Dallas Housing Market: Have prices bottomed out in Dallas?

The select few who bought their homes in early 2022 may find they’re unfortunately, upside down on their home’s value right now. Home values dropped 13% between June and December leaving many buyers waiting on the sidelines even today, wanting to buy but worried -  or maybe hoping - values will keep dropping. That begs the question, how can you know when it’s the right time to buy?  Have you missed your chance at rock bottom prices or is the carnage still to come? Well that’s what we’re going to talk about today. We’re going to talk about exactly which metrics you need to be watching to predict where interest rates are headed. Next we’re going to check in with the experts to see if we’re actually seeing those things happen right now and of course we’re going to take it local. With inflation reports and bank failures, how is this affecting the Dallas Housing Market? Should you be getting out your checkbook right now, or is the worst still to come? 

If you’re anything like me you’ve probably laid in bed at night wondering when prices will bottom out in Dallas. 

What you want to look at in the market are actions that will drive interest rates. The one thing that has been effective at slowing buyer demand and driving prices down in Dallas has been those higher interest rates shutting down affordability.

So what affects interest rates in the housing market? 

If you just answered ‘the Fed raising interest rates’ you’re wrong, okay, wrong. It’s much more complex than that. The Fed’s actions play a key role in affecting interest rates but rates are driven by inflation, they’re driven by the bond market, they’re driven by market sentiment and yes they’re driven by the Fed’s actions. All of these factors are interwoven and they play off each other. It’s quite possible for the Fed to raise their benchmark rate and have interest rates go down again because the Fed is not the only influencer here.

In fact, it could very easily be argued that inflation is what drives interest rates. Everybody’s watching inflation and you should be too. If you want to get a fantastic deal in a house you need to watch inflation. Now these are the metrics you need to have your eye on. You want to look at the Personal Consumption Expenditures Index, the Consumer Price Index and you want to be looking at employment, new jobs. 

If your goal is rock bottom prices, no matter what your interest rate and monthly payment are, it’s just about the prices, then you want to see these metrics going up. If they go up, it shows inflation is still high. High inflation is going to trigger the events that cause interest rates to rise. So if you are in the ‘I want rock bottom prices’ camp you’ll want to be seeing these metrics go up. You want to see higher PCE, higher CPI and more new jobs. As long as those things are happening you can be reasonably assured that rates are still going to rise. 

Now you may have a completely different goal. Your goal may be affordability. I can tell you right now when prices hit rock bottom that is not going to be when homes are most affordable. I realize that may seem counterintuitive but interest rates are what make the difference in affordability, far more so than lowering home prices. Zillow points this out as well. They say “Falling rates are far more helpful for affordability than falling home prices.”  Rock bottom prices are going to come when interest rates are at their highest. But even though the prices may be low, you’re still going to be paying a higher payment because of the interest rates.

If affordability is your goal, you want to see interest rates come down, so you want to be watching for these metrics going down. You want to see PCE and CPI dropping and you want to see no new jobs. Believe it or not when you’re falling asleep at night you find yourself sort of hoping for a recession. Gosh that really sounds bad. But basically when inflation comes down, interest rates come down with it. And I can tell you right now, this is what Realtors want because we know affordability will help the market.

Now that you know what metrics to watch for, what is going on with the market right now? What are the inflation measurements telling us and where are interest rates headed?

Well, thus far we’ve seen a lot of turbulence and a lot of surprises. When January numbers were released in mid February it was bad news across the board. -Or good news, depending on your goal! PCE, CPI and employment all went up. 

Andrew Kelly explained that, “The personal consumption expenditures…tracked by the Fed for monetary policy, shot up 0.6% last month after gaining 0.2% in December.”

Not only that, but Alicia Wallace observed that consumer spending did too, “showing the continued strength of the US economy — and that rising prices won’t be so easily defeated.”

In terms of CPI, Jeff Cox reported that “Inflation rose 0.5% in January, more than expected and up 6.4% from a year ago” He continued saying, “January’s data shows inflation is still a force in a U.S. economy in danger of slipping into recession this year...despite Federal Reserve efforts to quell the problem.”

To look at job increases, we have to look at unemployment and it’s measured in two ways, the business survey and the household survey. The business survey revealed 517k new jobs and the household side came in at a whopping 894k jobs. This caused the unemployment rate to drop from 3.5 to 3.4%, the lowest number since 1969.

As of mid-February we had strong jobs reports and higher than projected CPI and PCE. The experts weren’t terribly optimistic. 

Oscar Munoz reports  "We currently expect two more hikes...But the risk is towards higher rates. The labor market remains strong and it's going to take a bit more time for it to start showing signs of deterioration,"

Jeffrey Roach, chief economist at LPL Financial said. “Clearly the risks are rising that inflation will not cool fast enough for the Fed’s liking.”

Peter Cardillo, Chief Market Economist with Spartan Capital Securities reports, “The Fed is probably going to be more hawkish. Whether that translates to a 50 basis-point rate hike in March remains to be seen. But we are likely to see three more rate hikes.”

As you can see, the general consensus was that January’s numbers would result in the Fed raising rates higher than expected for longer than expected. Before January’s numbers it was expected the Fed would raise by 25 basis points but after receiving those January numbers many began predicting it would be a 50 basis point increase. 

Keep in mind as long as inflation numbers are high chances are mortgage rates are going to go higher and that’s exactly what happened. And remember, if rates go up the general result is that people can’t afford houses so prices are going to go down. 

{But then…Bank failure}

Just a few weeks later while everyone was still focusing on inflation indicators, we began to see this unexpected crisis of bank failures. One after the other we began to see several banks taken over by the FDIC with the first being Silicon Valley Bank. Well, that sort of changed everyone’s perspective. 

Michael Gapen, BofA’s chief U.S. economist commented that “Our outlook for monetary policy is always data dependent; at present it is also dependent on stresses in financial markets.”

Yeah that’s putting it mildly.

Elisabeth Buchwald chimed in that, “It's been a tumultuous few days for banks”

First, “Silicon Valley Bank announced… it had suffered a $1.8 billion… loss and urgently needed to raise more capital.” 

Well, it wasn’t successful. SVB failed to raise the capital it needed and the Federal Deposit Insurance Corporation (took) over the bank.

This was an alarming development because “The bank's failure marks the second largest in U.S. history after the 2008 demise of Washington Mutual.”

And honestly this bank failure had the potential to be catastrophic to the economy. The FDIC insures up to $250,000 per account holder in the event of bank failure. Many businesses had millions of dollars in Silicon Valley. If they lost those funds they wouldn’t be able to pay their employees. We would have seen massive unemployment. This would have shuttered the whole inflation problem in a very ugly way. Not to mention the general fear it spreads throughout the public. Many citizens would feel their banks cannot be trusted. I don’t think I need to tell you what would happen if everyone suddenly decided they needed to withdraw all of their money from the bank.

However the Fed realized this. Elisabeth Buchwald says “The Federal Reserve, Treasury Department and FDIC announced that SVB and Signature Bank's failures posed a big enough risk to the entire banking system that it merited allowing regulators to take the unusual step of guaranteeing the larger deposits.”

