Dallas Housing Market Update August 2023

Hey there, Dallas-Fort Worth

In this month’s real estate market update, we’re talking about the DFW submarkets that are getting multiple offers in this market and selling above the asking price.

I’ll share the interesting shift in builder confidence and what that means for new build opportunities over the next few months.

We’re also going to talk about interest rates and when we might have a chance of seeing them drop back below 7%.

And, of course, we’ll hit on the monthly market numbers for DFW.

So, let’s get to it.

First, let’s talk about the hot submarkets of DFW.

If you’re in a not-hot market, it’s hard to believe there are markets, right here in DFW, that are getting multiple offers and, on average, houses are selling for over the asking price.

Lantana 101.4%

Murphy 101%

Seagoville 101%

Carrollton 100.5%

Euless 100.3%

Glenn Heights 100.2%

Euless is also a market with some of the tightest inventory with just one month of inventory. It’s tied with the neighboring city of Bedford which means that if no new homes came on the market, it would take just about 4 weeks for all the current homes to go under contract based on the current demand.

So if you live in Euless and are looking to sell, the demand is in your favor. Your average sales price is up 3.6% from one year ago and is now at $419,393. You set a new record average sales price in May of this year for $422,991. You’re outperforming the COVID market run-up from previous years.

Good job Euless. Good job.

Now shifting gears to new builds. 

For the first time in the last seven months, builder confidence is down. They’re blaming high mortgage rates, high construction costs, and scarcity of construction workers as some of the factors in this confidence drop.

When builder sentiment goes down, a few things happen. First, they pull back on production. Second, they start dropping prices. Third, they start increasing their incentives. 

So it’s great for you if you’re looking for a newly built home.

Those who are going to not like this are the resale homes in communities where they’re competing with new build sales. You’re going to be forced to push your pricing down or offer large incentives of your own to compete.

A lot of buyers will use the builder incentives to buy down their mortgage rate. We’re seeing that happen more and more now with rates going into the mid 7% for a lot of buyers.

I’ll show you the numbers to help put this in perspective. 

Let’s say you have a resale house to sell and you have it listed for $500,000. If a buyer is going to put 20% down and finance 80% of the house at 7.5%, that would put their principal and interest payment at $2,797 per month.

Now let’s say you’re selling that house in an area where there are competing builders. Your potential buyer then goes to the builder and gets tempted with a new home and an offer of a 2-1 mortgage buydown. This would mean that the buyer’s effective interest rate for the first year of owning that house would be 5.5%. 

That would save them $526 a month on their mortgage for the same-priced home. Over a year that comes out to $6,312.

In year two of owning the home their effective interest rate would be 6.5% and save them $269 per month.

That would save them a total of $3,228 in year two.

Over the course of the 2 years, they’d save $9,540 in interest payments.

Some buyers will look at it that way.

Other buyers will look at it and go, “Okay, I have the budget to pay $2,797 on my monthly principal and interest payments. What can I afford with that?” Well, if they’re doing a 2-1 buydown and want to stick with that budget for the first year, that some buyer could then afford a loan up to $492,500. If they keep with their 80/20 loan amount, that means their house shopping budget just went up to $615,625. 

So they’re now looking at the numbers going, I could buy this resale home for $500,000 or I could get a brand new home with a full builder warranty for $615,625 and still make the same monthly payment for my first year of owning the home.

Which house do you think they’re going to buy?

So interest rates are still an issue and they will be for the foreseeable future. The current average interest rate for a 30-year fixed rate mortgage according to Mortgage News Daily is at 7.26% at the recording of this video. Mortgage applications are down week-over-week and are 26% lower than the same week one year ago.

I do think the Federal Reserve wants to see more slowing of the economy before dropping the Federal Funds Rate. It is expected by many that the FED will hold the rate where it is at their next meeting in September and won’t start cutting it until 2024. 

That tells me that these 7% interest rates are here to stay for the remainder of 2023. 

I think keeping rates high is also something politicians want to see. Yes, there is supposed to be a separation between the FED and politicians, but no politician wants a recession to happen on their watch. Politicians are way more afraid of high inflation numbers than they are of high interest rates.

