Is inventory lower than expected right now? (Dallas: sales, real estate)

[TurtleCreek80]

Originally Posted by EDS_

Apologies.
I'm not sure why you'd think we are in a bubble. The term bubble implies unwarranted price increases versus fundamentals. To me the related fundamentals in DFW have been exceptionally strong - increasing numbers of people with the ability to buy nicer homes being item 1. Locally rents and mortgage payments versus after tax income metrics are still among the very best of all big cities in the country.

It's just nothing like say Nevada in '06-'08 when borrowers lacking proper income were granted no doc. loans with 0 or 1% down and the only way the deal would work was with significant vale appreciation.

I believe we will see a very orderly decrease the rate of increase over the next few years around here.

I agree with all of this. If anyone has tried to take out a mortgage or refi in the last few years, they'd realize how difficult it is to get approved. We refinanced a mortgage that is about 1.3X our annual income (with zero debt other than mortgage and 1 car loan) and had to provide 10X the financial documentation compared to the first mortgage I took out in 2006 with a far less attractive DTI ratio. Banks are pickier than ever, plus contact price appraisals are still tough to get in many neighborhoods which causes even bigger down payments....I just don't see the economic fundamentals of a "bubble" here in DFW.

[turf3]

Sounds just like what I heard ad infinitum in 2004-2006.

Interest rates are at an all time low; why? because US government securities, while a bad investment (near zero rates) are the least bad secure investment currently available (Euro bonds with negative interest rates). Massive deficit spending continues. All that extra money is destined for housing and stocks (since bond yields are also at all time lows).

All it takes is for interest rates to rise sharply because the demand for US bonds slackens, to kill housing demand.

Compare housing prices vs. income growth or GDP growth, in real terms (inflation factored out) and you will see especially the DFW market housing prices are growing far faster than those indicators of wealth.

I agree that mortgages based on fake income are likely to be less of a factor than the last time.

Every real estate bubble (I have personally witnessed at least three; one in the 80s, one in the 90s and one in the 2000s) is accompanied by a chorus of cheerleaders saying "this time is different, this time it's not a bubble but rather based on fundamentals". And each time, it's not different. Remember the "new dot-com/internet economy" that was going to change all the rules? And yet it didn't.

There is no predicting when it's going to pop, or whether it will be sharp and dramatic or slow stagnation, nor what will start the deflation of the bubble, but it will happen. Remember, if it walks like a duck, swims like a duck, and quacks like a duck, it's most likely a duck, and I see a lot of ducks lately.

[TheOverdog]

House prices in major metros have recovered well past 2006 prices, so all you are really saying is there might be a short period sometime in the future where interest rates might rise and then house prices will temporarily fall. So a few people whose incomes and jobs aren't wiped out in whatever causes interest rates to rise sharply will make out like bandits, everyone else will be crushed on the sidelines.

But there is no timeline or anything else for any of that to occur. In the meantime, prices may rise 20% more (due to a huge lack of inventory being constructed) and then fall by some unspecified amount. Good luck with your ducks.

[Aceraceae]

What is going to cause a foreclosure flood if the people buying the homes are not putting themselves in a financial bind to do so?

[HockeyDadof2]

A friend listed his house in Richardson yesterday and has had showings pretty constantly since then every hour. Accepted one that was 10% over his list price w/ an agreement that the buyer would pay difference (if any) between appraisal & offer. Location location location

[Aceraceae]

Originally Posted by HailHit

If interest rates go up, home values and employment rates go down then lot of things happen. If you happen to be moving at that time, your comparables will be low priced foreclosures or new homes with builder incentives and you'll have to take a hit or stay on market for a very long time. Your home will be old and occasional buyers will be very picky about price, location, commute, schools etc because they'll enjoy all the perks of a buyer's market.

You kind of changed your premise in this post. The first one sounded like you were basing a foreclosure flood off an interest rate increase.

This one sounds more like economy crash referencing employment rates.

I still don't see a foreclosure flood without major economic calamity.

[JhonnyLever]

I agree that the prices are inflated in DFW. Here are the factors that are driving this:
1) Low Interest Rates
2) New Influx of Jobs - Look around companies are moving to the DFW area in droves. AT&T(a few years ago but still adding), Toyota, Liberty Mutual, State Farm, Chase(is consolidating rather than moving). There are also organic jobs being created in Dallas. Newly announced projects near Frisco
3) New Entrants - There are many who get a week or two to find a home in the area and are willing to pay slightly higher than the longer term DFW area residents to meet their timeline. I know a few of them.
4) Good School Districts - There are few good school districts closer to major job locations - Plano, Frisco, Richardson, Highland Park, Coppell, Southlake.

The question arises what happens when some of the factors change.
1) Interest Rates Go Up - This will impact first time buyers and buyers who are buying beyond their means. Yes, prices will be impacted.
2) Influx of Jobs/New Entrants - If all these moves complete in 2017 , the demand will go down. This will be be biggest factor in flattening of prices. When Toyota is done, State Farm is done, and there are no more new company moves there will not be multiple offers on homes. I don't believe so.

