Shrinking inventories make housing less affordable just as crucial spring selling season heats up
Connie Durnal has more than two decades of experience as a broker in the Dallas real-estate market. But these days she thinks of her career in two distinct phases: the last two years and “the olden days.” Home prices in the Dallas metro area, historically one of the nation’s most stable and affordable markets, have climbed at one of the fastest rates in the U.S. since 2014. Inventories of houses on the market are under two months’ supply, the lowest in 25 years. In the popular north Dallas suburbs, home to major corporate moves for Liberty Mutual Insurance and Toyota Motor Corp, Ms. Durnal said homes priced at market value usually fetch multiple offers in less than a day. “The demand is staggering,” said Ms. Durnal, an agent with real-estate brokerage firm Redfin.
The escalating prices and tightening availability of homes in Dallas point to the challenges facing many of the nation’s largest real-estate markets as the crucial spring selling season heats up. Home sales volumes typically increase in February and continue through June, as the weather improves and families look to get settled in school districts for the fall. With mortgage rates at historic lows, unemployment at its lowest in eight years and housing inventories shriveling, particularly on the lower end of the spectrum, U.S. housing markets are becoming less affordable compared with historical norms. That puts the most pressure on first-time home buyers, who accounted for less than a third of home purchases last year, the lowest level in nearly three decades, according to the National Association of Realtors.
Nina Sastrodihardjo had been looking for a home in Plano, Tex., just north of Dallas, for more than two months last fall with no success, getting outbid at every attempt as pressure has been intensified by an influx of population and high-paying jobs from places such as California. In November she saw a home she liked that had gone up for sale on a Monday night. When she went to check it out on Wednesday, there were cars lined up down the street. She tried a more aggressive strategy that worked: She made an offer $6,000 over the asking price of $285,000, but with the caveat that it would expire in 24 hours. “I knew things were competitive, but I didn’t expect it to be this competitive,” said Ms. Sastrodihardjo, a procurement manager for Hewlett Packard, who got the house for $285,000. “You have to tackle it like a project manager.”
Three-quarters of real-estate markets in U.S. counties larger than 100,000 people are less affordable now than a year ago, according to a recent analysis from data company RealtyTrac. Home prices have outpaced wage growth in 94% of those counties since home prices hit bottom in each of the locations, the analysis found. 1Of 132 markets tracked by John Burns Real Estate Consulting of Irvine, Calif., 27 are less affordable than historical averages, up from 16 last year. “Inventory is very restricted, which is creating bidding wars and pushing up prices,” said Daren Blomquist, a senior vice president at RealtyTrac. “That makes it a very tough environment for many buyers.”
Liberty Mutual last year announced plans for a major expansion at a massive new campus in Plano, beginning in 2017 and continuing through 2018. That came on the heels of State Farm Insurance in 2013 announcing a major expansion of its regional offices in Richardson, another northern Dallas suburb. By next year, Toyota will finish moving its North American headquarters to Plano from Southern California, adding as many as 4,000 new jobs to the area.
Home prices in Dallas rose 9.2% in January from a year earlier, according to the S&P/Case-Shiller Home Price Index, the fifth-fastest among 20 major metropolitan markets. January marked 13 months of consecutive year-to-year price gains above 8% in Dallas, far above the national average of about 4.7% over the same period. Many other big U.S. cities are feeling the squeeze as well. Jane McPherson and her husband started looking for a larger home in the Denver area last year after the couple and their two children outgrew the three-bedroom, one-bathroom home they purchased 15 years ago. But most of the houses they liked would require tripling or quadrupling the expenditure—something she and her husband weren’t ready to do.
“We could sell our house in a red-hot second, but we’d have absolutely nowhere to go,” she said. So they are staying put, instead adding a two-story addition to the back of the house. Not all major markets are facing extreme supply pressures. In Las Vegas, one of the region’s most severely burned in the downturn, inventory is at a very stable six months’ supply, according to data from John Burns Real Estate Consulting. “This is the classic financial cycle,” said Klif Andrews, Las Vegas division president for builder Pardee Homes. Markets such as Las Vegas “ran the hardest and the highest, and they over-corrected. Now they’re trying to get back to a normal level.”