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DFW Housing Market Potentially Facing Price Correction

Real Estate

For Sale Sign on Home with New Price | Image by Shutterstock

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North Texas homes could be at risk of a price correction if the economy has a downturn, according to a recent national study.

When measuring the relative cost of owning a home versus renting, Dallas-Fort Worth ranked No.7 out of 100 with a 23.3% price-to-rent ratio, according to the BH&J National Price-to-Rent Ratios Monthly Report.

This high ratio suggests that it is more economical to rent instead of buy, potentially leading to a reduction in home prices as demand decreases.

The report was compiled by researchers at Florida Atlantic University (FAU) and Florida International University (FIU) by calculating the price-to-rent ratio of 100 different metropolitan markets nationwide using Zillow’s Home Value Index and Observed data Rental Index.

The researchers also factored in the available and future supply of apartments in each market.

Ken H. Johnson, an economist in FAU’s College of Business and co-author of the report, cautions consumers about buying a home in one of the top 10 markets and instead suggests renting until prices adjust.

“In markets with these high ratios, it is reasonable to expect price corrections because renting is much more favorable there,” Johnson said. “Renting will slow down demand for homeownership, which will, in turn, affect prices.”

In terms of other housing markets in Texas, Austin had the second-highest ranking with a 29.6% price-to-rent ratio. Houston ranked 12th, at 22%, and San Antonio ranked 24th, at 18.1%, based on the report.

As homebuilding demand continues to rise in Texas, housing supply has struggled to keep up with the pace.

One reason the supply of houses has been unable to match the demand is due to Dallas’ multiyear permitting backlog. The bottleneck in the City’s permitting process has cost builders time, money, and other resources waiting for their projects to get off the ground, according to past reporting from The Dallas Express.

DFW has roughly 1.9 months of available housing, well below a balanced 6.5 inventory level, according to a 2022 housing insight by the Texas Real Estate Research Center (TRERC).

The housing shortage in the DFW area has persisted, even though the metroplex has been a leader in new apartment construction for four consecutive years, according to a recent report by RentCafé. The report estimates 23,500 apartments in the works, with 28,000 units set for completion by the end of the year.

Demand for both single-family and multifamily homes will remain strong in DFW, according to Payton Mayes, CEO of Irving-based apartment builder JPI. He explained that North Texas has one of the most active apartment-building markets, with demand and production on a steady rise.

Contrary to the Florida researchers’ conclusions, however, a report by property analytics firm ATTOM Data Solutions ranked counties in North Texas as less vulnerable than most in the U.S. to a declining housing market.

In terms of counties at a higher risk during a downturn, Dallas ranked 427 out of 575, according to ATTOM. Collin County ranked 469 out of 575. The cities of Austin, Houston, and San Antonio also had low-risk rankings. Risk levels were calculated based on unemployment rates, affordability, and foreclosures, among other metrics.

Rick Sharga, executive vice president of market intelligence at ATTOM, believes high-interest rates and 40-year-high inflation pose varying risks to the housing market that could upend a decade-long rise in home prices.

“The Federal Reserve has promised to be as aggressive as it needs to be in order to get inflation under control, even if its actions lead to a recession,” Sharga said in a statement. “Given how little progress has been made reducing inflation so far, the Fed’s actions seem more and more likely to drive the economy into a recession, and some housing markets are going to be more vulnerable than others if that happens.”

The DFW market, however, ranked as a lower-risk area according to the ATTOM study. On the other hand, the BH&J study suggests that a more serious downturn might be around the corner.

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Dan Johnsen
Dan Johnsen
8 days ago

Inflation, All time low of “Entitled land” ( more entitled land cannot be created), and the influx of people challenges this story. Inflation keeps new housing costly stabilizing existing home values. Another surge in values is expected by Feb.