As Contracts Get Nixed, Dallas-Fort Worth's 'Overheated' Housing Market Might Be Cooling Off

High interest rates price would-be homeowners out of the Dallas housing market, and while demand slows, it remains higher than supply
High interest rates price would-be homeowners out of the Dallas housing market, and while demand slows, it remains higher than supply Photo by Markus Spiske on Unsplash
As more people moved to Dallas-Fort Worth in recent years, especially during the pandemic, the booming housing market showed little sign of slowing down. Demand spiked, but with interest rates now rising and a potential recession looming, DFW's hot market might be cooling off.

The U.S. Federal Reserve hiked interest rates, which has, in part, contributed to a slowing housing market nationwide. Last month, many DFW areas saw around 20% of signed contracts fall through, which, according to the Dallas Business Journal, is around 5% higher than the national average.

“In short, rising interest rates make housing less attainable and therefore reduce demand for new homes,” Phil Crone, executive officer of the Dallas Builders Association, said by email. “Nationwide, every quarter point increase can price over a million U.S. households out of the market for a median priced home.”

But this doesn’t just affect people who want to buy a home. It also makes it more challenging for those who have already started a contract on a house but can no longer afford it due to the increase in interest they would owe each month.

“Dallas has always been more resilient than the rest of the country, but we are not impervious to what's going on nationally,” Crone explained. “Every $1,000 increase in the price of a new home — whether that's from higher rates, inflation on materials, delays, etc. — prices 20,000 Texas families out of the opportunity to afford that home. While you may think that $1,000 over the life of a 30-year mortgage isn't much, everyone has their limit.”

Although Crone believes we are still economically stable because demand has outpaced supply, that also means many aspiring homebuyers are less likely to reach their goal. "Given the fact that home ownership creates so much wealth and opportunity," Crone added, "it worries me that so many are being left behind."

Peter Winscott, the regional sales vice president at the real estate tech company Orchard, said the high interest rates also affect those who bought homes and now feel like they might have moved too quickly.

“Nationwide, every quarter point increase can price over a million U.S. households out of the market for a median priced home.” - Phil Crone, Dallas Builders Association

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“There are certainly some buyers that may have been impacted by the changing mortgage rates and the amount of house they can afford," Winscott said by email. "However, there are also buyers who are seeing competition slow down a bit and may be experiencing buyer's remorse around the fear that they are over-spending, particularly if they bid over asking to win the house."

Bill Head, director of communications at The MetroTex Association of Realtors, pointed out that the slowdown affects both buyers and sellers.

"Homebuyers are dealing with an increase in their monthly mortgage payments and home sellers are not seeing the demand for homes that they have experienced for the last several years," Head said by email.

He added, "Buyers are being challenged with the increase in mortgage payments while sellers are dealing with their homes on the market longer with fewer offers being made."

But even with the higher interest rates slowing purchases in the market and making home buying unaffordable to some, the increased rates are slowing down a volatile market and have provided others the opportunity they needed.

“The other thing we are seeing is buyers with cold feet and uncertainty around the economy as a recession looms,” Winscott continued. “However, at Orchard, we’ve seen our highest number of our Dallas-Fort Worth customers putting new homes under contract ever. For those buyers who felt stifled by an overheated market, it’s been an opportunity to get their dream home.”

But Winscott also warned that in Dallas, the market has less than a two month’s supply of homes, whereas a healthy market has a four- or five-month supply. He said that the demand here continues to outpace supply, and the market will continue to be fairly competitive during the coming months.

“The past two years, the housing market has been at an unsustainable high with very low inventory of homes for sale, and a massive increase in demand for the few homes that are available, exacerbated by very low mortgage rates,” Winscott said.

“Now, we are shifting back to normal. It’s a good thing for the housing market to rebalance," he continued. "While rates may continue to shift around a bit, there are still going to be plenty of buyers in the Dallas area. And when rates inevitably come down at some point, the opportunity to refinance will be there.”

Either way, buying a home in the Dallas area will continue to be a struggle for many. For others, it's likely to remain out of the picture altogether.

For his part, Crone said the level of increased competition "isn't healthy," adding: "I wish we had a house for each of them."

"Even with a slowdown in demand, we've struggled for more than a decade to provide homes for all of these new jobs [and homeowners] to sleep at night," he said. "My bigger worry is that many of those people came to DFW because of how relatively affordable housing is here which means that price increases impact our region more than most."
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Kate Pezzulli, an editorial fellow for the Observer, is a graduate student at the Mayborn School of Journalism at UNT. Besides storytelling, she likes sailing, working on Jeeps, camping, potting and baking. Voted No. 1 friend in an apocalypse.
Contact: Kate Pezzulli