They continue that in addition, “The Fed…will provide financing by offering loans of up to a year to eligible banks... The move is intended to prevent a wave of bank runs that would threaten the stability of the banking system and the economy as a whole.”

Now it’s important to point out, had the Fed not intervened with insuring all depositors, this would almost certainly have triggered a turning point for the housing market and interest rate hikes would have come to a halt. But that’s not what happened, the Fed did insure the depositors so let’s see how the experts responded.

Goldman Sachs’ response was that “In light of the stress in the banking system, we no longer expect the FOMC to deliver a rate hike at its next meeting.”

On the other hand, Citigroup economist Andrew Hollenhorst said “Fed officials are unlikely to pivot at next week’s meeting by pausing rate hikes, in our view”

Michael Gapen, BofA’s chief…economist says “If the Fed is successful at corralling the recent market volatility and ringfencing the traditional banking sector, then it should be able to continue its gradual pace of rate hikes.”

Allianz SE had some excellent insight. They said “Elevated price pressures and a resilient economy prompted Fed officials to strengthen their hawkish rhetoric in the past few weeks.” However, they continued, “The SVB failure suggests a turning point in the monetary cycle: interest rates have reached a level sufficiently high to trigger a recession.” He continues, this “should alleviate inflationary pressures markedly by the end of the year.”

Regarding the Fed’s next meeting they said, “We expect the Fed to hike by 25 basis points in (the) next meeting…We think the Fed will deal with the banking crisis through its new lending facility.”

Overall, combining January’s strong numbers and the bank failures, the general consensus is that the Fed will raise rates again at its next meeting but not as much as they were going to. There was concern it would be 50 basis points but now, with this bank crisis, it will probably be 25 basis points

How is Dallas responding to the economic roller coaster?

Well, we saw a volatile year in 2022. Home prices shot up between January-May and dropped just as quickly the second half of the year. Year over year most areas in the metroplex showed zero or very nominal gains. 

Dallas Morning News reports that “The median price of a single-family home in Dallas-Fort Worth was $380,000 in January, up only 4% from a year before.” And their point really was that this is “a noticeable departure from the double-digit percent increases seen through most of last year.”

They also share how “Sale prices have declined 13% from last year’s peak of $435,000, according to the latest housing market report.”

Despite all of this, the Dallas market is still trucking along! Let’s compare median sales prices in the six main counties.

In Denton County, in January of 2022 we saw a median sales price of $420,000. In February of 2023 we saw a median sales price of $425,000.

In Collin County in January of 2022 we saw a median sales price of $465,000. In February of 2023 we saw a median sales price of $485,000.

In Dallas County in January of 2022 we saw a median sales price of $315,000. In February of 2023 we saw that median sales price become $345,000.

In Tarrant County in January of 2022 we saw a median sales price of $327,000. By February of 2023 we're seeing a median sales price of $339,945.

In Rockwall County in January of 2022 we saw a median sales price of $390,000. By February of 2023 we saw a median sales price of $415,000.

And finally in Ellis County we saw a median sales price in January of 2022 of $377,923. In February of 2023 we see a median sales price of $374,900

So of the six counties, five saw an increase in median sales price year over year. That may not have been what you were expecting. Interest rates are at 6-½%. Why are we seeing increases? Well, seasonality and demand are in a tug of war with interest rates and affordability. From a purely seasonal standpoint, Dallas is very predictable. January is always the lowest month of the year, February is typically slow, then the spring and the summer tend to be very strong. In the fall things generally slow down which turned last fall into a slaughter since the Fed decided to mega raise rates at the same time.  Typically we would see strong price movement in the spring, so you can see interest rates are definitely putting a damper on things. Still, prices are not going down, they’re holding their own. 

So that gives you an idea of the here and now.

But what can we expect moving forward?

Are prices at rock bottom? Should you be buying right now if you want to catch the best prices? Or are they about to drop some more?

Well, if we continue to see the same pattern we’re seeing now, seasonality and demand will duke it out with interest rates and affordability. We’ll probably see nominal appreciation over the next few months, if any at all. But let’s check in with the experts and see what they have to say.

In addition to the projected rate hike in March, Allianz calls “for another 25 basis point hike in the May meeting, which will cement the Fed’s anti-inflation credibility credentials.”  Isn’t that nice, that this is about their credibility?

They say, “The Silicon Valley Bank failure reinforces our view that the US economy is headed for a sizeable recession during the second half of this year.”

They continue that “The recession-induced fall in core inflation in the second half of 2023 will allow the Fed to pivot in November-December.”

Finally, they conclude with the news we all want to hear, “We expect a 25 basis point cut in November followed by a 50 basis point cut in December.”

If Allianz is correct, that we begin to see rate cuts by November, I believe it’s possible we may be at rock bottom prices right now. 

We’re seeing this duel between seasonal demand and affordability play out in the Dallas housing market right now, right, we’re seeing these nominal price increases. 

Then what we would expect to see as Fall rolls around is for the market to slow down and for us to begin to see those prices going down again. However, according to Allianz that’s exactly when the Fed is going to begin dropping interest rates. 

If that’s the case we might expect to see Dallas home values held up by seasonal demand over the spring and summer, and then reinforced with rate cuts in the fall.

The big question is, is Allianz alone in their prediction?

With today’s rates at around 6-½%, Greg McBride, chief financial analyst at Bankrate says we should "expect mortgage rates to yo-yo up and down in the first half of the year”. Then he goes on to predict "Thirty-year fixed mortgage rates will end the year near 5.25%.” 

Zillow Research also checks in. They say “Home prices nationally should bottom out in 2023 then return to a more normal growth rate.” They say “Affordability challenges are still dragging down demand for homes” - that would be the tug of war effect right, of seasonal buyer demand vs affordability.

However, they continue that “Starting next year… the panel foresees price growth picking back up, at an average clip of 3.5% per year through 2027.”

In Zillow’s mind, home prices are going to be sluggish throughout 2023 and then pick up in 2024. That would tend to coincide with what Allianz is predicting. If rates begin dropping at the end of 2023 we would anticipate price growth to pick up in 2024.

In regard to the interest rate question, you know, when interest rates are going to come down, economists and housing experts polled by Zillow responded that  “The panel expects mortgage rates to trend downward after the first quarter.”

Zillow reports that when “Asked when rates for 30-year fixed loans will be highest between now and 2025, nearly two thirds of those surveyed, (63%) pointed to Q1 of 2023. A distant second was the second quarter of 2023 at 22%, and subsequent quarters earned 6% or less.”

So overall when we check with these experts, they’re projecting interest rates are the highest they’re going to be right now, that as we work our way towards the end of 2023, we’ll begin seeing rates drop. This isn’t the story we were hearing in February but these bank collapses have really brought a paradigm shift. 

So back to answering our original question, “Have prices hit rock bottom, or is more carnage still to come?”

