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DFW Housing Forecast
Britt Fair
October 6, 2015
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Economics Trivia
• Who is the #1 State for job creation for the most
recent 12 months measured (August ’14 to August
’15)?– California, which added 438k jobs. Florida was second,
with 243k. Texas was third with 212k.
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Roadmap for Discussion
• Update on DFW housing– Highest $ volume in DFW residential resale history
– Transactions up 6% vs YTD’14; average sale price up 8%;
median sales price up 11%
– And 2015 gains are on top of records in 2013 & 2014
• Evaluation of possible economic threats predicted
early in 2015
• Final thoughts and predictions
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Metro Job Growth (8/14-8/15)
Source: US Bureau of Labor Statistics
New York City 161,800
Los Angeles 124,800
Dallas/Fort Worth 103,500
San Francisco 70,600
Boston 70,300
Miami 68,700
Seattle 67,800
Atlanta 66,400
San Jose 55,500
Metro Areas With Largest Employment Growth
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Employment Change (8/14-8/15)12 Largest US Metro Areas
Source: US Bureau of Labor Statistics
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NTREIS Dollar Volume Since 2007
August 2015 home resale dollar volume was $2.683 billion, the third highest month all-time in DFW and an increase of 22% versus August 2014
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August 2015 YTD NTREIS (resale) stats
# of
Sales
% Change vs. Prior
YearAverage
Sale Price
% Change vs. Prior
Year
Average Days on Market
% Change vs. Prior
YearMonths
Inventory
% Change vs. Prior
Year
22 Carrollton/F.Branch 1,312 2% $260,152 10% 25 -29% 1.1 -25%
21 Coppell 363 -4% $402,529 7% 41 37% 2.4 14%
10 Dallas Far N 852 3% $430,671 7% 32 0% 1.7 -18%
11 Dallas N 482 -5% $1,117,652 10% 55 -20% 4.4 4%
16 Dallas NW 505 -2% $324,287 9% 33 -18% 1.6 -18%
31 Denton County N 3,355 9% $227,660 10% 37 -18% 1.6 -26%
41 Denton County S 3,233 4% $316,857 13% 34 -6% 1.9 -5%
124 Grapevine 433 9% $336,100 15% 30 -3% 1.2 -21%
26 Irving 957 1% $266,091 8% 45 0% 2.1 -10%
20 Plano 2,456 -2% $353,158 9% 26 -16% 1.3 -7%
125 Southlake 448 0% $753,287 8% 59 26% 3.6 12%
9 The Colony 349 -8% $204,241 10% 19 -14% 0.8 4%
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Case-Shiller Index: Prices Still Rising
Source: S&P / Case-Shiller
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Case-Shiller Index: Prices Rising
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Stock market wealth effect:Recovery has helped rich feel richer
Those with assets over the past 6.5 years are feeling good financially
• Stock market indices are at all-time highs• “Wealth effects”, combined with cheap financing, have fueled the current boom• In a nutshell, the rich continue to get richerSource: BigCharts, MarketWatch.com
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Evaluation of Threats to DFW Housing
• Impact of low oil prices• The new 4-letter word: CFPB• Consensus prediction of rising
interest rates
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Threat #1: Oil Prices Fall
Source: CNBC.com
Price of West Texas Intermediate Crude Oil has fallen dramatically since mid-2014
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Impact of Oil Price Decline
• Has not been as problematic for DFW as feared– Diversified DFW economy has avoided much of the
impact, whereas Houston has taken a bigger hit
• But it could still negatively impact DFW jobs– Cost to produce a barrel of oil from a new well is ~$70
– If sale price per barrel remains below that, when
current wells in operation get depleted, oil companies
will lay off people and not drill new wells
• This will continue to provide negative pressure on
DFW/Texas economy for many months to come
• Housing threat level: 3
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Threat #2: TRID
• New mortgage world started 10/3/2015– Consumer Financial Protection Bureau (“CFPB”) was
created by the Dodd-Frank law to protect consumers
• “TRID”: TILA/RESPA Integrated Disclosure– No more TIL, GFE, and HUD-1 forms
– “Loan Estimate” and “Closing Disclosure”
• Will be very annoying in initial months
• My tip: Build in longer lead times, longer leasebacks
• Don’t be concerned if November home closings are
low – it’s a one time statistical anomoly
• Housing threat level: 2
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Threat #3: Interest Rates to Rise?
Rates have barely risen, not enough to choke growth
Source: CNBC.com
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Impact of Interest Rates
• Asset values (real estate, stocks, etc) have gotten a
boost from low interest rates in recent years
• A large increase in interest rates will be what
eventually causes us financial pain– Home prices would have downward pressure from rising
mortgage rates
– Stock market would also be hurt, which could then also negatively
impact housing in its own way
• But the good news is that interest rates don’t look
like they will rise significantly over the next year– Core inflation is below Fed 2% target, and GDP growth still weak
– Appreciation of the dollar creates more deflationary pressure
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US Treasury interest rates
• US national debt is $18 trillion, so for every 1% increase in interest
rates, we will pay $180 billion more in interest per year
• If “normal” interest rates are ~3-5% higher than current levels, you
can see that a return to “normal” would add significantly to the debt
• Thus, the US government’s financial stability stands to be harmed if
rates rise significantly
• CONSPIRACY THEORY: Given the negative consequences of a
normalization of interest rates, wouldn’t you think that the US
government (Treasury, Federal Reserve, etc) would do all it can to
keep rates low?– Lip service about being tough on inflation and ready to hike rates
• PROBLEM: Interest rates are controlled by the market, not gov’t
• Housing threat level: 3 in short term, 10 in the long term
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Final Predictions
�DFW housing will continue to set all-time monthly records for months to come
�2015 key threats (low oil prices, TRID and interest rates) don’t appear ready to derail housing�The party will end when interest rates start rising, but that
does not appear imminent�Don’t panic when November sales figures look terrible
� We will probably see a 1-month temporary setback in sales volume, due exclusively to longer contract times due to TRID
� December and early 2016 months will return to setting records
�2016 looks strong for DFW housing, too�“Goldilocks” US economy (not too hot, not too cold) to keep
DFW housing on positive trend