, and it really hits the economy,” Gaines said. “It’s anywhere between one to three years. We know that it is going to impact the state’s economy — it’s going to affect employment throughout the state,” he said. “It’s coming, but it hasn’t hit yet.”

Gaines predicted that even in North Texas, which has less exposure to the energy industry than other regions do, employment gains will moderate next year.

“But the slowdown is from a record high to a little bit less,” he said. “Growth in Dallas-Fort Worth has accelerated enormously.”

Houston is hurting, said Gaines in so many words, due to loss of oil jobs. Midland too. The energy sector is definitely down, and $80 a barrel is not in the wings.

Dallas-Fort Worth, Plano, and all, not so much. Gaines said North Texas will still see growth in high tech, healthcare (all those doc in the boxes sprouting up like banks in high-net worth neighborhoods), and professional and business services. The population expansion continues. But the local growth issues are a strain on our in-state and local resources.

Texas produces 50 percent of the nation’s oil, and we are still the homebuilding capital of the world. According to Gaines, these are the macro issues facing Texas real estate today:

  • Changing demographics. First-time homebuyers are increasingly millennials, and they have changing lifestyles and buying habits.
  • Capital. Foreigners are coming in and buying up real estate with cash.
  • Interest rates. Prepare for them to go a little higher. The increase won’t kill us, but it could hurt buyers on the credit fringes.
  • Credit terms and availability. Washington is finally slackening the reins on lending.
  • Urbanization. Two out of three people live in the big Metropolitan Statistical Areas in Texas, and more people are heading there.
  • Home affordability. This could be a problem — looking at Gaines charts, it appears that the median price of a home in DFW is now near $280,000. That’s a lot better than the average home price in the Bay Area or LA, or metro New York or D.C., but that’s high for us. Where do people who can only afford $150,000 for a house live?

Home affordability may be a bigger problem in Dallas-Fort Worth, given that home price increases have been outpacing wage gains that in the area.

“We have smaller household income today in real terms than we had in 1999,” Gaines said. “Affordable workforce housing is going to be a major issue. We are not building enough houses in the $150,000-to-$200,000 bracket.”

Lower gas prices may be bad news for the oil industry, but it’s great news for consumer and makes the suburbs more attractive to buyers.

Local agents say the market is already simmering down. As Dave Perry-Miller told me earlier this week, it’s still busy, just not as frenetic. I do see home prices on the upper end of the luxury market softening; home prices that may have been over-reaching are being pulled back. But beautiful, exciting product will still fly off the shelves, and the under $700,000 market is still extremely hot because of demand.

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A version of this story originally was published on Candy's Dirt.