Hottest Dallas Housing Market Ever! (Lawn: sales, 2013, mortgage)

[RonnieinDallas]

The Hottest Dallas Housing Market Ever
Numbers don't lie this chart displays North Texas sales that closed between January 1 and April 30. Oak Lawn and North Oak Cliff are on fire!

Credit: D Magazine

[Rakin]

The biggest factor holding DOWN prices are conservative lender appraisals.

They are based on old sales history and the lenders want them ultra conservative.

[skids929]

The larger economic picture dictates interest rates need to be edged upward.

We can't continue to have housing markets behave like this. It's just plain stupid and shortsighted.

[synchronicity]

Originally Posted by RonnieinDallas

The Hottest Dallas Housing Market Ever
Numbers don't lie

Well, actually, they kinda do. But "Hottest Market Ever!" sells magazine articles and yields hits on the internet.

[Mr. Chad]

Originally Posted by Rakin

The biggest factor holding DOWN prices are conservative lender appraisals.

They are based on old sales history and the lenders want them ultra conservative.

I guess that's good news for me....so lenders don't forsee home prices spiking out of control?

[SS 376]

Originally Posted by skids929

The larger economic picture dictates interest rates need to be edged upward.

We can't continue to have housing markets behave like this. It's just plain stupid and shortsighted.

As long as good lending standards are being followed, then this should be okay. A major part that the rest of the country saw a huge crash was mortgage lenders being willing to loan half a million dollars without any documentation of income or any regard for what the house was going to appraise for. If lenders are basically giving money away, it can only result in huge inflation... But locally, houses around mine in North Dallas that I would think were worth $300K last year are now listed (and selling) for $400K+

Plus, as prices rise, you should see more sellers come off the sidelines and list their property, which should have a downward effect on prices, since you will have more supply.

[TurtleCreek80]

Originally Posted by Rakin

The biggest factor holding DOWN prices are conservative lender appraisals.

They are based on old sales history and the lenders want them ultra conservative.

Originally Posted by Mr. Chad

I guess that's good news for me....so lenders don't forsee home prices spiking out of control?

Not exactly. The appraisals are not keeping pace with market values....therefore many buyers are choosing to put more money down than planned in order to continue with the purchase after a low appraisal.

Take this made-up, but realistic scenario:
1. Contract price on home is $500k, which would be $100k (20%) down and a $400k mortgage.

2. Appraisal comes in at $450k. Because only 2 homes in the immediate neighborhood (say .5 mile radius) have sold in MLS in the last 90-180 days (due to many other "off market" / private or hip pocket sales AND the general scarcity of homes on the market), the appraiser keeps going further and further back in time to get his 6 comps the banks wants him to evaluate for the appraisal. This means that home sales from 1+ year(s) ago are being used as "comps" for the super hot and competitive spring 2013 market. It would seem the rational thing to do would be to expand the comp neighborhood out to a 1 mile radius to gather more recent sales data, but that isn't happening at most major lenders. The recent comps support the $500k contract price, but mixed with old comps, the appraisal value goes down to $450k.

3. Bank will now only make an 80% LTV mortgage at the $450k value, meaning a $360k loan when the buyer was counting on a $400k loan.

4. Buyer has 3 choices: 1) attempt to negotiate the purchase price down (even though the most recent sold comps indicate $500k IS fair market value AND the seller has multiple back up contracts), 2) walk & terminate the contract for inability to secure financing, or 3)bring another $40k cash to closing. Awesome, huh?

So, no. Not good for you and not good for the housing market, but hurray for the banks doing a fantastic (sarcasm) job of CYA.

[skids929]

Originally Posted by SS 376

As long as good lending standards are being followed, then this should be okay. A major part that the rest of the country saw a huge crash was mortgage lenders being willing to loan half a million dollars without any documentation of income or any regard for what the house was going to appraise for. If lenders are basically giving money away, it can only result in huge inflation... But locally, houses around mine in North Dallas that I would think were worth $300K last year are now listed (and selling) for $400K+

Plus, as prices rise, you should see more sellers come off the sidelines and list their property, which should have a downward effect on prices, since you will have more supply.

Cost of capital is what drives supply and demand in housing. Not sure I completely agree that more supply at high prices will drive demand down. Possibly a theory I suppose since unemployment is still high and on the fence buyers may pull back. Past few years have had plentiful, artificially priced, supply on the market and it's killed values.

But overall the cycles are driven by low or high interest rates..And the case of the past 20 years or so it wasn't as simple as appraisals and no doc. It was a large segment suddenly had access to the capital (sub-prime) they needed to buy a home. Second, speculators drove up appraisals like crazy in some of those markets. Those mistakes have been learned from, I hope..But interest rates staying this low can only be justified by the rate of unemployment being high..Inflation is coming, whether people want to believe it or not, and I don't care about stats that prove it's not. I can feel increases in the cost of basic items, food for example. It's not going to be pretty if we don't learn to curb the frenzied markets with interest rates.

The market spiked again so quickly this year, I just think it's a great way to get ourselves back into the place we were in. Double-dip housing market potentially..I want a stable housing market that allows my value increase marginally over time. Over time the US housing market has increased, but at the rate we've been doing things over the past 20 years it's eroded median home value increases.

Despite the cyclicality of housing markets it obviously can't be timed, and we rarely realize what went wrong until after the fact. If rates were edged up in say 2000, it would have cooled things off. This coming from someone who plans on selling at some point in the near future, so take this FWIW. If I were in my forever house I really wouldn' t be as concerned I guess.

[synchronicity]

Originally Posted by skids929

And the case of the past 20 years or so it wasn't as simple as appraisals and no doc. It was a large segment suddenly had access to the capital (sub-prime) they needed to buy a home.

Which was caused by financial institutions completely failing to properly assess risk, which is a huge issue in credit boom and bust cycles over the last hundreds (if not thousands, really, albeit not in a traditional 'banking' sense) of years.

Low interest rates won't get banks lending if they have an inflated estimate of the default rate on loans (overestimating credit risk). Late last decade they were underestimating that risk, big time.

[Lakewooder]

The information presented here: //www.city-data.com/forum/dalla...rth-texas.html would seem to indicate that the average home price in East Dallas has risen by $50,000 since the D Magazine story was written.