What happens when you play a country song backwards?
You get your girlfriend back, your house back, your truck back, your dog back …
Over a rainy weekend, I re-read every Dallas Morning News article on the residential real estate market since March 1. My conclusion is that if there is bad news, it opens the story and often gives way to a more balanced or positive ending – hence my suggestion to read them backwards. And because many never finish reading (not you, of course), all “from the beginning” readers get are the negatives.
Dallas Market Fundamentals Are Sound
COVID-19 has had a startling effect on Dallas’ real estate market. But there are great fundamentals underpinning bombastic headlines and fearful opinions.
The Dallas housing market is tens of thousands of housing units behind and widening – a 12-year hangover from the 2008 Recession. That, along with population growth, are the main reasons why housing prices in Dallas have taken off since the market bottomed out in 2012.
On March 4 in pre-COVID coverage, the Dallas Morning News reported that “Texas is missing more than half-million houses” according to Freddie Mac. The story noted that nationwide, Texas had the worst housing shortage. For every 100 houses short nationwide, 7.5 are in Texas.
This view was further bolstered by DMN reports on March 9, “February was another big month for North Texas home sales,” and on March 10, “D-FW home foreclosures and late payments continue to fall”.
So whereas we entered the 2008 Recession with a glut of product being sold to unqualified buyers, that explosive combination simply doesn’t exist today.
In summary, in early March, tens of thousands of households needed housing that Dallas couldn’t provide. It was a situation brewing well before COVID. If there is a material slowdown in residential construction, that shortfall will accelerate. It’s the chief reason construction was deemed “essential” (a slowdown would come from developer financing not need).
March Entered a Lion; Exited Sickly Lamb
On March 12 the headline read, “Home market could take a hit from economic headwinds” which included this:
“There’s a tug of war in the housing market between cheap home financing and growing economic dread caused by the coronavirus outbreak.” It quoted Jim Gaines, chief economist at the Real Estate Center at Texas A&M University. “The D-FW area really shouldn’t feel much of that [oil price impacts]. The housing sector will probably win out in your market. Dallas’ main concern is what the national economy does. It’s going to slow down — no doubt about that — but nobody knows how long or how deep it will be.”
Also on March 12, “Dallas on list of cities with most home value hikes” noted that Dallas, with home prices 75 percent above their 2008 peak, had recovered third best from the 2008 Recession. While unsaid in the article, this is because of underbuilding and jobs/population growth.
But on March 18, this rosiness seemingly disappeared under the headline “Dallas home prices could get hammered by economic shakeout.” The story rests on a warning from Fitch Ratings who for years has reported Dallas as overvalued. Nearer the end we read more measured responses from A&M’s Gaines and Lawrence Yun from the National Association of Realtors. Both saying there will be disruption but neither sure of how long or how deep because the variables are unknown (duration of lockdowns, unemployment, government assistance and vaccines). The “hammered” headline chose sensation over balance (and not for the last time).
For the remainder of March, COVID continued to dominate housing. One DMN story opened, “With the economy slamming on the brakes, homebuilders are potentially facing the greatest falloff in business in a decade.” Yet ended on a more positive note, “Last time housing led the recession. This time it’s poised to bring us out.” Another blared “Home showings are down as much as 60% as North Texas firms prepare for slowdown” (hardly a surprise with shelter-in-place orders). Bookending that was “This Spring’s home market could see fewer houses up for grabs.”
April More Doom Than Hope
April saw 22 stories in the DMN related to residential real estate. Coverage from the first seven days had these headlines overly focused on impending doom:
Newest home foreclosure numbers belie coming wave
Latest D-FW apartment stats don’t hint at the coming storm
Builders face threat of buyer cancellations
Asking prices of D-FW homes for sale are already headed down
Missing: 20,000 D-FW apartment renters to fill new units which by April 29 had “bounced back”
Dallas-area home prices were still ahead in February — but not by much
Dallas-based home investor says it plans to keep buying – I say “warning” because the investor profiled, HomeVestor, buys houses below local median prices and turns them into rentals. This diminishes affordable homebuyer’s options at the end of the market builders aren’t building for.
May Begins To Settle Down
So far in May, the DMN has ratcheted back coverage. Postings have halved April’s rate in the first two weeks.
Leading off the month was “Forecasters are taking a wait-and-see approach to home prices” (something they should have been doing all along) and “Housing could be a leader in the post-pandemic economy” (which, understanding the underlying market shortfall, should have been obvious from the start).
We then tip into negative territory with “D-FW median home prices are down”, “North Texas home sales hammered by pandemic” and “Home list prices since the pandemic have trended lower”.
Turns out from this trio one reason home prices are down is because of the mix of what’s on the market. Fewer high-priced home listings brings down the overall average asking price. All this tells us is that wealthier people are pulling back more than lower-priced homes.
We also find that while homes are being more aggressively priced from the beginning, fewer are cutting prices compared to a year ago – seemingly pricing-in COVID-19 from the beginning. This is keeping prices within a band relatively stable. CoreLogic forecasts a measly 1.8 percent decline in median DFW prices in the next year. Hardly Earth-shattering.
Why is real estate being “hammered” for the second time? The number of property sales (not prices) were down 17 percent in April – hardly a shock considering shelter-in-place orders. But instead of a headline like “DFW home sales drop 17% reacting to stay-at-home orders” (DMN use the % sign), home sales get “hammered”.
Parsing Words And Sentiment Matter
Last week, the BBC reported on research from the University of California Irvine demonstrating how media coverage of disasters impacts our mental outlook. A team led by Alison Holman were conducting a study into mental health across the country covering 5,000 volunteers. In the midst of their research, the Boston Marathon bombing occurred. This gave them a unique mental health baseline to compare post-bombing reactions to.
Intuition says that actual victims and their immediate social groups would have the strongest mental health impact. Not so. Actual victims were “bested” in mental health degradation by those who watched (repetitive and graphic) news coverage of the event for more than six hours a day over the following week.
Armed with this data, Holman’s team looked into the health implications on those most stressed surrounding 9/11. In the three years after 9/11, that group saw a 53 percent increase in cardiovascular problems – and most only saw it (endlessly) on TV!
COVID-19 coverage has been non-stop for months (which the BBC is as guilty of as any). In our own little world of real estate, negativity in the face of strong underlying fundamentals has ruled the media. While I’m sorta picking on the DMN, the stories and angles they covered were broadcast in various media.
So, if you’re not buying or selling or signing a lease, ask yourself why. And start reading the news backwards. I promise you, Paul still isn’t dead.