The bottomline - we are in DFW in an unnatural state with Real Estate Market. 2010-12 the market grew with correction. 2014-To Date, the market has an one-time event of new jobs and new entrants. This will change and flatten out but will it collapse and prices go down? No Unless the US Economy tanks.

[Aceraceae]

I especially agree with the last half of your final paragraph.

Toyota employees would have compromised around 2% of the population growth in DFW from July 14 to July 2015. I suspect that will be similar from 15 to 16.

If 150,000 people keep moving here every year it's going to be difficult for inventory to catch up.

Prices will eventually flatten out though.

[mSooner]

The bottomline - we are in DFW in an unnatural state with Real Estate Market. 2010-12 the market grew with correction. 2014-To Date, the market has an one-time event of new jobs and new entrants. This will change and flatten out but will it collapse and prices go down? No Unless the US Economy tanks.

Agree with this. I have no expectations of home values increasing like they are and I'd be wary of buying if a significant home value increase is part of your financial plan (i.e. you will have to sell again in less than 5 years, etc.). But unless something really, really bad happens, I don't see home prices dropping that much.

Our home would be priced at about $240k if we were to put it on the market now. In 5ish years when we may actually sell, I'm thinking we will be selling for about $250k

[EDS_]

Originally Posted by turf3

Sounds just like what I heard ad infinitum in 2004-2006.

Interest rates are at an all time low; why? because US government securities, while a bad investment (near zero rates) are the least bad secure investment currently available (Euro bonds with negative interest rates). Massive deficit spending continues. All that extra money is destined for housing and stocks (since bond yields are also at all time lows).

All it takes is for interest rates to rise sharply because the demand for US bonds slackens, to kill housing demand.

Compare housing prices vs. income growth or GDP growth, in real terms (inflation factored out) and you will see especially the DFW market housing prices are growing far faster than those indicators of wealth.

I agree that mortgages based on fake income are likely to be less of a factor than the last time.

Every real estate bubble (I have personally witnessed at least three; one in the 80s, one in the 90s and one in the 2000s) is accompanied by a chorus of cheerleaders saying "this time is different, this time it's not a bubble but rather based on fundamentals". And each time, it's not different. Remember the "new dot-com/internet economy" that was going to change all the rules? And yet it didn't.

There is no predicting when it's going to pop, or whether it will be sharp and dramatic or slow stagnation, nor what will start the deflation of the bubble, but it will happen. Remember, if it walks like a duck, swims like a duck, and quacks like a duck, it's most likely a duck, and I see a lot of ducks lately.

1. "Interest rates" are not at an all time low - not mortgage rates, not short rates, not long rates - although long rates are trending down across the world.

2. What do you see out there that would/could make mortgage rates jump? Central banks the world over are fighting weak demand not inflationary pressures.

3. If you are talking about DFW in your claim about real housing prices etc. your conclusions are wrong.

After looking this over click the "price to income tab" and then "percent change". There has been a little uptick in real prices over the last year or two but nothing remotely indicating a problem. The take away is since 1980 real housing prices here are down a little.

Daily chart: American house prices: realty check | The Economist


4. So far as busts in the past. I don't know which ones you are talking about. CA sees a housing wash out every 16-20 years. The Phoenix bust 20 years ago was about absurd commercial RE expansion and the feds. ending a tax credit that more or less made losing money in big commercial RE impossible. About the same time there was a bust in New England that is easy to explain, a lingering regional economic recession ultimately hurt RE values. The Texas bust of the '80s was all about oil and then about the SnL catastrophe. The '00s bust was mainly about the govt. pressuring lenders to make very questionable loans and all manner of honest but bad business decisions - AIG Insurance being a big player - mixed with a fair amount of out and out fraud all exacerbated by crazy accounting rules.

So far as saying there will be some sort of housing /softening/correction/bust sometime in the future.......that's worthless. As Lord Keynes taught us, "in the long run, we are all dead". We have an entire cadre of economists and pretenders who predict gloom and doom all the time - Albert Edwards, Gerard Minack, Marc Faber and my favorite Peter Schiff, as the joke goes Schiff has predicted 19 of the last 2 recessions.

If you tell me you are placing Bear Call Spreads or active hard money short plays on banks and mortgage houses that's confidence - speaking about some vague notion of future failure is meaningless, because you are right as some point in the future housing prices in DFW will falter.

Until I hear a better argument I'm sticking with this line of thinking. Around here we have a massive influx of people that isn't stopping. Many with substantial buying power. We have a short supply of homes and currently a short supply of apartments. We have built out about as far north as suburbs can be - exurbs are a different matter - this too puts upward pricing pressure on housing. All that coupled with excellent, among the best in the world, real after tax income metrics short of a war, massive crippling cyber-attack, grid failure, Yellowstone Caldera eruption or whatever the DFW housing scene looks solid for the next few years. In a sense the oil patch slow down in the region may prove to be good for DFW home prices as any irrationality is being quelled.