Rocketing local home prices make Dallas-area home market 'moderate risk'

Steve Brown - Dallas Morning News - 19 SEP 2016

North Texas' unprecedented run up in home prices has put the Dallas-area on a watch list of overheated housing markets.

Dallas and four other Texas cities were ranked among the "bottom" U.S. home markets in a new report by Nationwide Insurance.

The insurer gauged housing conditions in 400 cities across the country for its midyear report.

The Dallas area ranked in the bottom 10 of those markets because soaring home prices have outstripped income growth in the area. Dallas has a "moderate risk" of a housing slowdown over the next year, the analysts said.

Most U.S. housing markets are recovering from the recession and are not in danger of another price bubble, according to Nationwide.

"Incomes in six markets across the country, however, are not keeping pace with sharply rising home prices," the report said. "They are Dallas, Houston and Austin, Texas; Denver, Colo.; and San Francisco and San Jose, Calif."

Some Texas markets — in particular Midland, Odessa and Victoria — also rated poorly in the comparison because of economic decline caused by lower oil prices.

"The economy is doing just fine in Dallas," said David Berson, Nationwide senior vice president and chief economist. "It's the rate of price growth that's the issue.

"Dallas has a very hot housing market - too hot in terms of prices."

About 150 U.S. home markets are setting new price records. Nationwide predicts that national home prices are likely to surpass their previous 2006 peak in the coming years.

"Home prices reaching or even passing their pre-crash highs of a decade ago does not signal a bubble in the near future," Berson said in the report. "Even with record-high prices in some markets, housing remains relatively affordable, and we are not concerned about a national bubble."

North Texas home prices have risen about 40 percent in the last few years because of a shortage of homes on the market and strong economic growth in the area.

Home prices in this area are now almost 60 percent higher than they were at the peak of the last housing cycle in June of 2007.

Both local home prices and the number of sales are at record highs in 2016. Median home sale prices in North Texas were 10 percent higher in the first eight months of 2016 compared with the same period in 2015, according to data from local real estate agents.

"No place in the country can sustain 10 percent price increases forever," Berson said. "The question is how long can it last and then what happens.

"We hope it means prices don't come crashing down," he said. "More likely prices will just not grow as quickly."

Nationwide Insurance bases its housing barometer on factors including local economic growth, wages, mortgage rates, demographics and housing costs for each city.

Nationwide isn't the only firm to warn about the rate of North Texas home price gains. Other housing economists and Wall Street analysts have cautioned about the increase in Dallas-Fort Worth housing costs.