Happy summer, neighbor! It’s July 2021, so it’s time for another Lochwood Market Update!
June showed yet another booming month for home sales. Just check out the list of sales below. All but one home sold for at least 100 percent of list price (column to the far right), and most homes sold within days of being listed in MLS. In fact, the median number of days that a home was listed in MLS before going under contract was 11. That’s about the same as June 2020. The biggest difference in year-over-year statistics (also below) is the median sale price. That figure was up from $390,000 in June 2020 to over $450,000. Wow! That’s a 15 percent increase!
That being said, I feel like we need to talk about the questions on everyone’s minds right now. Are we in a housing bubble, and when is the bubble going to burst?
In short, the answer is no. Let me say it a little louder: NO. WE ARE NOT IN A HOUSING BUBBLE.
Why? Why are we not in a housing bubble? There are three main reasons that we are not in a housing bubble. Allow me to elaborate, please.
First….unlike the previous cycle that ended with the financial collapse, today’s housing market is not being driven by risky mortgage loans. Most of the people getting mortgages in this market have very high credit scores (they pay their bills on time and don’t over use their credit). They also have a decent amount of cash for a down payment (at least 5 percent down for conventional financing….3.5 percent down for FHA).
Second, homeowners are not using their homes like they would the ATM. Less than 40 percent of all mortgages are for cash-out refinancing. Additionally, homeowners are tapping some of their equity in order to update and remodel their homes, but most are being conservative and not tapping all of their equity. When homeowners have equity in their home, they don’t walk away from it because if needed, they can afford to sell it.
Third, supply is not to keep pace with demand. We quite literally have a housing shortage in DFW. There is not enough housing to keep pace with our population growth. That growth is coming from people moving to DFW from out of state, but it’s also from the families that already live here getting larger. Shortage of supply is expected to impact the market for a while, as both building materials and labor are not readily available to home builders.
Now, should we expect +10 percent annual appreciation forever? No, you should not. Why? Because income, which is a major component to qualifying for a mortgage, is not keeping pace with the rate at which home prices are increasing. Essentially, the housing price to income ratio is not sustainable. We saw this around 2017 and 2018 and when it happened then, prices did not plummet, they leveled off and appreciation went back to a more normal rate for our market, which is anywhere from three to five percent.
Are you feeling better about the state of the market? I hope so. Now, I know you may not like what all of this appreciation is doing to your property taxes, but on the positive side, your house is worth way more than it’s ever been worth in the past and that value will likely hold for the foreseeable future.
Have questions? Call me! I will always give you my honest opinion because my goal always been to be your trusted real estate advisor. I look forward to hearing from you.
Be well and stay cool,