Well the experts are saying two more rate hikes, then predicting lower rates by the end of the year. That is not the song they were singing in February. At that point they were saying to plan on more rate hikes for longer. But we’re seeing cracks in the dam now and I think that’s really changed the rhetoric.

We also know that from a seasonal standpoint, this is typically a time of high demand in Dallas. But how will that demand stand up to two more rate hikes? I think that’s going to answer our question of what prices will do. It’s very much a tug of war between these two forces.

If rock bottom prices are your goal, if the experts are right it’s possible we’re already there or that we may be there within the next few months because once rates begin to go down, prices will begin to go back up in Dallas.

Now I hear the affordability camp screaming loud and clear, ‘Wendy we have an affordability crisis and prices are not going to go up.’ I agree. We have a big affordability problem. But what you have to realize is what I said in the beginning, interest rates are what will effectively improve affordability. It takes very little movement, just a point to bring the same affordability that it would take a massive price drop to bring. You want to see your monthly payment improve through prices dropping $100,000. And doggonit you’re willing to wait until that happens.

What you need to realize is before that ever has the chance to happen, either Dallas buyer demand will drive prices back up again or interest rates will go down and you’ll have the same effect. If affordability is your goal, watch for those stressors in the market and watch for those rates to go down. Only you can decide how low rates need to be. In January many buyers re-entered the market when they could get a 5% interest rate. Something for you to be watching is the larger the economic calamity, the deeper the recession, the lower you could anticipate rates dropping. Just remember you are very much NOT alone in your wait and low interest rates in Dallas will bring back bidding wars, the whole no inspection period and the having to offer over bid price situations. 

If affordability isn’t the issue necessarily, that it’s more about equity and not wanting to see values drop further, you know, just wanting to make sure you get the best possible price, you will want to enter the market while rates are still high. At this point that road already seems to be laid out, the experts are saying we’ll see lower rates by the end of the year. The funny thing is that just a month ago they were saying higher rates for longer. But it’s those bank failures that have brought such a change in predictions. So, are prices bottomed out in Dallas? The experts do all seem to think that’s going to happen in 2023 but whether that’s right now when demand is fighting with affordability or in the fall when demand drops off and maybe rates haven’t gone down yet, it’s hard to tell. I can tell you this much, we at Home in Dallas will constantly keep you updated - which sounds like a good reason to subscribe. Now, as you’re monitoring the market, keep in mind the power of the motivated seller. Think outside the box. You may not need the market to take you to rock bottom prices. You may be able to get there just by finding a desperate seller. In fact I made an entire video about the most motivated builders in Dallas that you can watch right here.

The Decision of a Lifetime: Should You Buy in Dallas in 2023 or 2024?

So you’ve tuned in to our latest blog and I’m certainly glad you did but let’s just address the elephant in the room right now. You’re assuming I’m going to tell you to buy in 2023 since I’m a Realtor and I want to get paid. Well you’re wrong. Okay well now that we’ve gotten that out in the open and hopefully I’ve restored my credibility let’s talk about whether you should buy in 2023 or 2024.

Whether you buy in 2023 or 2024 depends on two things: what is your goal for home ownership and when will the market get you there.

Now that is probably not at all what you expected so let’s talk about what those goals might be:

1. Is your goal to buy when homes are more affordable. Is this strictly about your monthly budget?

2. Or, is your goal to buy at the best possible price. You want rock bottom and you certainly don’t want to catch a falling knife where you end up upside down. I have people commenting on my videos all the time saying they want to see prices drop by 30%, 40%, 50%. That’ll certainly make you wait, won’t it?

I want you to think hard about this because these are two very different things and you cannot have both in Dallas. Let me explain.

Here’s the thing, interest rates drive affordability in an exponential way. If you want things to become more affordable overall you’re going to see that happen much more effectively through interest rates going down. In fact, let me show you that. 

In Denton County in January of 2022 the median sales price was $420,000. Your mortgage payment would be $1,771 per month at 3% interest rate. Now if you wanted to have that same monthly payment at today's six and a half percent interest rate you would need the median sales price to be $280,000. So how close are we to getting that price in the market? Well in February of 2023 the median sales price was $425,000 with a mortgage payment of $2,686.

Now taking a look at Collin County you can see the median sales price in January 2022 was $465,000. The mortgage payment was $1,960 at 3% interest. So how much would we need prices to drop to get that same monthly mortgage payment at today's rate of 6.5% interest? Well, we would need the median sales price to be $310,000. As of February of 2023 how close are we to seeing prices drop that much? Well, the median sales price in February of 2023 is $485,000. That makes for a mortgage payment of $3,066 per month.

Okay well let's take a look at Dallas County. in January of 2022, the median sales price was $315,000. The mortgage payment was $1,328 a month at a 3% interest rate. Now, what would we need the price to be to have that same mortgage payment at six and a half percent interest?  Well, we would need to see a median sales price of $210,000. So, are we getting close to that?  Are we seeing prices drop? Well, let's take a look. In February of 2023 the median sales price was $345,000 making for a monthly mortgage payment of $2,181.

Moving on to Tarrant County we see the median sales price in January of 2022 is $327,000. At a 3% interest rate that would make a mortgage payment of $1,379. Now what would we need the price to be to get that same mortgage payment at six and a half percent interest? Well we would need to see a median sales price of $218,000. So again, let's take a look and see where we're at. Are we getting anywhere near that? Well in February of 2023, the monthly mortgage payment was $2,149 based on a median sales price of $339,945.

In Rockwall County the median sales price in January of 2022 was $390,000. At a 3% interest rate the mortgage payment would be $1,644 a month. Now to get that same mortgage payment in today's rate of six and a half percent interest what would you need the median sales price to be? Well, it would need to be $260,000. So are we getting close to that? How are we seeing prices do? Well in February of 2023 the median sales price in Rockwall County was $415,000. That is a mortgage payment of $2,623 per month.

And finally taking a look at Ellis County. In January of 2022 the median sales price was $377,923. At 3% interest that equaled up to a mortgage payment of $1,593. Now what would the price need to be to have that same monthly payment at today's interest rate of six and a half percent? Well, we would need to see it be $252,000. So are we getting anywhere near that? Well let's look at February of 2023. The median sales price is $374,900 and that makes a mortgage payment of $2,370.

So do you see that interest rates have that huge of an impact on affordability? How drastic the price reduction would need to be in order to match the difference between 3 and 6-½ percent?

So, interest rates drive affordability. Now, secondly, in Dallas, interest rates drive demand in an exponential way. Now, tell me the truth, as we were looking at those sales prices, you probably expected to see sales prices down, right because affordability has been so compromised. Instead we saw them increasing in every county except Ellis County.

Okay so why is that?

• Well, the issue is a constantly reinforced and growing demand. 300 people a day are relocating to Dallas and they all need a place to live. 

• Secondly, Millennials and Gen X’ers are all wanting to enter the housing market

• So we have a state of consistently high demand here in Dallas

• Now right now, we saw that prices have gone up, in spite of a 6.5% interest rate. Probably not what you expected, but it goes back to demand.

