Real Estate – A game of musical chairs

Every time someone new moves into DFW it is like a game of musical chairs. Each time a newcomer buys a home a chair is pulled out and no new chairs are added to the game. There are a number of factors that are driving our seller’s market and those are not quickly going to fix themselves. First, the story we have been telling for a while is builders were almost put out of the real estate business during the great recession. That source of homes is still way behind historical build rates resulting from labor and material shortages. After the 2008 slowdown, the construction labor population left the country or changed professions. Builders have been competing viciously for labor and it has been a factor in driving up prices and delaying completion dates. Without new home construction the market size does not expand.

Real Estate Musical Chairs

Builders are ramping up quickly but that is not the only reason we are playing musical chairs. Another reason is sellers are holding back and not enough homes are coming on the market. Rising prices are crimping home affordability with existing homeowners. I tell seller’s all the time to get as much as you can when selling because you need every dime to get in your next home. Even with low interest rates and declining unemployment, affordability is not rising. Existing homeowners don’t have that extra income to upgrade and come out a head. Without raising income, moving from ones home to a same likeness home is not an attractive proposition. We don’t see this is as much in our market, but nationally home appreciation rates are much lower, around 5% per year versus 10% in DFW.  Sellers need to have about 20% equity in their homes for moving up to cover closing costs and have it make financial sense. Many buyers from the 2006, 07, 08, purchase years still do not have 20% equity even with the high rate appreciation seen in recent years. Dallas, Collin, and Tarrant County had around 285,000 new residents as shown in the most recent Census reports. That is almost 6,000 per week from migration and new births. I hope you have noticed homes prices are rising at a significant pace but volume is flat. You combine competition with newcomers with stagnant wages and low equity and people are prone to stay put. It will take more time and wage inflation to balance out demand and supply in our housing market. Sources: New York Times 3/27/2015 Negative Equity a Drag on Home Sales Dallas Morning News Article 3/26/2015 D-FW growth is among Top 10