A couple of weeks ago, I broke down the Dallas Morning News’ recent real estate coverage since COVID-19 sprung up. Essentially I had a problem with their telling an incomplete story and tirelessly opening in gloom when they didn’t need to (clickbait).
Well, bad news Steve Brown has been at it again with stories that demonstrate another point I’ve been making – COVID-19, if anything, will leave us with a bigger shortage of housing than we have now and that economic recovery will rapidly drive prices higher.
No Gnashing Necessary
In my prior story, I noted the DMN reported on May 5th that CoreLogic was projecting a 1.8 percent decrease in prices by March 2021. This month, DMN reports CoreLogic is now projecting a 2 percent drop by April. 2021 So another month, another two-tenths of one percent lower (clutch pearls as needed). It’s important to remember Dallas’ home prices are up by 75 percent over pre-2008 Recession highs. Two percent is nothing.
But on June 3rd we see the headline, “Dallas-Fort Worth construction starts plunged as COVID-19 spread” In this case, “plunge” equates to Dodge Data & Analytics reporting housing starts were down 14 percent in April compared to April 2019. This stat is important to understand. It’s not saying that the number of housing units begun is down 14 percent. It’s saying the VALUE of housing starts is down 14 percent year-over-year ($1.116 billion in April 2019 versus $963 million in April 2020). So if builders had begun to shift new construction to lower-priced units, their overall value would decrease regardless of the number starting construction. Without knowing the number of units begun, we can’t draw a useful conclusion.
Certainly, with rampant unemployment and people financially on edge, I know I’d be building less expensive for a while to appeal to a broader market.
Severe Shortage Already Exists
But for the sake of argument, let’s say permitted units were also down 14 percent. In the Dallas metro there were 34,523 residential building permits issued in 2019. Let’s say that the 14 percent reduction holds for the coming year, that’s roughly 5,000 fewer homes built.
Remember, Texas is short a half million homes and Dallas accounts for tens of thousands of those. If this slowdown holds, the coming year will have added another 5,000 homes to that deficit which will further drive up Dallas prices with economic recovery.
The Grim Reaper’s Calculator
I hear some of you whispering that high unemployment will drive foreclosures and fast sales. Maybe, but do you think it will be enough to sate our home shortage? Doubtful.
Well, COVID-19 continues to claim lives, so let’s look at that.
At the ridiculously low end, let’s say Dallas is 30,000 homes short. Let’s say that there are on average two people per home. That’s 60,000 deaths we’d need just on the surface.
A high percentage of those are older living in assisted living plus some too young or otherwise outside the housing ladder. Rounding conservatively again, there’d likely have to be over 100,000 deaths from COVID-19 in the Dallas metro to cancel out our current housing shortage. If that happened, there would be millions dead nationwide. So that’s not going to happen either.
In fact, if CoreLogic is remotely correct, their 2 percent drop in prices doesn’t account for much erosion from any quarter. This is not the 2008 Recession.