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Housing Market Update (Janurary 2022)

For the past year, the housing market has been crazy. Prices have been way up and the amount of houses available has been low. Today, we are going to give you an update on where the housing market is currently and where we think it may go in the future.

The market currently
In short, nothing has really changed. We have no houses and they are all very expensive.

We currently have less inventory than ever before in Dallas-Fort Worth. Typically, in a balanced market, there is six months’ worth of inventory, meaning that if realtors stopped listing houses, there would be no more houses left to sell in six months. Right now, we have about a months’ worth of inventory.

In a normal market, prices usually dip between November and February because there are fewer buyers in the market during the winter. This year, prices just flattened out. They stopped rising, but they never fell. There are three primary reasons for this.

  1. The demand is still increasing
  2. We can’t build new houses
  3. Would-be sellers can’t move

The demand for houses here in DFW is increasing partly because so many businesses are moving to Texas. This is bringing in more people than were already moving here. To make matters worse, we can’t build any more houses due to supply chain issues. I have clients who still have not finished building their homes, and they started construction over a year and a half ago. Finally, there are some people who would normally sell their houses, but they are holding onto them because they have nowhere to move to. As you can imagine, this last point starts a bit of a cycle that can be hard to break out of. All of these issues combined are creating a historic housing issue.

Essentially, if you want to buy a house, you should buy a helmet first because it is going to be a bumpy ride.

The market moving forward
I was talking to our lender and he told me that interest rates have gone up a full percentage point. This may not seem like much, but it can have a significant impact on your monthly payments, depending on the price range that you’re in.

We knew that interest rates we going to go up. We actually talked about this a few weeks ago on our podcast. What I didn’t know was how quickly they were going to go up. I thought that they would try to raise it incrementally over the next year. What scares me now is the thought that this could be the first step in raising the rates incrementally.

For a while, houses were expensive, but interest rates were cheap enough that people could afford the houses at their high prices. However, now with the interest rates rising, the number of people who will be able to buy a house at a high price will decrease.

Typical supply and demand philosophy will tell you that this means that prices will start to go down. As the pool of buyers shrinks, demand will decrease, inventory will increase, and sellers will have to sell their homes at a lower price to successfully sell in a more competitive market. Unfortunately for us in Texas, it does not seem like the demand will shrink enough to make a difference. Other states may experience this, but with the increasing amount of people moving to Texas, this outcome seems unlikely to us.

Another possible scenario is that prices will continue to increase until buyers experience price exhaustion. Theoretically, there is a price ceiling at which people will decide that they are not willing to buy. I think we may reach this ceiling and this will eventually drive prices down. Obviously, different people will have different ceilings, but in general, a large percentage of people will eventually back out of the market once houses reach a certain price. Demand will shrink, inventory will be built back up, and prices will decrease.

Demand is still so high and supply is still so low that I do not think prices will be going down any time soon. They will come back down eventually, but that time is not now. Housing prices will continue to increase for the foreseeable future, which will eventually lead to a decrease in demand and, ideally, pric