DFW Housing Market: Undersupplied and Overpriced
North Texas residential construction market not keeping up with DFW's population growth.
The Dallas Express; Andrew Terrell https://dallasexpress.com/dfw-housing-market-undersupplied-and-overpriced/
Over the past decade, substantial population growth across the metroplex has led to an undersupply of housing units and rapidly rising housing costs in North Texas.
Between 2010 and 2020, North Texas ranked as the eighth fastest-growing residential construction market, building 9.4% more housing units than the national average. Housing in DFW grew from 2,434,997 units in 2010 to more than 2,821,032 a decade later.
In this same time frame, the U.S. Census shows DFW’s population rose by 21.1%, while total housing only grew by 15.9%, according to Stessa, a residential rental property management firm.
U.S. Census data show other major cities in Texas also saw record home construction. The Austin-Round Rock-Georgetown area grew by 26.7% and added 180,417 new housing units. In the Houston-Woodlands-Sugar Land area, housing increased 18.7% or by 417,514 units, and in the San Antonio-New Braunfels region, some 93,324 units were added, an 11.5% increase over the decade.
A recent research study from Up for Growth found the DFW area is facing a shortage of 85,000 residential units. The non-profit research group determined North Texas to be 11th on a list of underperforming markets, followed by Houston and then San Antonio.
“Texas pitches itself as the place to live and do business for people wanting to leave California, but despite its impressive economic growth, it has failed to build over 320,000 units of housing,” Up for Growth suggested in its report.
The market for single-family homes has seen a surge in price increases since the pandemic hit. However, many first-time buyers have been priced out of the market for new homes because of the dramatic demand.
Home buyers are stuck with fewer options, but officials in many cities report seeing a drop in building permit applications.
Several parts of Texas experienced a sharp decline in applications for single-family building permits during the first seven months of 2022. Issuance of home permits in Celina fell by 42%, Frisco was down 36%, McKinney declined by 30%, and Prosper dropped 19%. In contrast, cities like Sherman and Denton saw an increase in building permit issuance.
Due to the supply and demand imbalance, many parts of Texas have housing units that sell at a significant premium.
According to a July study by researchers at Florida Atlantic University (FAU) and Florida International University (FIU), North Texas is the 18th most overvalued housing market in the country, selling at a 52% premium. In comparison, Austin ranked fourth with a 62% premium, San Antonio ranked 45th with a 34% premium, and Houston ranked 48th with a 33% premium.
Ken H. Johnson, an economist in FAU’s College of Business, believes falling premiums have signaled a home-price peak. In June, premiums declined in 12 U.S. markets, and average prices fell in seven, according to Johnson. The following month, premiums declined across 27 markets, with 22 experiencing price drops.
“The consistent increase in the number of premium downturns in our monthly reporting strongly suggests that individual housing markets are at, or will soon be experiencing, their pricing peaks,” Johnson said in the report. “We are at the turning point, and the likelihood of significant price increases in the near future grows smaller by the day.”
Eli Beracha, a member of FIU’s Hollo School of Real Estate, said he does not expect home prices to react the way they did during the last housing downturn between 2006 and 2011, citing persistently increasing premiums in most U.S. markets.
“There simply is not enough inventory to go around,” Beracha said. “That undersupply will keep pressure on prices in many areas.”