During this first-ever mandated recession amidst COVID-19, there are a number of interesting dynamics at play in the real estate market. For your review, I have highlighted below major developments affecting North Texas real estate, today and going forward.
Mortgages. If you are considering refinancing your home or making a real estate purchase, this is an optimal time to do so. This assumes you have good / great credit as well as equity in your home or cash for a downpayment.
Home Values. Lower property prices eventually translate to lower property values and thus lower property taxes. However, do not expect to see savings in your taxes just yet. Appraisal districts conduct annual valuation for every property with the effective date of January 1st of that tax year. That means your 2020 property appraisal was conducted as of January 1st, 2020.
Real Estate Purchases. There will be good buys for both primary residences and rental properties before we fully recover from the pandemic. If you are in the market, I recommend pursuing a purchase in this climate after values have declined.
Real Estate Sales. If you are looking to sell a property, I recommend doing so before the decline in property prices / values reaches full effect. It will take some time for the market to fully assimilate the economic ramifications of the pandemic, specifically, the depreciation of property values.
Some Challenges Ahead:
Job Market. The Texas job market is starting to show ill effects from the pandemic with notable increases in unemployment claims and a spike in the unemployment rate. While our job market is better than the national average, the national and state unemployment rate increased from 3.5% in February to 4.4% and 4.7% in March, respectively, according to the Texas Workforce Commission. Dallas - Fort Worth - Arlington Metro Area's unemployment rate was 4.3% in March. These figures are forecasted to increase further when April's figures are released.
Home Values. Home values will start to decline. According to the North Texas Real Estate Information Systems, median home pricing increased by 5% from April 2019 to April 2020. During the 1st Quarter of 2020, North Texas single-family homes saw a price increase of 9% from the previous year. This record high is being negatively affected by the pandemic, and how much the market will decline remains to be seen.
Interest Rates and Lending Guidelines. Interest rates and thus mortgage rates are at historic record lows, and the Federal Reserve Bank is not expected to increase rates any time soon. In March, the Fed lowered rates to almost zero, which improved borrowing terms when you buy or finance a home. However, the guidelines for mortgage lending are becoming more strict as a result of three factors: COVID-19, the increase in forbearance and anticipation of more foreclosures.
Home Sales and Inventory. There has been a significant decrease in the number of closed home sales, properties on the market and new listings. Many sheltering buyers put their home searches on hold, as sheltering sellers took their homes off the market or decided to delay listing their properties. According to data from the North Texas Real Estate Information Systems, April saw a significant decline in North Texas home purchases due to COVID-19, which is down 17% from the previous year. Housing inventory is lower than ever and is not expected to sizably increase in the near term. Home builders will likely experience declines ahead, which may mirror the resale market.
Home Prices. Home values have not responded as swiftly to COVID-19 as the stock market did, because housing is more stable — at least in the short term. A severe supply shortage will prop up home prices for the time being, but these prices will not remain at their current levels for long.
Rental Market. The rental market is also showing effects from the pandemic. The National Multifamily Housing Council recently reported that 87% of DFW apartment residents made May rent payments, which is 3% less than the 90% of residents who paid rent in April. This May figure is 7% higher than the national rate of 80% and includes both partial and full rent payments. If rental payments are any indicator of financial health, then DFW apartment residents are on average in better fiscal shape than the average national apartment resident.
The Silver Lining:
Pent-up Demand. Since the market has slowed significantly with COVID-19, pent-up demand for housing should surface once the real estate market returns to its normal protocols (including showings and open houses). Coupled with low inventory and low rates, this demand should buoy the market even though the pool of qualified buyers may not be as plentiful as it was during 2019 and early 2020.
Real Estate as Recovery Leader. Real estate may be one of the industries to lead our recovery, and, by association, Dallas/Fort Worth one of the nation's major forces in this recovery.
As Dr. James Gaines, the chief economist for the Real Estate Center at Texas A&M University, has noted, the general health of the housing market will depend on how quickly jobs come back and how fast the North Texas economy recovers from the effects of the pandemic. I believe we are better positioned than other Texas cities with economies more reliant on oil and than states that do not have strong economic fundamentals in place, especially as we look to housing as a leader in our COVID-19 recovery.
As we navigate these uncharted territories, please let me know if I can be of assistance to you, now or later.