That was the theme of a Real Estate & Economic Outlook session put on by the North Dallas Chamber of Commerce held Wednesday at Southern Methodist University.
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The U.S. economy is heading into an almost certain recession this year, and for the housing market, the recession is here.
But a national recession won’t wallop Dallas-Fort Worth as hard as it does other areas of the country, and that goes for the North Texas housing market as well as the broader economy.
That was the theme of a Real Estate & Economic Outlook session put on by the North Dallas Chamber of Commerce held Wednesday at Southern Methodist University.
Multiple speakers said the economic mantra should be “Stay Alive til 2025.”
But the North Texas housing market should correct itself well before that time, said Chris Kelly, president and CEO of Ebby Halliday Cos., who spoke on the housing market and moderated the event.
“We’re like a canary in the coal mine,” Kelly said. “If you want to look where the broader economy goes, you can kind of look six months ahead and see where housing is. When the rest of the economy is like, ‘We’re in a recession now,’ housing will likely start coming out. We saw this exact same thing happen during the Great Recession as well.”
Dallas-Fort Worth home prices were down 10% in December from their peak in June, according to data from North Texas Real Estate Information Systems. The median DFW-area home price in December was $390,000.
The North Texas housing market, like much of the country’s, soared in 2022 in terms of sales and prices, then cooled quickly as ever-increasing interest rates took their toll, Kelly said. This year will likely be a mirror image of 2022, starting slowly, then accelerating in the second half of the year, he said.
Home prices nationally won’t collapse like they did during the Great Recession, in large part because lending standards are far stricter and the supply of homes on the market is tighter than in that period, Kelly said. But prices will continue to decline nationally and, to a lesser extent, in Dallas-Fort Worth, he said.
“The Dallas Fort Worth area is projected to be one of the top real estate markets in 2023,” Kelly said. “That’s relatively speaking, but again, you’d rather be here because of the strong job growth. It just trickles into everything that we do in housing as well.”
Charles Dougherty, vice president and economist for Wells Fargo, said he expects the Federal Reserve to hike interest rates by a total of 75 basis points in three 25-point raises in the first half of this year, then hold at that higher rate through the the end of 2023 to make sure inflation fully recedes and doesn’t resurge.
“The Fed is going to let a recession cure inflation,” he said. “The Fed does not have a surgeon’s scalpel. They have a sledgehammer. The only way they know to get inflation down is by crushing demand unfortunately.”
The series of Fed interest rate hikes are having an especially severe impact on the housing market and home affordability, and will continue to take a toll in 2023, Dougherty said.
“As mortgage rates have gone from about 3% to as high as 7%, all housing activity has come to a standstill,” he said. “Buyers have disappeared, and sellers who refinanced their homes and have 3% mortgage rates aren’t going to trade up into a 7% mortgage rate. So it’s a frozen housing market, and this is the big reason why, especially with the buying side.”
Some 85% of all mortgage holders have a rate below 5%, he said.
Dougherty, like Kelly, doesn’t forecast a housing price crash nationally or in DFW.
“What you need for home prices to collapse is a remarkable increase in supply that we saw in 2008 and ’09, and we’re just not seeing that,” Dougherty said.
Single-family homebuilders are cutting production, as are multifamily builders albeit less dramatically, he said.
Dallas-Fort Worth’s strong population and job growth will buoy North Texas in the likely recession ahead, he said.
“Demography is destiny,” he said. “Dallas and Fort Worth have a lot of people moving in. If we go through a recession, if you’ve got strong population growth working in your favor, that’s going to offset a lot of the harms from a downturn. Dallas certainly has that going for it.”