Here's a chart I put together that shows the number of single family home sales in the D/FW area for August of 2009 and also shows the months of inventory on the market for each price range. This data is interesting because it shows just how much the sales volume drops off on homes priced above $400,000. The difference in the months of inventory is evident as well, although the increase is significant on prices above the $300K to $400K range.
These numbers leave little doubt that the higher priced home market has declined significantly in D/FW.
Source: NTREIS data provided by Christina Anniboli at Republic Title
This data also helps to answer the question of how the real estate market is doing as a whole here in the Metroplex. Our market is doing very well compared to many other areas in the country, but there are some factors that are certainly affecting sales of higher priced homes. Besides the obvious fact that there is simply a much larger quantity of homes priced under $300,000, why does there seem to be such a significant difference in these numbers?
I believe there are several reasons, but here are the ones that are likely causing a significant impact:
- Jumbo loans (loans over $417,000) have tougher qualification standards than in previous years, plus they are not backed by a government-sponsored entity such as Fannie Mae or Freddie Mac. The interest rates for jumbo loans are also higher.
- The FHA loan limit in the D/FW area is currently $271,050. FHA loans typically offer the best combination of low interest rate and low down payment for buyers in this price range. So while the higher priced market is suffering, the lower price market is moving at a decent pace. The chart above shows a 5.4 month supply of homes in the $100-$200K range, whereas million dollar homes are 30+ months.
- Contrary to popular belief, the upper class is experiencing a downturn just like everyone else. And those that bought at the top of the market may easily have seen a 10% or more decline in their home value in the D/FW area. A lack of available financing at a certain price range will typically lead to an increase in supply, which drives prices downward more than lower price ranges with more financing options. With the exception of some changes and risk factor adjustments, most credit worthy buyers who can prove income can still obtain financing with down payments as little as 3-5% for homes priced in the low to mid $400,000 range.
- The HVCC process is arguably driving down home prices in many areas, which "trickels up" to higher priced homes. Although there needs to be a level of separation between loan production staff and appraisers, the HVCC process has some issues that many feel has led to homes being appraised for less than their market value.
The next three to five years will likely be very challenging for real estate markets all over the country, even in Dallas / Fort Worth. Some additional changes will likely be coming very soon with FHA and Conventional loans which may make it harder for some to obtain financing and may also drive down market appraisal values. Also, the $8,000 tax credit is set to expire soon. Although there is quite a bit of speculation that Congress may extend this program, we probably won't know for sure until the current program is close to expiration.
Regardless of all these reasons, the economy itself remains on life support to some degree. Until we are able to sustain some level of meaningful economic growth, these numbers will likely continue to decline.
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