In recent years, Dallas has topped the charts for being one of the hottest housing markets in the United States. Since 2010, the population has increased exponentially with around 800,000 people moving into the area. With the simple laws of supply and demand, this influx of people, related to the increased employment opportunities, has resulted in a hot housing market for the past three or so years, driving home sales to an all-time high.
At the same time, the gap between appraisers and homeowners has lessened the gap when it comes to the Home Price Perception Index (HPPI). What does this mean for the Dallas market in 2018? Will the market cool down or overheat?
The Home Price Perception Index in Dallas
The HPPI gap has decreased again to 0.53% after briefly widening in January to 0.60%. Regardless of the slight fluctuation in recent months, there is a notable difference between the current gap and that of quarter one in 2017, when it reached 1.47% nationally.
Of course, this is a national average that doesn’t accurately depict the outliers who rest far from the median rate. The Dallas market is one of these outliers. Whereas many places experience a negative gap in which appraisers value homes at less than the homeowner, Dallas homes are appraised at upward of 2.72% of what the homeowner perceives the value to be. As the Dallas market continues to be a hotspot, home values continue to rise, broadening the gap. In fact, house prices in the Dallas market have risen over 7% in the last year, far exceeding the inflation rate and looking a lot like they did in the years leading up to the 2008 crash and subsequent recession.
The Dallas Market Forecast
At the latter end of 2017, experts predicted that the Northern Texas market would start to slow down and return to more sustainable rates of growth in early 2018. As of summer 2017, some houses were receiving over 20 offers upon being put on the market and sellers had the option of selling to the highest bidder or taking a lower, all-cash offer for their home.
While things have cooled off slightly, it appears to be less as a result of decreased demand and more related to increased supply. The number of houses changing hands and sales numbers are down slightly in comparison to the last couple of years. However, that’s in comparison to record-breaking numbers in the year previous, so relatively the numbers are still astronomical.
Another thing to consider is that contractors are working hard to get a piece of the real estate pie by building houses at a rapid rate for a reduced price compared to other homes. These new developments are selling, but showing less impact than the years previous due to the reduced price. New construction lessens the housing shortage, giving buyers a little more room to pick and choose.
Finally, the rapidly growing market is proving to be a little too rich for the blood of some newcomers to the area. For these people, renting has become the preferred way of living in Dallas.
Renting vs. Buying
There is a break even point of when it makes sense to rent versus buy in an area. This is calculated by looking at the amount of time it takes to build enough equity to see a proper return on investment for your down payment. While the housing prices have been astronomical in Dallas, the ROI time was a mere 18 months as of last year. As of 2018, it has been creeping closer to two years.
It also helps that while rentals in Dallas are expensive, they are significantly more affordable than purchasing a home in Dallas. Furthermore, by renting you are in no way sacrificing quality. Browsing through the options on The Urban Avenue is proof of that.
Rather than reaching the boiling point and crashing, it looks as though Dallas has peaked and is starting to level out to become a desired, yet sustainable market. The remainder of 2018 should see a further decrease in sales without a decrease in population.