Dallas Home Prices in 2012: Real Estate Market Review

It’s that time of year. With 2011 nearing its end, we are publishing our 2012 predictions for local housing markets around the country. Dallas, Texas is on the chopping block today. Actually, there won’t be much chopping in this market report (some light petting maybe).

Like other cities in Texas, Dallas currently has one of the strongest real estate markets in the country. So it will be nice to give some good news for a change. Here’s what you might expect from Dallas home prices in 2012.

Home Prices Over the Last Few Months, 2011

Between August 2010 and August 2011, home prices in Dallas dropped by -1.59%. This seems like a negative thing when viewed in isolation. But when you compare it to some of the other metro areas in the U.S., you can see that the Dallas real estate market is actually one of the most stable.

Here were the year-over-year declines for some of the other cities in the 20-city index:

  • Atlanta: -6.3%
  • Charlotte: -3.4%
  • Chicago: -5.8%
  • Dallas: -1.59%
  • Las Vegas: -5.8%
  • Miami: -4.6%
  • Minneapolis: -8.5%
  • Phoenix: -7.7%
  • Portland: -7.6%
  • You get the idea.

There were only two metro areas that posted price gains during this same period: Washington, D.C. and Detroit. When viewed in this list, a price drop of -1.5% doesn’t seem so bad. And when you look at the more recent monthly data, the Dallas housing market looks even better.

Here’s a snapshot from the most recent Case-Shiller Home Price Index (released on October 25, 2011). Dallas home prices are highlighted in yellow.

Dallas Home Prices
Price gains in Dallas over the last few months

You can see there was appreciation from June to July, and also from July to August. Some of this can be attributed to the seasonal uptick in home-buying activity. But the July-to-August data point is more telling of the true market picture in Dallas, regardless of seasonal fluctuation. It’s a better indicator of what might be in store for the Dallas real estate market in 2012. The next home-price index, which should be released at the end of November, will be even more telling.

According to Dr. David Blitzer, an economist and chairman of S&P’s Index Committee: “other [cities] such as Dallas and Denver never suffered the colossal losses seen in the sun belt.” He was referring to the peak-to-trough home price declines for major metro areas, going back to the start of the housing crisis.

The peak in this context was the height of the housing bubble, when prices were at their highest point. For Dallas home prices, this came around June 2007. This date is significant, because most cities peaked earlier, in the summer or fall of 2006. The Dallas real estate market did not go “bust” in lock-step with the other major metros, because it never had much of a bubble in the first place.

The “trough” for the Dallas housing market — the lowest point for home prices in a given period — came earlier than most major cities in the U.S. The pricing low-point for the DFW area came in February 2009. This date is also significant. The mini-bust that affected Dallas home prices was shorter and shallower than elsewhere. Peak-to-trough declines were around -11% in Dallas, as compared to…

  • -51% in Miami
  • -42% in San Diego
  • -33% in Washington, D.C.
  • -38% in Minneapolis
  • You get the picture.

In fact, Dallas had the smallest peak-to-trough decline in home prices of all 20 metro areas in the Case-Shiller/S&P 20-city index. The second-lowest was in Denver, which saw a decline of -14.3%. All of these indicators point to a housing market that was relatively stable before, during and after the housing crisis. This is why most economists have favorable predictions for the Dallas real estate market in 2012.

Foreclosure and Inventory Situation is Enviable

Many cities in the U.S. would love to have the kind of market stability we have seen in Dallas. Home foreclosures have produced excessive housing inventories in many metro areas. But that’s not the case in the Dallas real estate market. RealtyTrac recently published a report that showed the top cities in terms of (A) total foreclosures and (B) foreclosure starts for the third quarter of 2011. There wasn’t a single Texas city listed in the report, for either category. This is one of the reasons why Dallas home prices are more stable than most metro areas.

Foreclosure starts, Q3 2011
No Texas cities made the list

The foreclosure situation in Dallas is well in hand, because it never got out of hand. The housing inventory did not swell beyond the absorption rate, as it did in most of the cities shown above. As a result, the supply-and-demand picture is much more balanced in the Dallas real estate market. This bodes well for the future of home prices in the DFW area.

Predictions: The Dallas Real Estate Market in 2012

Dallas is one of only a handful of real estate markets where I would consider buying a home in 2012 (purely from an investment standpoint). Housing prices are dirt cheap there, compared to comparably sized cities in the U.S. Home prices are stable. And all of the data suggests that the worst is over, in terms of Dallas home prices. When you combine this with the low mortgage rates we are still seeing, it ticks most of the boxes (or circles, in this case) for being a good time to buy.

Good Time to Buy a House

This is the “overlapping circles” diagram we use to help buyers decide if it’s a good time to buy. The pink circle is obviously a individual factor — you need steady employment and sufficient funds to buy a house. The yellow and blue circles pertain to economic and market factors. Let’s talk mortgage rates. The average rate for a 30-year fixed mortgage dipped below the 4% mark this week. It has been fluctuating in the 4% range for months. Low rates are expected for most of 2012, as well. We’ve already talked about market stability in the Dallas real estate market.

I hesitate to tell others what to do, in terms of buying a house. I can only say what I would do in that situation. And from an investment standpoint, I wouldn’t hesitate to buy a house in the Dallas area right now. My most conservative prediction for the Dallas real estate market in 2012 would be for stable prices — a mostly flat line. But if things keep going the way they are, the city could easily see home-price appreciation somewhere in the single digits.

Disclaimer: This article contains real estate market predictions for the Dallas area. This forecast is our version of an educated guess, and it is not to be taken as “actionable intelligence,” to borrow a military phrase. Please do not make any investment decisions based solely on the information presented here. This market report is provided for educational purposes only.