• Because of that same high demand, when interest rates drop even slightly we see a huge change in market activity

• And of course as buyers enter the market we see demand driving prices up

• In Dallas pretty much the ONLY thing that is effective in stopping demand is affordability. When the interest rates went up last fall, demand and prices dropped off the edge of a cliff

• Now we’re in the spring and even 6.5% interest rates aren’t enough to cause prices to drop. It’s demand vs. affordability and right now, in the spring, demand is marginally coming ahead

• Now I want you to think about this if you’re counting on affordability coming through price drops. If the 420k home we saw in Denton County dropped to 280k, right, in order to match that same monthly payment, what would happen? It’s easy to picture it very personally, as the only person waiting. But in that event, there would be a relative stampede of buyers just like yourself who would drive those prices back up. Realistically they would never be able to get that low.

• Waiting for affordability to happen as a result of prices dropping - that will not occur in a vacuum. You are not the only one waiting. All the other Dallas homebuyers are waiting too and that demand will drive prices back up

• So if affordability is the most important thing to you, that’s your goal, this is all about your wallet, it’s more likely you’re going to find it through rates going down, rather than prices going down. Interest rates are just more effective and more realistic.

Here are a few things to think about:

When interest rates go up = Your affordability factor is going to get worse, demand goes down and prices go down

When interest rates go down = Affordability increases and it doesn’t take much interest rate movement to increase it by a lot.  Buyers will enter the market and that demand will drives the prices up

So are you starting to see how affordability and rock bottom home prices are two different things? Realistically, you have to choose between the two goals. But okay, I see your doubt, it’s palpable, so let’s play devil’s advocate for a minute.

What would need to happen for you to be able to have both?

You want affordable and you want it at rock bottom prices. All those people who are predicting a 50% drop in values, right? This is the platform they’re counting on. 

1. First of all, to really get that affordability you have to have interest rates go down. Interest rates affect affordability so much more than home prices

2. Secondly, you’d have to see buyer demand evaporate in the midst of interest rates going down and as homes are becoming more affordable. Otherwise we’re back to bidding wars, right? 

3. If buyer demand won’t evaporate - and in Dallas it definitely won’t -  the market will need to be flooded with an over saturation of affordable homes 

4. Essentially to have your cake and eat it too, what you’re watching for in the market is for rates to drop, for prices to drop right along with those rates and there to be a sudden massive, influx of affordable homes so buyer demand doesn’t drive prices back up. I do not see this scenario playing out but I would love to hear your opinion so definitely comment below

To recap:

If affordable is your goal

1. Remember, to get the same affordability you would get from interest rates going down, prices would need to drop in the hundreds of thousands of dollars AND you would need no one else competing with you. If you have other buyers competing with you that will drive prices back up. 

1. Most likely place that affordability is going to come from is lower interest rates OR from the equity in selling your own home

2. With affordability as your goal - interest rates coming down will bring you there. You just need to mentally prepare yourself for what a market with high demand looks like - bidding wars, paying over the list price, shortened inspection periods. That is the likely road to maximum affordability

3. Ideally you’re very aware of the market and you’re the first buyer out the gate when rates come down to a level that works for you

2. If Rock bottom prices are your goal

1. They’re going to come from very low demand

2. If that is your goal you’re going to have to swallow the idea of a higher interest rate

3. Massive over supply of affordable homes could lower demand but you’ve got to ask the question, where are those homes going to come from

4. Rock bottom prices from high interest rates: possible

5. Rock bottom prices accompanied by low interest rates: I do not see that happening but again, if you disagree, I’d love to hear your comments!

So, now that you understand each side, what is your goal? Is an affordable, low monthly payment the most important thing to you? Or, are rock bottom prices your goal even if it means your monthly payment is higher and it will. In Dallas, you’re not going to get both. There’s too much demand for that, too many other people waiting for the same thing. Now the market is very volatile right now. We see low inflation measurements, then we see them a bit higher than the Fed wants to see. Then we see mounting bank failures. Here’s something I want you to think about. In the past, each time the Fed aggressively raised rates they would trigger a cascade of events - kind of like a dam breaking - that caused them to lower rates quickly. After aggressive moves upward you don’t see rates gradually lowering. You typically see fast movement. My recommendation is to be ready. Be preapproved by a lender. Have your buying plan in place. Know where you want to buy and what type of home you want to buy. If you’re wanting rock bottom prices, that’s going to happen when interest rates are at their highest, when demand is most inhibited. If you’re wanting affordability, you’re going to want to see those rates go down. Just be aware that when they do, all the bidding wars are going to come back. You want to be the first one out the gate before demand spirals. So are you buying now? Are you waiting until 2024. Know your goal and be ready to act quickly when the market brings it to you.

Now one thing we really didn’t get into today is the predictive side. Big picture wise we know we’re looking for interest rate movement right? How can we know when the big changes are here? Well to get that information you’re definitely going to want to check out our next blog (Dallas Housing Market: Have prices bottomed out in Dallas?) where we check in with the experts on when exactly that dam is going to break.

Spoiler Alert: Dallas Recession Risk From Bad to Worse!

After a topsy turvy year of high inflation and the Fed fighting it through rate hikes, I think we all thought - or at least hoped - the worst was behind us. In November mortgage rates peaked at just above 7% but then as inflation receded, rates receded right along with it. All through December and January we saw rates gradually dropping - not much mind you, but enough that everyone could build a little optimism after a rough year! I mean, we all know inflation has to come down but we want to see a soft landing - inflation coming down without a recession.  Well last month’s numbers were just released and the threat of recession just went from bad to worse.

Well the numbers are in and our goose just might be cooked. We in the housing market - we’re not complicated. We just want a healthy, affordable real estate market, right? But to get there we’re having to navigate this bumpy road of inflation statistics, interest rate hikes and unaffordability. And this month’s numbers did not help.

Why is that? Well, believe it or not, last month’s economic data looked too good and we’re going to talk about that today. Specifically, we’re going to dig into the personal consumption expenditures index that was just released. This is the Fed’s baby, their preferred source of data. The Fed also relies heavily on the Consumer Price Index and Unemployment so we’re going to explore that as well. We’ll see what the experts have to say and discuss why these numbers just brought the risk and reality of an incoming recession from bad to worse.

The Numbers

You know, I am first and foremost a real estate broker but we talk a lot about the housing market on this channel because I feel like in order for you to make the best decision as a homebuyer you need to have an understanding of what’s going on in the market. For example, you might be wondering why in the world good economic news could be bad news for a homebuyer. 

Well, Andrew Kelly with Reuters gives us a good explanation of that. He reports that “U.S. consumer spending rebounded sharply in January amid strong income growth” Yea! Great news right? But no. He explains that this could “add to financial market fears that the Federal Reserve could continue raising interest rates through summer.”  That’s where this catch 22 comes in. After the pandemic, runaway inflation caused home prices to run away right along with it. The Fed knows it needs to slow down inflation and we in the Dallas housing market certainly want home prices to slow down as well, but in order to accomplish that the Fed needs to see the economy contracting. We need to NOT see growth, we need to NOT see new jobs. And how are they going to be able to tell if that’s happening?

