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Study explores why DFW's housing market is under supplied and overpriced

North Texas was the 8th fastest-growing major metro residential construction market from 2010-20. While that gain is respectable, it’s not keeping up.

DALLAS — This story originally appeared in the Dallas Business Journal, a WFAA news partner. 

Dallas-Fort Worth experienced a 15.9% increase in new housing units compared to a national increase of 6.5%, making North Texas the eighth fastest-growing major metro residential construction market in the nation between 2010 and 2020, according to a new report.

While that’s a respectable gain, it’s not enough given DFW’s population growth to address an undersupply of housing in North Texas, according to an analysis by Stessa.

DFW’s population grew by 21.1% between 2010 and 2020. Total housing grew by 15.9%, or 386,035 housing units, from 2,434,997 units in 2010 to 2,821,032 in 2020.

Some 59.7% of the housing units in DFW were owner-occupied in 2020, according to Stessa, a rental property manager that used data from the 2020 U.S. Census.

Austin and Houston also ranked in the top 10 fastest-growing home construction markets between 2010 and 2020.

Austin-Round Rock-Georgetown ranked third, adding 180,417 housing units, or 26.7% to the supply of homes. The number of units grew from 676,169 in 2010 to 856,586 in 2020. The Austin area population grew 33.6% in the decade.

Houston-The Woodlands-Sugar Land ranked sixth, adding 417,514 housing units, or 18.7%. The number of units grew from 2,229,168 in 2010 to 2,646,682 in 2020. The population increased by 22.2%.

San Antonio-New Braunfels ranked as the 14th fastest growing major metro housing market, with an 11.5% increase in housing units. Some 93,324 housing units were added, rising from 810,455 units in 2010 to 903,779 in 2020. Population in the Alamo City area grew 22% in the decade.

The U.S. housing market saw unprecedented price growth over the last two years, and rapidly rising housing costs have been a major contributor to the run-up of inflation in the U.S. economy over the last year. With interest rates rising and low- and middle-income households increasingly priced out of the market, a slowdown in the housing market could foretell a recession later this year or in 2023, Stessa’s report says. 

From 2010 to 2020, 20 states added population at a faster rate than they added housing, a fact that was true even among most states that added housing the fastest. Of the top 10 states for housing growth over the last decade, only North Dakota, South Dakota and Delaware added housing faster than they added residents.

The U.S. is short roughly 4 million housing units based on the country’s population and needs. One reason for this shortage is underinvestment in new housing since the bubble burst in the mid-2000s.

Dallas-Forth Worth housing more than 85,000 units short

As of 2020, Dallas-Fort Worth had a shortage of more than 85,000 residential units, according to a nonprofit research group Up for Growth study. That ranked DFW 11th on a list of metro areas that aren’t producing enough housing and the worst for underproduction in Texas. Houston-The Woodlands-Sugar Land ranked 15th, and San Antonio-New Braunfels came in 18th.

The Los Angeles-Long Beach-Anaheim area topped the list for underproduction in the nation.

The Up for Growth report calls out Texas for the underproduction of more than 300,000 housing units statewide.

“Texas pitches itself as the place to live and do business for people wanting to leave California, but despite its impressive economic growth, it has failed to build over 320,000 units of housing,” the report says. 

Since the pandemic hit, housing prices and rents have soared in DFW, pricing many first-time buyers out of the single-family home market and making it tough for renters to make ends meet. The higher home prices and rents occur during a population boom as new residents and companies pour in from outside the state.

In the past year, home construction started in many previously booming suburbs north of Dallas, and Fort Worth has dropped as builders scale back due to slipping buyer demand as interest rates and inflation climbed.

Single-family home building permits declined sharply through the first seven months of 2022 compared to year-ago numbers in Celina (down 42%), Frisco (down 36%), and McKinney (down 30%). Home permits are also lower in Princeton (down 23%) and Prosper (down 19%).

The slide in North Texas home starts is not universal. Building permits are up 85% in Sherman, where semiconductor chip manufacturing plants that will add thousands of jobs are under construction. In Denton, tickets are up 43% through the first seven months of this year. Van Alstyne is up 24%, Little Elm is up 14%, and Melissa is up 10% in the same period.

Why the North Texas housing market is overpriced

Another study released last week ranked Dallas-Fort Worth as the nation’s 18th most overvalued housing market. Houses in the North Texas market are selling at a 52% premium, according to a July analysis by researchers at Florida Atlantic University and Florida International University.

The Austin area, with a 62% premium, ranked as the fourth most overvalued housing market. San Antonio, with a 34% premium, ranked 45th. Houston, at 33%, ranked 48th most overpriced.

The Florida-based researchers rank the 100 most overvalued housing markets by analyzing their premiums – the percentage above the long-term pricing trend buyers must pay to purchase a property. The larger the premium, the more overpriced the market.

According to the analysis, home prices appear to have peaked in a growing number of U.S. markets.

In July, premiums declined from June in 27 U.S. markets, mostly west of the Mississippi River, and 22 of the 27 also experienced price declines. Metros with falling premiums and average prices included Austin, Denver, Minneapolis, Los Angeles, Phoenix, Salt Lake City, San Francisco and Seattle.  

In June, premiums declined in 12 U.S. markets, and average prices fell in seven.

According to Ken H. Johnson, an economist in FAU’s College of Business, a falling premium signals a home price peak.

“The consistent increase in the number of premium downturns in our monthly reporting strongly suggests that individual housing markets are at, or will soon be experiencing, their pricing peaks,” Johnson said in the report. “We are at the turning point, and the likelihood of significant price increases in the near future grows smaller by the day.”

But the data also shows that prices are still up in most markets, said Eli Beracha of FIU’s Hollo School of Real Estate. He doesn’t expect home values to fall sharply across the board, as they did during the last housing downturn of 2006-2011.

“There simply is not enough inventory to go around,” Beracha said. “That undersupply will keep pressure on prices in many areas.”

Recent figures show that Boise, Idaho, remains the nation’s most overvalued market, with buyers paying 67% above the long-term pricing trend. As the second most overvalued market, Austin has been surpassed by Las Vegas and Fort Myers.

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