Waiting on the sidelines?

[David Y M.]

I was looking at some historical data from Zillow on DFW home values and found some interesting stuff. I'm still a noobie analyzing properties, but after looking around these last couple of months I've decided to delay my first property purchase until at least 2021. Just wondering if the more experienced investors in Texas are also doing the same. 

Findings: From 2000-2007 Median home values in DFW increased from ~160k to ~195k, and then proceeded to drop around 2-3% every year before bottoming out at ~170k in 2011/2012. If you look at the decrease from just top (2007) to bottom (2011) then the drop in value is only ~12%.

Not Terrible. 

However, if you look at it from another perspective and see how much of the value add that was destroyed during that time, it is actually around 70% --> (195-170k)/(195k-160k).

In other words, 70% of the home value appreciation in that 7 year period (from 2000-2007) was wiped out during the Great Recession.

Median Home Values have almost doubled since 2012 in DFW, and this is especially true for homes under 300k. Not saying the situation is apples to apples, but forbearance and unemployment are about to be both in double figures which is unprecedented. Despite how robust our economy in DFW may seem, the data shows that we aren't completely in the clear. I just saw a report of around 13% unemployment in the DFW area in addition to a wave of bankruptcies that were filed for major retail players. Other industries including airline, energy, and auto are also at risk but I guess these negatives may be offset if more companies and people begin moving here from higher cost of living areas. Zillow and Redfin also predict a conservative drop in prices of around 2-3% for the next 12 months. 

Yet despite all this news, home prices are going up due to low interest rates and low inventory. Wow.

1. DFW Bankruptcies Link: https://www.bizjournals.com/dallas/news/2020/05/23/bankruptcies-texas.html
2. Unofficial Unemployment Rate as of 5/22/2020: https://apps.texastribune.org/features/2020/texas-unemployment/

[Bruce Lynn]

The 2007-2008 trouble was very very different than the trouble you see today.   One of the issues then in DFW area was no equity.  Crazy financing that has very much changed over the past 10 years.   For example back then we had no doc loans or stated income, and lots of other crazy things like 105% mortgages, interest only loans, loans with no escrows.    People gave up easily with no equity.  This time around they will fight harder to save their homes as they don't want to loose the equity.  There are a lot of other dynamics in the market but that is one.   In my personal business I have also seen a big change in buyers.  Especially around the couple of years before 2007-2008, buyer would often stretch their limits to the fullest.  Not every buyer, but many.  I heard plenty say things like, "I deserve the house of my dreams."  Now I hear more people say things like....we've been through the struggles and we don't want to be there again.  We'll buy what we can afford on one salary in case one of us looses their job.

I also think lenders and government don't want to see a repeat of what happened then, so they will be more creative and more willing to rework the loans or avoid foreclosures as much as they can.

I also think it will depend on price range.   I've been saying for 2-3 years we will see some issues in some parts of town in the 750K+ price range.   Resales will be tougher.  I think price appreciation will suffer in some areas.

Sub 400K now and more as you move down the price curve, there seems to still be strong demand.  Super strong demand.  I don't see that changing, even over the next year or two.

One thing that is tough to know is interest rates and where they will go.  People always focus on prices, but interests rates make a huge difference for most people.  If we get inflation and interest rates rise even 1% what does that do to mortgage payments?