Well, the Fed uses multiple indexes to monitor the economy and inflation. We of course are more preoccupied with the Dallas housing market, but we keep our eye on those same indexes because especially now, what affects the economy affects our housing market. Unemployment and CPI are two big indexes the Fed uses but the Fed plays favorites and their top baby let us down this month so let’s talk about that first.

Greg lacurci explains that “The Federal Reserve prefers the Personal Consumption Expenditures Price Index to gauge inflation.”

Well that’s a mouthful

Yeah and also their favorite. He gives two reasons for this. He says it has a “broader scope and better reflects how consumers change what they buy to account for rising prices.” The PCE and CPI index essentially measure the same thing but they measure it differently with different priorities. The PCE updates their data more often whereas CPI tends to rely more heavily on lagging factors like shelter costs. Well, regardless of the reason this is the Fed’s baby and it did not behave last month. 

Andrew Kelly explains that, “The personal consumption expenditures (PCE) price index, tracked by the Fed for monetary policy, shot up 0.6% last month after gaining 0.2% in December.”

Alicia Wallace observes that “The Federal Reserve’s preferred inflation gauge heated up unexpectedly in January, as did consumer spending, showing the continued strength of the US economy — and that rising prices won’t be so easily defeated.”

And remember, this is bad news! Jeffrey Roach,  chief economist at LPL Financial explains why. He says, "This report all but insures the Fed will continue on its rate hiking campaign for a lot longer than markets anticipated just a few weeks ago.”

Well that is the last thing Dallas needs! Here on the homefront we’re struggling with unaffordability. Home prices became too high when interest rates were so low but now we have a double whammy of interest rates and homes prices both being too high.

Let’s check in with how the experts reacted to the PCE data. Brian Jacobsen, with Allspring Global Investments predicts “We'll probably see a reversal of these strong January numbers when the February numbers come out.”. He believes “this is more like a speedbump on the road to disinflation than a change in the trend.” So I’m over here saying Yes! I hope he’s right, which again is so counter intuitive and upside down. 

Ken Mahoney with Mahoney Asset Management explains how the market as a whole responded to the PCE numbers. He says “the quick reaction is a major whoosh down”. He goes on to explain that the PCE numbers reflect “a spending surge and the Fed does not like that.”  Well, let’s be real about this. With the economy the way it is, what the Fed doesn’t like we don’t like either.

Alicia Wallace is a little more graphic. She says “Stocks plunged on Friday morning as the PCE report’s numbers supported recent data that shows inflation isn’t falling at the pace investors had been hoping.:”

Gene Goldman, with Cetera Investment Management says “PCE numbers were well above expectations.” And He’s not saying this is a good thing either. He says, “What worries us most is that the data since the last Fed meeting has been extremely strong.”
Randy Frederick with Charles Schwab, Texas’s response was “the probabilities are quite high we're going to have three more quarter point rate hikes at the next three… meetings”.

Peter Cardillo with Spartan Capital Securities says "These are ugly numbers, and this is the Fed's preferred index, so we should expect hawkishness until the second half of the year."

In a nutshell, the general consensus on the PCE data from the experts was that it’s stronger than expected and will result in the Fed raising rates more than they expected.

So we know PCE is the Fed’s darling, and we know none of us particularly liked what it had to say this month, but if the Fed also considers CPI and unemployment we should touch on that as well. 

When it comes to CPI, things had been looking pretty good towards the end of 2022. After encouraging numbers of .2% in November and .1% in December, January’s numbers came in higher than anticipated here too. Economists had been looking for increases of 0.4% which would equate to an annual gain of 6.2%. Instead they got .5% and an annual gain of 6.4%.  

Elisabeth Buchwald explains that “On a month-by-month basis… prices increased by 0.5% in January compared with a slower gain of 0.1% in December.” So unfortunately, CPI reflected the growth we didn’t want to see there too. 

Employment

In terms of employment, the jobs report released last month also greatly exceeded expectations. The prediction had been for a rise of 185k new jobs, but an astonishing 517k additional positions were revealed through business surveys and 894k from households. This pushed unemployment down to 3.4%, its lowest in nearly fifty years.

On the jobs front though, you really have to take a closer look to see if the numbers the BLS gave are really accurate. Out of 894k new jobs from the household survey -  606k of those jobs were part time. Households aren’t going to be able to make ends meet on a part time salary. There is no way this is the equivalent of the same amount of full time jobs. Plus a lot of people are working second and third part time jobs in addition to their full time jobs in order to make ends meet. Mitchell Parton gives you a lot of food for thought about this. He recently wrote an article in the Dallas Morning News entitled “How many minimum wage jobs do you need to work to rent in Dallas?”.  He concluded, “in both Dallas and Fort Worth, it takes more than three full-time minimum-wage incomes for a person to comfortably afford the typical one-bedroom rental home”.  To me that is such a staggering fact when it comes to measuring affordability in Dallas and of course this issue of part time jobs as well.

Another thing to consider when you see a lot of part time positions is that many companies will begin taking on part time positions when they are tightening their belts. It’s actually an indicator that companies are cutting back. 

Secondly, the BLS got a little creative with the numbers. The Bureau made changes to their methodology with what’s named the ‘population control effect’. Thus, the job report numbers are artificially high because the weighting of how they calculated those numbers had changed.

And thirdly, unemployment typically rises only after a prolonged economic downturn. In other words, raising interest rates might slow an economy down, but that won’t be reflected in jobs data. You’ll have to be well into a slow down before you’ll see it reflected in a job report. 

The International Monetary Fund even comments on this phenomena saying that, “At the start of a downturn, firms would rather reduce work hours, or impose some pay cuts before they let workers go. Unemployment starts rising only when the downturn is prolonged. Because unemployment follows growth with a delay, it is considered a lagging indicator of economic activity.”

So, lots of reasons the unemployment numbers may not be as remotely promising as they appear at first glance but at the end of the day all three metrics showed growth. 
Bill Adam, Chief Economist with Comerica Bank in Dallas summarizes it this way. He said, “The takeaway is that the economy is still growing solidly. Total inflation rose more than expected, so this is a further sign that inflation is sticky in early 2023 making it more likely that The Fed would keep interest rates higher for longer.
Peter Cardillo follows that up saying, “The Fed is probably going to be more hawkish. Whether that translates to a 50 basis-point rate hike in March remains to be seen. But we are likely to see three more rate hikes.”

The Market

And really, that brings us to the point where we have to talk about over-tightening and how much this month’s data increases our odds of an even more severe recession. If you look at this chart you can see where the Fed’s target rate began in March and how much movement it carried just in 2022. Extending that into 2023, it has already raised rates by .25% additional points. Based on January’s data Cardillo predicts three more rate hikes with one of them possibly being a .5 hike. 