This is important because we are going into an election year. Election years always feel a little more volatile in our industry as people hold on making big financial decisions until they see how the next four years might pan out for them financially.

I don’t think we’ll start seeing mortgage interest rates drop until the spring of next year. We may have some softening of rates at the beginning of the year, but movements will be very gradual, and slight fluctuations will be common. 

Mortgage rate drops to move the needle on demand will have to be more substantial and the economy has just proven to be too robust over the latest reports.

The only thing I see happening that would change these projections is if we had some big surprises in employment data but we are still a long way from that too.

While the Federal Reserve doesn’t have a clear metric on what constitutes as “Maximum Employment”, they define it as the highest level of employment or the lowest level of unemployment that the economy can sustain while maintaining a stable inflation rate.

According to Investopedia, an unemployment rate of 5% or lower is considered full employment. We’re currently at 3.5%. We’d need to see some sweeping layoffs to exceed the 5% unemployment rate. When unemployment gets high, the economy starts to slow as people cut back on their discretionary spending. 

And when that happens, that’s when CPI and PCE numbers start to go down and show a cooling economy. 

When the economy starts to cool, the FED will decrease the federal funds rate which will then result in a decrease of mortgage rates.

But that is a lot of stars that have to align in a short period of time to get mortgage rates down any time this year. So, I wouldn’t bet on that happening.

Okay, Now, for the rest of the market numbers, here’s how our entire MLS performed in July.

The average sales price was $473,565. That’s a 3.5% drop from our pricing peak from June 2022. This is why if you do decide to sell in this market, you’re still making a great return because even though the market has softened, we can see that it hasn’t wiped out the gains over the last three years.

New listings went down month-over-month to 14,357 homes. 

We are down 16.5% from last year. 

The overall number of homes for sale has gone up month over month and we currently have 28,285 homes for sale. We are down year-over-year though.

The number of closed sales went up down to 9,802 sales. That is a big drop from last month and another big drop from last year where we’re down 9.9%.

 We now have 3 months of inventory. That’s the same inventory level as Q4 of last year. That’s when the market essentially stalled and we didn’t have much activity. I think we’re going to see that pattern persist for the rest of the year.

The time it takes for a home to go under contract is an average of 41 days.

Our average sales price per square foot for DFW increased to $205 per SqFt. and is down .5% from last year.

The amount homes are selling for as a percentage of the original asking price went down again. Homes are now selling at 96.8% of the original asking price. 

The takeaway is that if you’re considering a purchase, I’d get in now while the gettin’ is good. Sure, could prices maybe get a little lower over the next few months if we see a continued stall, yes, it’s quite possible. But timing the market that precisely is tricky. And you never know when the market was the best until the time has passed. Prices are likely at their lowest or close to it and will head up once rates go down and more buyers come into the market. And if you’re thinking of selling, if you can wait until interest rates go down to get on the market, you’ll likely increase your negotiating power and net return on your sale.

Those are the numbers for July, but I’m curious to know what questions you have about this market. Let me know by commenting on this post. 

And if you like being in the know about what’s happening with real estate in DFW, be sure to like and subscribe to this feed or my YouTube channel.

If you have any real estate plans for the next 12-24 months, let’s schedule a no-obligation strategy session to explore the opportunities of buying or selling in today’s market. You might be surprised at some of the opportunities available.

Simply go to CrazyRealEstateMarket.com or you can reach me by phone or text at 214-803-4444 or start with an email to jshannon@kw.com. 

We’re the market experts and thrive on understanding the data so we can serve our clients the best. So far this year our team has closed 181 transactions worth over $72 million in volume. We know what it takes to get homes sold in this transitioning market and leverage all these lessons learned for the benefit of our clients.

So if you’re ready to get started on selling or buying your home, just reach out to me by phone or text at 214-803-4444 or by email at jshannon@kw.com or schedule a no obligation call at CrazyRealEstateMarket.com. I’d love the opportunity to interview with you to earn your business.