Dallas Real Estate in 2013: Candy’s Crystal Ball Says No Bubble Trouble, Just Look Under the Seat Cushions for Inventory

Hanley Wood image_2RockyBalboa5 (1)We will be hearing a lot more in 2013 from the good folks at Houston-based Metrostudy. MetroStudy was just acquired by Hanley Wood, a media company that produces, among other things, Builder Magazine along with media, information and marketing services for the real estate, construction and design industries. Through its operating platforms, the company churns out digital and print publications, e-Newsletters, websites, marquee trade shows and events, market intelligence data and custom marketing solutions. The company also is North America’s leading publisher of home plans.  So it was a good match to snap up a company that analyzes and produces building data, and the acquisition gives Metrostudy a way to expand it’s geographic footprint.

And we are hearing Metrostudy right now, right here, loud and clear tell us that the real estate market, OUR real estate market, is as bright as a poached sunny side up egg.

Cue the theme song from Rocky: the Dallas-Fort Worth new home market continued to gain momentum, grow strong during the fourth quarter of 2012,  says David Brown, Director of Metrostudy’s Dallas-Fort Worth office. Talk about building frenzy: the new home market ended the year strong with homes starts up 21% in 2012.

We said this would happen: with new home inventory at a fourteen year low, home builders continue to report year-over-year gains in traffic and new contracts.  They have had to ramp up the new starts to keep up with demand, had to.

Construction activity is now in its eighteen month of recovery with the annual starts pace 26% higher than the low during the second quarter of 2011.

Whoa, 26% higher? Bubble trouble?

No way, David told me in a quick phone convo: 100,000 people are moving to North Texas a year. Oh yes, and I can find them all on LBJ, too. We are actually under delivering the demand for homes. Even with the surge in new starts, the amount of finished inventory in the region remained at a fourteen year low during the fourth quarter 2012.  There are only 2,800 finished vacant single family homes, townhomes and condominium units in the market.  With finished inventory remaining low and new sales growing year-over-year, the number of homes currently under construction has jumped 41% over the past year.

Candy’s Crystal ball prediction #1: Eat your Wheaties. Title companies are going to be real busy during the first half of 2013 as these homes are completed and sold. 

So you’ve got pent up demand for housing — folks who moved here, rented, are now ready to buy. You’ve got folks with jobs since Dallas is the best place to be for your career right now.  You’ve got low interest rates still, and rents rising. People got their financials in order the last two years and are now ready to plunk down a down payment.

“Apartment numbers haven’t been as strong this last year,” says David. “When rents go up, people buy a house.”

In 2010, we filled 22,000 rental units in DFW. In 2011, we filled 18,000. But in 2012, only 9,000 units were taken as landlords lost tenants to home ownership.

But aren’t we overbuilding the apartments, I asked? I see apartments going up everywhere! According to John Crawford at Downtown Dallas Inc., residential development projects in Downtown Dallas set for 2013 completion include more than 200 units at the Continental Building and Lone Star Gas Lofts, Museum Tower’s 100 luxury luxury high rise condominiums, plus The Joule, 500 S. Ervay, Fairfield Residential—West End, 1600 Pacific, the Statler Hilton and Mill Creek. Let us not forget the Stoneleigh in Uptown and all on the blueprints for Valley View Center, and now 750 units in Frisco?.

Crawford also says we now boast 7,800 residents in the central business district and 38,000 throughout the greater downtown area, those numbers growing to 12,000 and 55,000, respectively, over the next five years, just FYI.

Candy’s Crystal Ball Prediction # 2: They won’t be happy campers unless we get rid of the stupid one-way streets in downtown Dallas, find more parking, and make it easier and safer to bike/walk/hike there.

But I digress. Getting back to the overbuilding of apartments, David says history shows we will overbuild but as long as we stay around 20,000 new units per year, the average number of absorption units, we should be OK.

I asked about investors. There is some concern that the new tax laws may make real estate investment less attractive what with higher cap gains taxes as we blocked the Fiscal Cliff. Some feel the housing recovery is being steered by investors. Certainly you can say a lot of real estate investors participated in and spurred the real estate recovery. I mean, look who’s been buying up all the foreclosures!

But Brown doesn’t think we have an investor problem, not here. That is, investors will always make up a portion of our market, but our foreclosure red zones were limited mostly to the peripherals and southern markets, the outer edge.

Candy’s Crystal Ball Prediction # 3: we will see fewer foreclosures in Dallas in 2013.

Inventory is almost scarce. My daughter and son in law are listing their condo this week, and I am petrified they may move back in with us until they find something. David says we are down to only 4 months of inventory — 6 months is normal. Builders are seeking lots like crazy and passing on increased lot prices and labor and material costs to the buyers. In fact, Leo Savino of Significant Building & Construction tells me lots are so scarce, folks are going back to remodeling to get what they want.

Candy’s Crystal Ball Prediction #4: we will see price appreciation, perhaps even significant, in 2013.

The recovery is no longer just limited to the Park Cities, traditionally the high water mark in terms of North Texas home prices. House fever is spreading to more areas throughout the Metroplex.  During the early stages of the recovery, the northern suburbs were leading the gains in starts.  During the second half of 2012 gains began to spread to suburbs throughout the remainder of the region.  During the fourth quarter the eastern suburbs of Rowlett, Rockwall, Forney, Kaufman County and Royse City reported a significant jump in housing starts.  Grand Prairie, Crowley, and Southwest Tarrant County in the southern half of the Metroplex also saw an increase in starts during the last quarter, all this according to Metrostudy.

The biggest surge of building activity in Dallas. says Brown, is in Frisco and inching out. Allen is pricier and there’s not much left. Consumers cannot eat up the $300,000 new home product the builders are dishing out in Frisco fast enough. New home starts were up the most for homes priced between $200,000 and $500,000 during the fourth quarter of 2012.

(Another song in my head: Pete Seeger’s If I Had A Hammer...)

Candy’s Crystal Ball Prediction #5: The Bubble is not the only place to have a quality life in Dallas. More folks will tire of taxes/crime/schools/courts in Dallas County and head north to the hinterlands. And they will all live happily ever after.