I think this chart is really telling. You can see three major times the Fed has hiked rates in the past 25 years. In both 2000 and 2008 when they aggressively raised rates, each time resulted in a massive recession. If they were to raise as much as Cardillo suggests, by summer they will be at a targeted rate of 5.25 to 5.5. The last time they raised the rate that high triggered the great recession of 2008. 

Kyla Scanlon describes it this way. She says “Right now, Jerome Powell is walking a tightrope. He’s trying to stick to a narrow path, and disaster looms if he strays from it.” She continues, “To one side of his tightrope is the catastrophe of high inflation” and to the other side “is the abyss of a hard recession.” She concludes that “Everyone knows what that means. The danger there is raising rates too high — carrying debt becomes expensive, everyone pulls back on their spending, and all of a sudden the economy is shrinking.”  

I think the inconsistencies of the data are really frightening considering where we could land with the Fed continuing to tighten. Dallas is particularly vulnerable because we have a lot of underwater buyers right now. If a recession hits and we see unemployment skyrocket we’re going to see a corresponding wave of foreclosures that could crash the housing market. We talk about that in this video, which you may want to check out next.

Dallas Homes Just Got More Affordable!

You’ve probably heard by now that you can get a fabulous deal on new construction in Dallas but what you may not know is that homebuilders have had a massive paradigm shift in 2022. 

Well we’re going to talk about that today. First we’re going to talk about the opportunities that this shift has brought to affordable new construction. Next we’re going to check out some low-priced hotspots in existing homes that are absolutely exploding right now and finally, we’re going to talk about the elephant in the room. Sometimes people worry that affordable may mean high crime and low school ratings. Well stick around to the end because we’re going to talk ALL about that.

Affordable New Construction

This article by Dallas Morning News really caught my eye. Looking at the title I was thinking “Hey, this sounds like a great post. We can talk about where Dallas builders put the most houses this year.” The more I dug into it the more excited I got because yeah it tells the highest construction numbers but it tells an even more exciting story than that.

Looking back on where new construction has been, in June of 2022 the average sales price of new construction in Dallas was $516,000. That’s a great price for a move-up buyer. If a homeowner comes out with 200,000 from selling their home, hey, $516k is pretty reasonable. That’s what builders were targeting in 2021 and early 2022. The move-up buyer and price points in the 5, 6 and 700k range.  

Well imagine my surprise when I checked out the most active submarkets in Dallas and saw that 10 out of the 15 highest concentration of new construction submarkets all had a median home sales price of under 400k.  And that’s the median sales price, meaning there are just as many homes priced under that $400k as there are above it.

New construction has taken a completely different turn since the Fed started raising interest rates. Mitchell Parton explains that there is simply “lower demand in communities aimed at buyers moving up from a starter home.” So while new construction used to be geared towards move-up buyers, that just isn’t working for builders anymore. Current home owners - you know, the ones who would be the move up buyers? Well they’re comparing today’s 6% interest rate to the 3% they have with their current home and they’re just saying “no thanks!” They’d rather stay put than to switch from a 3 to a 6% interest rate so the move up buyer is like poof - vanished. 

So we’re seeing in Dallas this massive paradigm switch. The move-up buyer is nowhere to be seen so now this incredibly exciting shift has taken place to where they’re focusing on the first time buyer with more affordable homes. People, it is about time!

As you look at this chart of those most active submarkets you can see the affordability allstar is Kaufman County with a median price of just $324,000. I took a look at new construction in Kaufman County and get this - I found brand new construction listed for as low as 212k. The greater demand for starter homes has completely changed builders’ focus and, lucky for you, it’s resulting in vastly lower prices. 

Within Kaufman County you have quite a few winners. In Forney’s Trinity Crossing subdivision you can score new construction for as low as $229,000. 

In their Travis Ranch subdivision you can choose from at least five different models all priced under $300,000.

Other fantastic opportunities you have in Forney include Briarwood Hills, Arbordale, Oak Creek and Overland Grove. 

Still within Kaufman County you’ll find Heartland where you can pick up a 4 bedroom, 3 bath home with 1880 square foot for less than $300,000.

In Crandall, in their Highbridge subdivision you can find a 3 bedroom, 2 bath home for only $251,000. In Crandall’s Wildcat ranch you can get a 3-2 with over 1800 square foot for just $295,000. Their River Ridge subdivision also has new construction under 300k. 

In Kaufman you can score a 4-2 with almost 1,800 square foot for $295,000.

So are you getting the idea here that there are some great prices in Dallas right now?

But suppose you want to be a little closer to the action in North Dallas? Well lucky for you we have Royse City. Their Waterscape subdivision has homes beginning at $298,000. You can find dozens and dozens if not hundreds of homes all under 350,000 in their Parkside Village, Ambergrove, De Berry Reserve and Verandah subdivisions. 

Further north and within a half hour commute to Plano you have Princeton. In their South Park Meadows subdivision you can score a 3 bedroom, 3 bath home with almost 1,600 square foot for $279,000.

In their Town Park North and Winchester Crossing subdivisions you have dozens of homes to pick from, all priced under $350,000.

Headed further north into Anna you’ll find their Shadowbend subdivision homes start at 325,000. Their Camden Parc and Green Meadows subdivisions have homes starting at just 358,000.

Anna’s not the only one with affordable opportunities in the north! Aubrey has its fair share of opportunities with their Aubrey Creek Estates and  Silverado homes prices starting at $350,000.

West of Fort Worth and clustered along highway 114 you have massive subdivisions popping up including Sendera Ranch Watermill where you can find a 3-2 bath starting at $278,000.

Also with prices under $350,000 you have Liberty Trails Express, Elizabeth Creek and Rivers Edge. 

Further South in Fort Worth you’ll find Newberry Point where you can pick up a 3-2 for $294,000.

Their Sycamore Landing, Hulen Trails and Woodland Springs all have dozens if not hundreds of homes under $350,000. 

Now keep in mind these are not the only places you’ll find new construction under $350,000 these are just the massive subdivisions, among the top ten highest producing homes in the metroplex we saw this many. The market has spoken, homebuyers need more affordable homes and Dallas builders have been listening.

Well that gives you an idea of new construction. 

But what about existing homes?

Glad you asked! Like I said, we’re going to take a look at Dallas’ most affordable hotspots!

Bill Hethcock from the Dallas Business Journal mentions that “Prospective buyers hunting for the most affordable homes in DFW are well-served to look to the southeast.”

He says “Even with the sharp ascent in home prices in the last two years, cities such as Forney, Terrell, Lancaster, Seagoville, Ferris, Hutchins and Wilmer offer relative bargains.” He explains that prices here are much lower “compared to neighborhoods closer to downtown Dallas, in North Dallas, and in the suburbs to the north.”

The most exciting and most vibrant of these communities is Forney. Bill Hethcock shares how “Forney’s housing market was the hottest in North Texas”

In fact, “Of all ZIP codes statewide, only Katy and New Braunfels outperformed Forney, according to the Opendoor data.”

So what makes Forney so great? 

