Forecasters are counting on higher mortgage rates to tame the Dallas area’s runaway home market.
Higher prices and a lack of inventory are already putting the brakes on area home sales. Single-family home sales by real estate agents fell in two-thirds of the Dallas-area residential districts The Dallas Morning News surveyed in 2021.
The greatest year-over-year home declines were in suburban neighborhoods that have seen a big run-up in home prices and fewer houses on the market.
Sales of single-family homes by real estate agents were down about 4% from the record number of housing purchases in 2020 in the 50 Dallas-area residential districts included in The News’ quarterly study.
The severe shortage of homes for sale has held back purchases at a time of unprecedented demand. Only about 7,000 single-family homes were listed for sale in North Texas at the end of 2021 — an almost unheard of scant inventory.
Many homeowners say they would sell, but there’s nothing to buy that’s affordable.
“We would make serious cash selling our house, but trying to find another house has been a laugh,” said Collin County resident Janet Yaw. “We looked up until a few weeks ago in the McKinney-Plano area.
“We are no longer looking, because of rising prices and lack of finding what we want.”
Median home sales prices were higher in 2021 in all of the Dallas area’s residential districts.
The biggest increases were in markets such as Celina (29%), Frisco and Southlake (28%), and Melissa, Prosper and Oak Cliff (each up 25%).
Adding to the challenges of higher home selling prices are the recent increases in mortgage rates, which are expected to continue throughout 2022.
In just the last month, the average rise in home financing costs from higher interest rates has added 7% a month to the payments on a typical house, according to data from Zillow. In the D-FW area, that means payments have gone up by more than $200 on a mid-priced home, Zillow analysts say.
With the Federal Reserve planning to hike borrowing costs this year to battle inflation, housing analysts expect mortgage rates to head higher.
Veteran Texas real estate economist Ted Jones of Stewart Title said it will make a difference.
“That will cool off the housing market,” he said. “I think mortgage rates are going to go up a lot more than anyone imagines, and it will slow the housing market down.”
First-time buyers will be particularly hard hit by the higher price tags — both in purchase and finance costs — for homes, said Ted Wilson, principal with Dallas-based Residential Strategies Inc.
“Certainly a concern are the first-time buyers that are trying to acquire starter homes that are $75,000 more expensive than they were a year ago,” Wilson said. “With higher mortgage rates, they may be beyond their ability to afford.”
The increase in mortgage costs may be less of an obstacle for the thousands of buyers moving to North Texas from higher-priced housing markets, he said.
“We are seeing a high percentage of relocation buyers and they are putting down unprecedented amounts of cash to buy these houses,” Wilson said. “The upper-end relocation market may not be as affected.”
Still, Wilson said he isn’t optimistic that the supply of homes for sale in North Texas will increase substantially this year.
Area homebuilders started a record more than 58,000 houses in 2021 and still can’t meet buyer demand.
“There was so much unmet demand we were facing, even if this slackens a little bit, it doesn’t mean we suddenly have an oversupply of housing,” Wilson said. “We have virtually no inventory.”
At best, housing analysts are hoping for smaller home price hikes this year and a less competitive buying market.