What Happens to North Texas Real Estate in a Downturn?

Market Overview

As of October 2024, the North Texas real estate market is showing signs of cooling, but it remains relatively strong compared to historical standards. Home prices in the region are projected to continue their upward trajectory, although at a slower pace than during the pandemic boom.

Key statistics reflect the changing landscape:

• Home sales in Texas decreased by 14.2% month-over-month in June 2024.
• Dallas led the decline with a 16.8% drop in sales.
• The median home price in Texas was $348,300 in August 2024, down 0.34% year-over-year.
• Active listings in Texas rose by 22.1% year-over-year in August 2024.

These figures show that while the market is cooling, inventory is increasing, which may provide some relief for buyers, though it brings challenges for sellers.

Impact on Sales and Inventory

During economic downturns, buyer demand typically declines, leading to a reduction in sales and an increase in inventory. In the current market:

• Statewide seasonally adjusted home sales dropped by 6.2% month-over-month in August 2024.
• Dallas experienced the largest decrease among major Texas cities, with a 10.4% decline.
• The number of new listings increased by 13.8% from July to August 2024.

Historically, North Texas saw a similar pattern during the 2008 recession, with:

• A 20% decline in total home sales from 2007 to 2008.
• A 30% reduction in sales by 2010.
• An increase in Months of Inventory (MOI) from 3-4 months pre-recession to over 6 months by 2009-2010, marking a clear shift from a seller’s market to a buyer’s market.

Home Prices in a Downturn

Despite the slowdown in sales, home prices in North Texas have not experienced dramatic declines, even in downturns. Currently:

• Fannie Mae projects a 6.1% year-over-year increase in home prices for the remainder of 2024.
• The Mortgage Bankers Association and National Association of Realtors expect price growth of 4.1% and 3.8%, respectively.

During the 2008 recession:

• Average home prices in North Texas fell by 5-10%, depending on the area.
• Prices bottomed out by 2011 and returned to pre-recession levels by 2013, with strong appreciation following.

This suggests that while sales activity might decline, home prices tend to hold up better than many expect during downturns, as real estate remains a fundamental need.

Micro vs. Macro Market Conditions

While macro-level statistics provide a broad overview, it’s important to remember that individual experiences vary widely depending on the market segment:

• Luxury markets and high-demand neighborhoods may remain relatively stable, as buyers in these segments are less sensitive to interest rate changes.
• Areas with strong employment opportunities, such as Plano or Frisco, are likely to be less affected by downturns due to continued population and job growth.
• Builders, on the other hand, are more likely to reduce prices and offer incentives to clear inventory, particularly if buyer demand remains soft in the months ahead.

Current Market Factors

Several factors are influencing the North Texas real estate market as of October 2024:

1. Interest Rates: Mortgage rates have been declining, which could help boost demand as buyers regain purchasing power.
2. Inventory Levels: The housing supply is increasing, providing more options for buyers and easing some of the competitive pressure seen in recent years.
3. Economic Uncertainty: The upcoming 2024 Presidential election and broader economic factors are influencing consumer confidence and decision-making.
4. Population Growth: North Texas continues to see population growth and business expansion, which provides a long-term buffer against sharp declines in demand.

Conclusion

While the North Texas real estate market is showing signs of cooling, it remains resilient due to strong economic fundamentals like population growth, job opportunities, and continued demand. The current situation differs from the 2008 recession, as it is driven more by inflation and rising interest rates than a fundamental real estate market collapse. As the market adjusts to new norms, it is likely to stabilize and potentially pick up again.

For both buyers and sellers, it is essential to work with a knowledgeable real estate professional who understands local market dynamics and can help you make informed decisions in this evolving landscape.