The Power Is Now Research Team
Figure 1: Median Home Sale Prices of February 2015
The Dallas-Fort Worth metro area is a hot sellers’ market with low inventory and rapidly rising home values. According to Zillow, the median sale price of homes in the metro area is $190,789 while homes in the city of Dallas sell at a steeper price of $221,532. These prices are right in line with the national median sale price of $203,678, indicating the area is keeping up with housing trends.
However, one of the most notable aspects of the Dallas market that separates it from the country is its rapid appreciation rate. From February 2014 to February 2015, home values increased by a dramatic 9.4 percent while the U.S. rose just 4.9 percent. Homeowners in Dallas considering selling should yield significant returns. Fortunately, owners who to wait another year to sell may even reap greater resale values.
Housing Crises Effect
The Great Recession led to home values plummeting from their peak highs in 2007 to deep lows in 2012. Across the U.S., home values fell by 20 percent during that time period. In the few years since, home values recovered quickly across most markets – faster than the sustainable rate of 3 to 5 percent. But the Dallas market has been rebounding at an even greater rate. In fact, while the country’s home values are still 9.3 percent below their 2007 peaks, Dallas home values surpassed their peaks in late 2014. Essentially, Dallas home values escaped the effects of the Great Recession, but many homeowners have not.
When home values dropped sharply during the recession, many homeowners fell underwater on their mortgages – meaning they owed more on their homes then their properties were worth. Even though home values are rising, negative equity is also increasing, indicating home values are rising slower for underwater homes. Currently, 16.9 percent of U.S. homeowners are underwater on their mortgages. These homeowners are underwater by 38 percent of their mortgages, owing and average of $67,797. In the city of Dallas, 12.7 percent of homeowners are underwater and even fewer (8.6 percent) on the metro level. Like the rest of the country, Dallas homeowners are in negative equity by 38%, owing $67,049 on average.
Distressed Properties in Dallas
Many homeowners facing negative equity are stuck in their homes because they cannot afford to sell them. If they were to sell, they would need to bring cash to closing because the price the buyers would pay would not cover the amount they owe on the loan. Many homeowners stuck underwater opt to foreclose instead of continue paying money they won’t earn back at resale. In the city of Dallas, 4.5 homes are foreclosed (per 10,000 homes) while the metro’s rate is slightly lower at 4.3 homes. Compared to the country’s foreclosure rate of 3.9 homes per 10,000 homes, Dallas locals are facing foreclosure more frequently.
The first stage of foreclosure is mortgage delinquency. Across the Dallas metro, 5 percent of homeowners are late on their mortgage payments. In the city, the percentage jumps to 5.4 percent and the national rate is 6.3 percent. Therefore, homeowners in Dallas are faring better than the county’s average, but are still falling into foreclosure.
After foreclosure, residents are evicted with damages to their credit scores that prevent them from borrowing in the next several years. These Dallasites often join the rental market.
Rents in Dallas
Figure 2: Median Rent Prices from February 2015
Rents in the city ($1,299) are less expensive than in the metro area ($1,325). Rents in both areas are less than the national median of $1,499 per month.
Rents cost Americans an average of 30.1 percent of their monthly income. In Dallas, renters pay 28.5 percent – not much better. Unfortunately, rents increased in the last year by 4.9 percent in Dallas, and 3.3 percent across the country.
These rent prices are not expected to decrease soon because demand is so high. As population growth adds pressure to the rental market, new units are not built at the same rate. Between 2012 and 2013, Dallas only permitted 312 new units for every 1,000 new arrivals. Lack of availability leads to great competition and price hikes. Plus, as property values increase, builders who purchase land to build new units must charge higher rents to cover their costs. Rising rents is the next housing crisis.
Across the country, home value appreciation should settle to a healthier rate of 2.6 percent. Dallas homeowners on the other hand, are in an ideal position with home values predicted to continue rising by 6 percent throughout the year. Owners considering selling are safe waiting another year for higher returns. Buyers who purchase now while interest rates are still low are can expect appreciation on their investments within the year.
Due to the steep rents and fairly average home prices, Zillow calculates the Dallas breakeven horizon at 1.3 years. The breakeven horizon is the length of time it takes for the upfront costs of buying to even out with the costs of renting. Therefore, Dallas residents who plan to live in the same location for more than 1.3 years are financially better off buying than renting.