Mary's Market Watch - Q4 2023

A Look Back at 2023

• At the end of 2023, the North Texas housing market saw a small increase in overall home prices amidst fewer home sales.

• Nationally, 2023 was a very good year for sellers, in part, due to low inventory even though the market softened with modest price gains and higher borrowing costs for a mortgage.

• The ‘lock-in effect’ has taken hold in many markets where existing homeowners are not incentivized to sell their homes since their respective mortgage rate is well below the current market rates and moving could significantly increase their housing costs.

• In November 2023, a federal court in Missouri found the National Association of Realtors (NAR) and two brokerage firms liable for $1.8 billion in damages for conspiring to keep commissions high. As this plays out in the court system, the real estate industry anticipates a change will be made to how a buyer’s agent is paid.

What Does the Future Hold?

• DFW is forecasted to be one of the hottest real estate markets in 2024.

• Population gains will continue in Texas, which should buoy the rental market and translate to more home sales.

• The rental market continues to soften as more new multifamily projects reach completion, creating new inventory. 

• Office-to-residential conversions throughout the country are at a record high, helping to attract people and revenue back to city centers.

An Interesting Fact:  Over the last decade, pre-existing home prices in North Texas have more than doubled.

A Deep Dive into the Data

U.S. Real Estate Market

• Mortgage Rate. Mortgage rates are predicted to decline in 2024 as the Federal Reserve Bank is forecasted to lower interest rates in an effort to cool inflation without slowing it too much, thus sustaining the ‘soft landing’ we are experiencing. It is expected for the Federal Reserve Bank to decrease rates three times this year. According to Freddie Mac, the average 30-year fixed-rate mortgage was at 6.69% as of January 25, 2024. At its first meeting of the year, which ended today, the Federal Reserve decided to leave interest rates unchanged.

• Inflation. Inflation is still high but is starting to moderate. According to the Bureau of Labor Statistics, the annual U.S. inflation rate was 3.4% for 2023 (Source: Bureau of Labor Statistics, "CPI for all items rose 0.3% in December; shelter up," News Releases, January 11, 2024). The Federal Reserve targets an annual inflation rate of 2.0%.

• Jobs Market. The Bureau of Labor Statistics reported that the U.S. economy added 216,000 jobs in December 2023, holding the unemployment rate at 3.7% and signaling a strong labor market (Source: Bureau of Labor Statistics, "Employment Situation Summary," Economic News Release, January 5, 2024).

• Home Sales, Price and Inventory. Existing-home sales were down during 2023 by 6.2%, while the median sales price was up by 4.4% to $382,600. The inventory was 3.2 months, which represents an increase of 0.3 months from 2.9 months in December 2022. For perspective, six months of inventory is considered a balanced market. (Source: National Association of Realtors, "Existing-Sales Report," Housing Snapshot, December 2023.)

• Multi-Family Market.

  • The national apartment market is anticipated to deliver a record number of new apartment units in 2024 (Source: Fahey, Ashley, “Record volume of office-to-apartment conversions is in the pipeline. How many will become reality?” Dallas Business Journal, January 24, 2024). 

  • Some have dubbed 2024 the Year of the Renter since renting makes more sense for many Americans with the more than ample inventory and higher borrowing costs for home purchases (Source: Rosenberg, Zac, “The year of the renter is upon us,” Business Insider, December 14, 2023).

Texas Economy

• 2024 Forecast. The statewide forecast is for flat to slightly softer prices by the end of 2024, according to Daniel Oney, Research Director with Texas Real Estate Research Center. (Source: Brown, Steve, “North Texas housing market ends year with price gain, but fewer sales,” Dallas Morning News, January 10, 2024.)

• Overall Performance. According to the Bureau of Economic Analysis, the Texas economy again grew faster than the nation as a whole for the 5th quarter in a row, growing at a rate of 7.7% during the 3rd quarter of 2023. Interestingly, the Texas economy is officially the 8th largest in the world valued at $2.4 trillion. (Source: State of Texas, "Texas Economic Snapshot," Texas Economic Development, January 31, 2024) 

• Job Performance. According to the Texas Workforce Commission, Texas added the most jobs in the nation over the last 12 months, totaling 369,600 new jobs from December 2022 to December 2023 and growing at an annual rate of 2.7%, which exceeds the national annual growth rate of 1.7%. 

• Population Growth. According to the U.S. Census Bureau, Texas’ population grew more than any other state between July 2022 and July 2023, totaling 473,453 new Texans with a growth rate of 1.6%. Texas is the 2nd most populous state in the country. (Source:  Melhado, William, “Texas gained more people than any other state in the last year,” The Texas Tribune, December 19, 2023.)

DFW Residential Real Estate Sales 

(Source for the below bullet points unless otherwise noted:  Metrotex’s online December 2023 Housing Report for DFW.)

• Home Prices. In December 2023, the median home price in DFW increased by 1.3% from the previous year to $389,945.

• Home Sales. The number of sales in DFW declined by 5.9% to 6,419 in December 2023 from the previous year.

• Inventory. There were 2.6 months of inventory on the market in December 2023, which is up from 2.2 months in December 2022. Six months of inventory is a balanced market, so it is still a seller’s market.

• Velocity of Sales. Total days on market was 88 in December 2023, which is two days less than in December 2022. This does not represent a notable change.

• Gross Profit in Real Estate Sales. DFW home sellers made an average $112,527 in gross profit on a typical sale in 2023. The cities in the country that saw the greatest price increases were naturally the cities with the highest prices, i.e., San Jose, San Francisco, Los Angeles, Boston and New York City. Investors in DFW purchased more than 25% of the home sales, and Attom Data Solutions estimates that 10% of DFW investor sales were by big institutions. (Source: Brown, Steve, “Dallas-Fort Worth home sellers scored an average $112,500 profit last year,” Dallas Morning News, January 25, 2024.)

• 2024 Forecast. The National Association of Realtors forecasts that DFW will be one of the country’s best-performing housing markets in 2024, second only to Austin. Austin and Dallas will be the markets with the most pent-up housing demand. (Source:  Hethcock, Bill, “ 'Keep your seatbelt on': DFW housing market looks healthier but 2024 could be another turbulent year,” Dallas Business Journal, December 20, 2023.)

DFW Multifamily Market

• Office Conversions. The Dallas area is a top market where investors are converting empty offices into residential units. According to Yardi Systems, this year 3,100 Dallas-area apartments are being converted from old office space. Another 3,822 rental units are in the pipeline after this year. (Source: Brown, Steve, “Dallas is a top market for office to home conversions,” Dallas Morning News, January 23, 2024.)

Food for Thought:

“Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world.”

Franklin D. Roosevelt

#NorthTexasRealEstate #DFWRealEstate #DallasResidentialRealEstate