Selling your Home in Dallas-Fort Worth in 2023
Hey there, Dallas-Fort Worth
It’s a new year and a new real estate market. The big speculation is that we’re going to have a recession in 2023.
Maybe we will. Maybe we won’t.
So what will happen to the real estate market if we do go into a recession? And on the other hand, what will happen to the real estate market if we don’t.
Now those are some great questions that I will answer in this video. And, as always, I will give you the market update on what actually happened for real estate in the month of December as we closed out 2022.
So, keep watching…
Hi there, I’m Jennifer Shannon. I’m a Realtor with Keller Williams and as always we’ll get in to the month over month sales data but, like I said in the intro, this month I want to expound on the two possible economic events of this year. Either staying out of a recession or going into a recession.
So let’s start with the bad news first and look at what would likely happen to the market if we go into a recession this year.
The reason a lot of people think we’re heading for a recession is that we’ve rarely gotten out of high inflation periods without going into a recession.
So if it happens, First: Interest rates will go down. In a recession, interest rates usually decrease. What happens is the FED will do the opposite of what they’re doing now. They’ll start decreasing the federal funds rate in an attempt to stimulate economic activity. We’ve all become aware of what will happen when the federal funds rate changes… it will trickle down to mortgage rates. So as the federal funds rate is brought down by the FED mortgage rates will decrease too.
Second: Lower interest rates will bring more buyers to the market.
Wait, wait wait, stop. In a recession, people will not buy real estate. We can hardly afford the new price of eggs. You are out of your mind.
I know that’s easy to think. And it’s true, the price of eggs is crazy right now. But this recession will not likely look like recessions in the past.
Most of us are familiar with The Great Recession and use that as a basis to predict what will happen in this one. But that recession centered around a subprime mortgage crisis and unemployment reached 10%. That’s not what’s happening this time around.
In that recession, prices tanked so hard that it took six years to get back to the previous high from Q1 2007.
And another recession to point out, now If you’re old enough or an economics nerd, you’ll remember that in the 80s, inflation was at 14%, and the Federal Reserve enacted a very tight monetary policy where the federal funds rate approached 20%. And yeah, that definitely slowed the economy down. Mission accomplished. Good job FED.
Unemployment went to 7.8% and we had a double dip recession. (Meaning two recessions in a short period of time). It was not a fun time for a lot of people. The housing market suffered in regards to the number of sales but home prices were mostly stable with a moderate dip that recovered completely in one year.
What we have going for us in this potential recession scenario is that the FED has started increasing rates before we hit double-digit inflation. The market is reacting, albeit slowly, and inflation is easing. This signals that the FED will not need to drastically increase the Federal Funds rate like in the 80s. When it doesn’t cost a fortune to borrow money, corporate America has an easier job surviving. So the likelihood of a large surge in unemployment is tempered with this approach.
We are hearing that many businesses are planning for a recession and we are seeing some high profile layoffs but job data overall actually has layoff numbers flat.
So, to recap:
we have better odds of maintaining moderate unemployment, due to our histlorically low unemployment now
gradual rate hikes by the FED that are already working and the economy is slowly reacting
a recession does not necessarily mean a substantial drop in home prices, and
interest rates will likely decrease.
Now let’s apply these takeaways to the DFW market. We are already far behind our pre covid sales and are down 21% when you look at December 2019 to December 2022. When you consider all of the movement to DFW over the past few years and the consistent under-market performance in actual sales, this number tells me buyers are out there, they’re just waiting. Plus, our inventory is down 34% from December 2019 to December 2022. However not all buyers are waiting, buyers are currently outpacing supply and our months of supply went down from 3 months in November to 2.6 months of supply in December.
Remember, we have a huge backlog of buyers. There’s a group of buyers who got out of the market because they didn’t want to compete with multiple offers and have to offer over the asking price. There’s another group (with some overlap) who elected not to buy because interest rates were so high. They still want to buy and they’re just waiting for conditions to improve.
Since this is a recession, interest rates will go down. These buyers who have benched themselves will be incentivised to get back into the market. Sure, some buyers will get plucked from the pool if their economic position changes due to a job loss from the recession. There are also a few who may be priced out of the market. But consider the fact that homeowners now have a record high amount of equity in their homes (almost $300,000) they can use for their next purchase and wage growth is up 6.1%.
Since in the past a recession doesn’t always mean home prices will drop, I think it’s safe to apply that same scenario to the DFW market in this recession. Which means that record-level of equity will likely still be there for the taking to put into the next home.
Another analysis to support stable home prices for DFW in 2023 is a recent report from the National Association of Realtors that marked DFW as being the third top housing market expected to lead the nation in 2023. They factored in home affordability, job and population growth, and inventory levels in determining this ranking.
So all-in-all, our market will still be in demand, inventory will still be a challenge, and as a result, prices will stay steady.
So that’s how I predict the market will play out if we go into a recession for 2023.