Well, affordability and tons to choose from! The deals Forney offers buyers are bringing people in from all over the nation. Just “Compare Forney and Terrell to suburbs north of Dallas with a similar-distance commute to the heart of Big D, and the difference in home prices is substantial.”

How much difference, you ask? Well let’s take a look. “From January 2022 to January 2023, the median price of homes in Frisco grew 22.2%, to $649,300. The median price in Prosper grew 19.7%, $825,400, in the same period. And in Little Elm, the median price grew 22.8%, to $429,800 according to NTREIS.”

“That means a buyer of a median-priced home in Forney would pay” anywhere from $465,000 to $70,000 less than in those northern Dallas suburbs. 

And it’s not just Forney! The article goes on to mention suburbs such as “Terrell, Lancaster, Seagoville, Ferris, Hutchins and Wilmer” as well priced too. This is some seriously exciting news. Both new construction and existing construction in Dallas are finally giving some affordable options.

Alright, well let’s talk about the elephant in the room. I know you’re probably thinking, Wendy, what about crime and school ratings? If an area’s affordable won’t it be more likely to have high crime and bad schools? Well that can be true sometimes and you can also run into affluent areas that struggle with crime. Thankfully the tools exist so you can feel confident in your home search. There are a multitude of ways you can assess things like crime, schools and anything else that might be important to you in your search for the perfect place to call home. I want to share just a few of those sites with you. 

Well let’s talk about crime. The first site is Family Watchdog. Family Watchdog is going to show you registered offenders in your area.. If you scroll to the bottom you’ll see the Map Legend which shows you offenses against a child, sexual battery, rape and other offenses. You simply enter an address, for example I entered Washington DC. Whew! Looking like the whitehouse might need to amp up their security a bit! 

There are several other sites that can give you a feel about crime in an area: crimegrade.org, neighborhoodscout, and areavibes.

Now suppose you’re curious about schools. You need to know if an area has good schools. Well fortunately there are multiple ways to check out schools. You have niche.com, greatschools.org and my personal favorite quantitative source - the Texas Education Association. There is no opinion in this source and that’s why I like it so much. It’s pure data and can give you an excellent idea of how schools are doing. In fact, I made an entire guide of TEA school ratings covering most counties in the Dallas area. You can see on this guide that most counties scored some A’s, mostly B’s and just a few C’s. Collin County made the strongest appearance with just A’s and four B’s Now if you’re an absolute data junkie you can check out the TEA’s website for a full spreadsheet analysis that will give you all the school information you need and a little more besides! 

The third site I want to mention to you is world population review. This site is loaded with incredibly annoying ads but in between those ads is a mother load of information. Say for example, you want a home that is stable and not growing, or you want the opposite, you want a home that is exploding in growth so you’ll be sure to find new construction here. You can find that out here. For example, check out Midlothian’s growth curve compared to Plano’s. Midlothian is growing at a rate of 4.43% annually whereas. Plano is a mostly landlocked city with older homes. It is growing at a rate of .88%.

Say you’d like a suburb that has mostly homeowners. Folks put down deep roots and you like that idea. Or say, you plan on renting and would like an area where you can find plenty of selection. You can find that out here. In fact, let’s compare Midlothian to Denton. Midlothian has a home ownership rate of 80.1% whereas Denton has a home ownership rate of 50%. Denton is a big college town so that’s very logical but again, if gives you a good flavor of the suburb. 

 Say you want to know if a suburb has mostly families or is a vibrant singles scene. You want to know if there are going to be plenty of sports and activities for your kiddos or you want to know whether there are going to be plenty of bars and comedy clubs. Well, World Population Review can tell you how many people are married and how many people have kiddos! The cool thing about world population review is it can help you visualize a suburb using criteria you might not have thought to check. Would you have thought to check population density to figure out how crowded a suburb will be? Probably not! But World Population Review can show you that. This is an excellent site when you’re trying to get information about a suburb.

It could be that you’re still caught up on the big picture. Like you’re wondering when the market’s going to crash so you can get a good deal anywhere you look. Well, we talk about that in this video, which you may want to check out next!

The Foreclosures are here. Are you ready?

In the early 2000s, if you had a pulse, you could buy a house. Well, the husband and I each had a pulse so we bought houses. Lots of houses. Between 2003 to around 2008 we bought over 30 fixer uppers and OUT of all of those homes, 28 of them were foreclosures. 

Foreclosures are here, the numbers are growing and today, we’re going to talk about those numbers and I’m going to tell you exactly how you can buy one. Oh and stick around to the end because we’re going to go over the foreclosure numbers in real time, right here in Dallas. 

Well, Attom Data Solutions reports that “U.S. Foreclosure Activity In January Continues To Increase Annually For 21 Consecutive Months” In their January Foreclosure Report they showed that “there were a total of 31,557 foreclosure filings which is up 36 percent from a year ago.” They expressed their concern that ”The uptick in overall foreclosure filings points toward a trend that may suggest more increased activity is on the horizon.”

You know, just as Van Thompson describes, “no one likes to think about economic turmoil and the tragedy of people losing their homes.”  However, he comments that “one family's tragedy can be your family's gain if you choose to buy a home in foreclosure.” He reports that “Foreclosed homes are, on average, about 28 percent less than other homes.” The National Association of Realtors reports that “foreclosures sell for about a 20 percent discount compared to conventional sales. But that's an average - many sell for much bigger discounts..” Let’s put that in real numbers. If you’re buying a home for $400,000 by thinking outside of the box and buying a foreclosure you can walk in the door with $80,000 in equity. 

What are foreclosures? 

Elizabeth Weintraub explains that “foreclosures are homes that a bank has foreclosed on and now carries in its inventory.”. Basically, if a homeowner gets behind on their loan payments the bank can seize the home and resell it. 

Buying a foreclosed home is different and a bit riskier, but it’s not that much more complicated than buying a traditional home. It’s more work for the Realtor so you need to use an experienced one. But for the buyer it’s more that you have to be flexible, it may take a little more time, and you have to be willing to see the diamond in the rough. 

Now, Step 1 to buying a foreclosed home is finding one. 

I’ve got some great news for you on this front: by and large, foreclosed homes are going to be listed in the MLS right alongside all the others homes. The bank usually wants to have the greatest exposure possible right? So they’re going to list it where everyone else is looking. Now you’ll generally find those same foreclosure listings on each individual website and they might show up there first! If you want to be the early bird that gets the worm we’ve listed several of those websites in the description section.

Step 2: After finding a foreclosure, take a look at it!

Well if you’re going to see a house that’s been foreclosed on, you need to prepare yourself mentally for what you’re going to find. First of all, the home’s going to be vacant with utilities off so bring a powerful flashlight!. Secondly, it’s probably not going to be in great condition. Investopedia says it well, “after all, if the owner can't make the payments, they are likely falling behind on paying for regular upkeep.” 

