A ‘Push Me, Pull You Situation’
A weekend topic on an exchange in this mornings bits bucket. “North Texas median home prices soar above $200,000 for first time…The days of decent sub $200k houses in Dallas are gone.”
The Dallas Morning News article provided by the poster. “This spring’s scorching home market has propelled median house sales prices in North Texas above $200,000 for the first time. In April, home sales prices in the area were up 14 percent to a record $207,000. With the latest gains, the median price of preowned single-family homes sold by real estate agents in North Texas is almost 60 percent higher than it was in January 2010, at the worst of the recession.”
“And home prices in the area are now more than a third ahead of where they were at the previous peak of the housing market in 2007.”
“‘If you have anything that is moderately priced, there is a bidding war,’ said. He said the inflation in local homebuying costs is starting to be a concern. ‘It all works right now because mortgage rates are so low and it helps with these price increases,’ said Ted Wilson, a housing analyst with Dallas-based Residential Strategies Inc. ‘I just hope that we see household incomes pick up, or we will have a big jolt down the road when interest rates go up.’”
“‘As long as inventory remains low and demand remains high, we are going to see these big price increases,’ said David Brown, who heads the Dallas office of housing industry consultant Metrostudy Inc. ‘It is unsustainable long-term.’”
“Some of the Dallas area’s biggest year-over-year April price gains were in Irving (up 43 percent), southern Dallas (24 percent) and Oak Cliff (23 percent). The highest median sales prices in April were in the Park Cities ($1,190,000) and North Dallas ($802,500).”
Let me revisit something I mentioned before. Last summer, 2014, I was in a neighborhood north of Dallas. The people I was with told me about their house; a nice brick 3 bedroom, 3 bath, 3 car garage, with a pool. They had bought it 2 years prior for just over $200,000. One almost exactly like it a block away had just sold for $300,000.
What was a perfectly reasonable to them price 2 years ago had now jumped 50%. In 2 years! They felt pretty good. To me, an alarm was ringing. When in our lifetimes has an ordinary house increased so much in such a short time? But to them, it was as natural as the sun coming up.
This is what a mania looks like. On the surface, people go about their day. Newspapers report on the growing good fortune, maybe even dropping in a cautionary quote here and there. I could be wrong. Perhaps the reader is right, “The days of decent sub $200k houses in Dallas are gone.” But such new paradigm, after the fact rationalizations sound like a bubble to me. And that means trouble ahead.
The Midland Reporter Telegram. “Despite high inventory rates and stagnating prices, the first quarter of 2015 may have looked worse for Midland’s real estate market than it really was, according to Carol Nall of the Permian Basin Board of Realtors. The MLS member services director said that the local market is stronger now compared to the downturn of 2009. While the average number of homes on the market for the first quarter of 2015 increased by 74 percent over 2014’s first quarter, Nall believes that after years of growth the market is adjusting to the benefit of both buyers and sellers.”
“‘Having that number of houses on the market is not a bad thing, because it gives the buyer the opportunity to spend more time looking and find something that they really do want,’ he said.”
“Figures provided by the board show that between 2010 and 2014 the average sale price for a home increased by 57 percent, while median sale prices rose by 41 percent. Nall said that the market could not sustain these levels of growth and that an adjustment was bound to occur. More houses on the market reflect what Nall called a ‘push me, pull you situation’ in which sellers have competition and must negotiate while buyers have more options to choose from. Nall said he is keeping an eye on what businesses in the area are doing in response to lower oil prices.”
“‘It would concern me if I started to see these companies that are moving in and continuing to build buildings. … If I were to see those things stopping, then we may get a little more concerned about it,’ he said.”
“Figures from the Real Estate Center at Texas A&M show that the housing inventory, which hit a low of 1.8 months in March 2014, has adjusted to 5.3 months a year later. ‘Six or seven months ago we were selling a little more than two-thirds of what we had on a monthly basis. … On that aspect, we’ve moved into again … what I would call a balanced market,’ he said. ‘Some would say it is a buyers’ market, just simply because we’ve adjusted $10,000 to $12,000 down. But the truth is, we’ve got more to choose from that’s in the price range that the buyer’s interested in looking at.’”
“The 2 percent drop in prices over the first quarter is another piece of the adjustment puzzle. Nall said that he would have been concerned if the price had fallen by 10 percent for the quarter but that the price drop is not a sign of the bottom falling out of the market. While the numbers may not look the best, Nall said the market has been worse in the past. ‘We didn’t have a great first quarter, I won’t dispute that. But we didn’t have a bad first quarter and now the consumer has some choices,’ Nall said.”