And now for the other scenario - no recession in 2023
What I think is actually more likely to happen in our economy is not a full blown recession but what Moody’s Analytics is calling a “slowcession.” They’re defining it as an economy where growth grinds to a near halt but a full economic downturn is narrowly avoided.
And if that happens, we’ll likely have a strong selling season for a few reasons.
Interest rates will not rise and could go lower. We’ve already seen them decrease from the peak of 7.08% to 6.33% and this resulted in an uptick of mortgage applications. As the economy cools more and more and hovers around recession territory, the FED will ease rates and this will trickle down to the mortgage market and decrease rates for us too.
This will bring those benched buyers back into the market. We’ll also get more inventory because all of those sellers who have been waiting for a larger pool of buyers will decide to list their homes to take advantage of the demand. And those sellers, will now become buyers, increasing the pool of buyers even more.
Since we’ll have more buyers and more inventory, our market will, at a minimum, maintain its current pricing.
We will likely see unemployment go up a little even though we’re not technically in a recession. And that’s because companies are preparing for a tight 2023. But remember, our unemployment rate is currently at 3.5%. This is actually lower than what the government would like to see. An unemployment rate below 4% starts to push wages up which can cause more inflation. The goal unemployment rate is anywhere from 4% to 6%, so we have some margin in our current employment numbers to withstand the impact of more layoffs if they occur as a result of this slowcession.
So as you hear more and more about these high profile layoffs and use those as harbingers of a market collapse, understand that some layoffs are not a bad thing and will actually help bring down our inflation even more.
And here’s the crazy thing, with either scenario, that market doesn’t crash. Prices stay level. What changes is the number of homes that sell.
Alright, now that we’ve played out those scenarios, what actually happened with the market in December 2022?
Let’s start with interest rates. Rates are down from last week and currently average 6.33% for a 30-year fixed rate mortgage.
The latest data from the Mortgage Bankers Association says that application volume increased 1.2% week-over-week.
For our local numbers, I’m looking at sales data from December from our entire MLS.
The average sales price went up 3% from the same time last year. Our current average sales price is $428,446. This is a year-over-year increase that I’m really happy to see. The reason is 4% is our magic number for annual price appreciation. I get it, 3% isn’t 4%, but it is close. Long-term trends for home prices average 4% annually. So when we see growth around this rate, we know that we have healthy growth.
New listings went down again to 7,293 homes. We have 11.1% fewer new listings than this time last year. That is a really low number. The last time our new listings was this low was six years ago in December 2016.
The overall number of homes for sale took a big leap from last year with a 91.6% increase and we currently have 24,763 homes for sale.
We’re still below our pre-Covid level of inventory when we had 37,295 homes for sale in December 2019.
We now have 2.6 months of inventory. In December of 2019 we had 3.6 months of inventory.
The time it takes for a home to go under contract is an average of 50 days, up eight days from last month. In December 2019, it took an average of 61 days before homes went under contract.
Our average sales price per square foot for DFW dropped to $193 per SqFt. But it’s up 4.9% from last year.
The amount homes are selling for as a percentage of the original asking price has dropped for the eighth month in a row and is now averaging 93.6% of the asking price. In December 2019 homes were selling for 95.1% of their asking price.
Just as we’ve seen over the last few months, our numbers aren’t far from our pre-covid levels and in many ways this market is better.
So let me talk to you prospective buyers. Buying now establishes your baseline for the future. If you’re a speculative buyer looking for a quick flip, sure this is an uncertain time. But if you’re looking to buy a home to live in for the next 3-5 years, chances are prices will be more expensive in the future.
If you go back and look at the predictions for the two economic possibilities, they both show prices to at least remain flat. So if you’re looking for prices to go down more, there is little evidence to support that outcome.
If you’re still worried about interest rates, there are ways to temporarily bring your payments down. You can watch November’s video about rate buy-downs to show you how.
We work with buyers who are just starting out all the way to estate purchases and we have sold everything from historic homes up to new construction. Let’s hop on a call to get started and you can reach me by phone or text at 214-803-4444 or start with an email to jshannon@kw.com
And sellers. My slowsession predictions have the spring market being strong but not a runaway success. The market is back to being competitive and the presentation of your home is critical. You can no longer just put a sign in the yard, pick your price, and get listed on the MLS.
This is why we put a lot of focus into how your home is presented, promoted, and positioned. That means bringing in a home stager and even bringing in furniture for select listings if needed. Creating a website for each of our listings. Hiring a professional photographer. Producing a video. Buying digital ads and so much more.
In 2022, our team closed 285 deals worth over $130 million. 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. I’d love the opportunity to interview with you to earn your business.
Well Dallas Fort Worth, that’s all I have for this month’s update. If you like getting this information, be sure to like, subscribe, and comment to let me know what you thought of this video. I look forward to updating you next month on what’s happening in our real estate market.
Bye now!