So don’t be too put off if the home is dirty or smells from being closed up for too long. Remember, no one’s been living in this home since it’s been foreclosed on and it’s quite possible the family moved out long before the actual foreclosure. The walls are probably dirty, you might find pencil or coloring marks, or maybe there are holes. The carpet’s probably stained. It’s going to look lived in because the previous owners didn’t have any motivation to clean it when they moved out. For you to visualize this, it might help to look around your home now. You probably have some things you’ve been meaning to fix and haven’t gotten to yet and unless you’re Martha Stewart you probably have your share of dirty walls and bathtubs. Picture if you put your home up for sale at this very minute without cleaning at all - that’s what many foreclosures will look like. Remember that $80,000 in equity? Be prepared that it may come wrapped in a not so pretty package.

Ok, so you’ve survived the showings. You’ve managed to visualize a diamond in the rough and you’re ready to make an offer. Let’s get to the good part. 

Alright, Step 3: Submitting an offer. 

This is where foreclosures are a little different. There’s not going to be a seller’s disclosure for you. Texas law does not require foreclosures to have a seller’s disclosure. Plus, you’ll be signing a lot more forms than you would with a regular home purchase. You might even feel like you’re signing your life away. 

On top of that, you’ll find the offer process and option period are quite a bit more rigid than a traditional sale. Banks will often demand a specific amount of earnest money and specific details for the option period as well. Sometimes there isn’t even an option fee. They’re giving you an inspection period and it’s not up to you or how much you offer for an option fee. 

You can expect them to tell you exactly how to submit your offer, what kind of financing they will accept, and they will probably require that you include proof of funds for your earnest money with your offer. In fact, it’s pretty common for them to require this to be a copy of an actual earnest money check and sometimes even a cashier’s check.

Don’t expect to include things like home sale contingencies. I have seen them assist with closing costs but in general, the cleaner and simpler the offer the better. Now, all of these things may or may not be the case with the foreclosure home you’re looking at. Foreclosures are owned in different ways and the way you submit an offer will depend on who owns it. 

So how do you tell the difference?

According to Forbes, a “bank-owned property—is property owned by a lender (like a bank or credit union) or government entity (like Fannie Mae or Freddie Mac)”

With bank foreclosures, each bank can be vastly different in how to submit an offer, whether they will consider any repairs or whether or not the sale is as-is. It could be large banks like Wells Fargo or Bank of America or it could even be small banks you’ve never heard of. 

Another type of foreclosure is HUD homes. These are homes that had FHA financing and were foreclosed. Since FHA financing is government backed, HUD is owned by the government as well. Submitting offers on HUD homes is very different. Here’s something important to know: HUD wants homeowners, not investors. Even though it’s a government entity you may find they’ll do things to prioritize bringing in what they call an owner occupant.

When offering on a HUD home you’re going to start off by submitting a bid in an auction. Hud.gov states how these auctions are first “offered on an exclusive, priority basis to owner occupant purchasers (people who are buying the home as their primary residence).” Now don’t let the word auction scare you. For the most part this process is signing paperwork like you would any other offer. Your Realtor is the one doing the extra work in terms of submitting an offer on the auction. There are plenty of Realtors who just won’t work with foreclosures because it is extra work.

Speaking of which, a HUD home can’t be bought with just any Realtor. Nope, they must be certified - “In order to qualify to sell HUD Homes, real estate brokers must complete and sign (specific) forms”

Another type of foreclosure are the ones that were originally VA loans.  VA foreclosed homes are also backed by the government but they are guaranteed by the Veterans Administration, not HUD. “The Department of Veterans Affairs (VA) acquires properties as a result of terminations on VA-guaranteed loans. These properties are marketed for sale through Vendor Resource Management (VRM).”

If you’re making an offer on a foreclosure, prepare for a response on the offer to take a much longer time. These often have to go through several chains of command who each have to sign off on it before any decisions can be made.

Ready to move on? I know that was a lot of information but there’s still more! 

Step number 4 is the Option Period

So your offer has been accepted! Woohoo! But don’t celebrate for too long because the clock is ticking. You’ll often have a built in inspection period that you don’t get to choose. 10 days is a common time frame. 

The foreclosing bank will generally turn the utilities on for the inspection so you can get a better idea of what is and isn’t working but most of the time you’ll be looking at an as-is sale and the inspection is just fyi. 

According to bankrate, “Most banks will allow inspections,” “but will not provide any assistance in repairs.” Basically, the option period here is very similar to what you’d see with a traditional sale except that they usually won’t offer any negotiations on repairs. 

Ok, Step 5: Finishing things up 

Once you are out of the option period, the rest of the sale is just like any other sale because it depends on you as the buyer. If you think about it, most sellers don’t do much after the option period, the ball is in the buyer’s court. 

You’ll work with your lender and then move towards closing. The only possible difference here is that the owner may charge a penalty by the day if you don’t close on time.

Step 6: After closing

It’s pretty common for the sellers to winterize the house so be cautious when turning the utilities back on. You’ll also often see that the sellers will change the locks so be ready for that. 

And that’s how you buy a foreclosure. You made it! 

Now let’s take a look at how many Dallas homes we’re talking about that are in foreclosure.

According to Attom data solutions, “Lenders starting the foreclosure process are up 169 percent from 2021.” And “In Texas, foreclosures rose by 187.3%  in the first six months of 2021 to the first half of 2022. The foreclosure rate of one in every 1,005 homes ranks as the 19th highest in the nation.” 

Last month Attom updated their report and said “Those states that saw the greatest number of foreclosure starts in January 2023 included Texas with 2,136 foreclosure starts.”

Scary stuff! What’s in store for 2023??

Well, Daren Blomquist describes how “a growing backlog of pandemic era properties that are no longer mitigated by foreclosure-protection law” could drive foreclosures in the year ahead. 

He explains that, “While pandemic protections were highly successful, there is still a small backlog of distressed properties that is gradually growing...This backlog represents one source of likely foreclosure volume in 2023.”

Black Knight states that as of August 2022 “488,000 mortgages were considered “unprotected, meaning they were either delinquent or in foreclosure and not covered by forbearance or loss-mitigation programs.”

Daren Blomquist explains that another problem “is the growing risk of an…economic downturn that pushes more homeowners into distress.” He continues saying, “if the U.S. unemployment rate rises to 6% in 2023… an estimated 56,000 additional foreclosures would be completed next year.”

Basically, if things continue on as they are now we can expect to see around 175,000 foreclosures this year.  However, Blomquist states “this number could swell by nearly 60% to 278,000 if the country slips into recession.”

Now remember when I explained how HUD is the governing entity that forecloses on FHA homes? You can expect a lot of these upcoming foreclosures we’ve been talking about to come through either HUD or VA. Why is that? Because FHA loans require a very low down payment and VA loans don’t require a down payment at all and that’s bad news when home values have dropped. Black Knight explains that “More than 25% of 2022 FHA and VA mortgage holders have now dipped into negative equity, with 80% having less than 10% equity” When these buyers get into trouble it’s going to mean foreclosure because they don’t have the equity to sell their homes.

This could be a huge problem for Dallas and I did a whole video exploring this crisis of underwater homes that you can view right here.