About two months after Bank of America rang the proverbial bell on the US real estate market, indicating existing home sales have peaked, reflecting declining affordability, greater price reductions and deteriorating housing sentiment. It now appears The Wall Street Journal has jumped on the bandwagon in calling the housing market top with a new piece that warns: "US Housing Boom Is Coming To An End, Starting In Dallas."
In a piece published Tuesday, the WSJ hones in on Dallas to explain the national slowdown of the housing market alongside Trump's "greatest economy ever." Housing prices have risen far faster than wages, which has triggered an affordability crisis during the same time the Federal Reserve is undergoing monetary tightening - a perfect cocktail that could form a top in the market. More:
"Yet even with the booming growth, Dallas’s once vibrant housing market is sputtering. In the high-end subdivisions in the suburb of Frisco, builders are cutting prices on new homes by up to $150,000. On one street alone, $4 million of new homes sat empty on a visit earlier this month. Some home builders are so desperate to attract interest they are offering agents the chance to win Louis Vuitton handbags or Super Bowl tickets with round-trip airfare, if their clients buy a home. Yet fresh-baked cookies sit uneaten at sparsely attended open houses."
WSJ notes that affordability has gotten “out of whack with historical norms.” The median home price in Dallas now costs more than 50% than it did in 2007.
On Zillow's website, the Dallas market is rated as "cold." Plano, McKinney, and Allen are each rated cold, as well, while Frisco is “very cold."
The WSJ interviewed a millennial family who purchased a home earlier this year in the Dallas metro area; they said the market “felt extremely hot,” but struggled to sell their previous home for five months as interest rates surged. In mid-October, they sold it for $16,000 less than their original asking price.
Mortgage rates positively correlate to 10-year Treasury notes, which have been all year because of growing inflation fears and massive deficit spending by the Trump admin.
“Some [buyers] are adjusting their budget. They’re shopping more for different mortgage companies,” said Amy Downs, a real-estate agent at Keller Williams Realty. “They still think they can find a lender that can get them a better rate, but it doesn’t really exist.”
Signs Of A Housing Slump:
Housing Starts for single-family
Three-month average sales, change from a year earlier
Inventory, change from a year earlier in October
Home values, change from a year earlier
The Dallas market is one of the most sensitive regions in the country to volatility in mortgage rates. The average household finances 83% of its home purchase, slightly higher than the national average of 81%, according to Black Knight Inc., a mortgage data company.
"As mortgage rates rise, buyers increasingly look for less-expensive homes. That is pushing builders further out to the fringes in search of lower-cost land where they can try to build more homes priced at $300,000 or less. The median price for a new home in Dallas has dropped by some $3,000 this year compared with last year, according to Metrostudy, which suggests builders are building at lower price points.
That can be a risky strategy after the heat has already started to come out of the market. During the last downturn, it was precisely those exurban neighborhoods that got hit the earliest and the hardest as buyers migrated back to more desirable neighborhoods when prices fell."
"Dallas has been the “canary in the mine shaft” this housing cycle," said Paige Shipp, regional director for Metrostudy, a consultant to home builders. "Homes are taking longer to sell, bidding wars are rarer and price cuts are more common as buyers absorb the impact of higher rates."
And Shipp could be right, new home-price gains data in 20 US cities grew in September at the slowest pace in almost two years, adding to signs that real estate has hit a cyclical peak.
"The 20-city index of property values increased 5.1% from a year earlier, the least since November 2016, after rising 5.5% in the prior month, according to S&P CoreLogic Case-Shiller data released Tuesday. The median estimate in a Bloomberg survey of economists called for a gain of 5.2%. Nationally, home prices were up 5.5% from September 2017," said Bloomberg.
With BofA and WSJ months apart in calling the US housing top, it seems that the affordability crisis and higher interest rates could have pricked the bubble.