It’s beginning to feel like 2007 again.
I see 2017 as the turnaround year. We are only enjoying the continuation of low-interest rates because it is an election year. Our politicians know they have to start tapping the brakes on mortgage rates and approvals or they risk being remembered as the watchman over an economic correction or worse, recession. Now I’ve said it. We will see. What do you think?
The average home price in the DFW market is up 50% over 10 years. One thing for sure is it is not sustainable compared to the 20% increase in the consumer price index over the same period and the dismal 5% increase in wages and earnings over the same period. Lack of new home inventory due to market volatility is one major cause. New home prices are up 60% over the same period caused by fast rising material and labor costs and new home supply is at historical lows. With the wage gap, the pool of consumer buyers can only shrink. Only cheap money, job migration, and foreign and domestic investment can continue to fuel this growth. In my opinion, the world economy is on thin ice, loan standards will tighten, and interest rates have to go up slowing housing demand.
The question is the same as always, when will the market turn and will it be a soft landing or hard landing? Just like last time and the time before, watch the banks and the Fed Reserve, that is where the first big cracks will appear. Also watch softening housing rental rates. That is what the banks and investors have their eye on.
Regulations put in place in Texas after the crash of the 80s kept out most of the loan fraud that devoured the rest of country beginning in 2008. Although our great Texas system is still in place and working, It created a huge differential in low DFW real estate prices compared to other large metropolitan areas in the US. Our favorable laws, low housing cost, and strong local economy is bring companies and jobs to DFW at amazing rates. Home prices are bid up backed by new jobs, large amounts of home equity brought in by out-of-state buyers, cheap bank money, and not enough new construction.
Looking at the last 3-4 years home prices in our area have skyrocketed 10% per year at a rate destined for slow down. In every DFW market area I see home sellers pricing their homes as high as possible for profit and the need to get out every penny for the purchase of their next home. Enough of the time it works. Our Texas and National appraisal and loan approval system is working as designed. Unfortunately for first time homebuyers, there are enough cash purchases and large down home loan transactions completing to fuel the rate of increase in appraisal values, and push cash poor buyers down or out of the housing market. It is those first time home buyers that are the back bone of the housing market in the long-term. Overtime, if they can’t get in homeowners can’t get out.