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Dallas Home Prices & Economic Growth
A look at Dallas real estate prices, and what the future may bring.
The story of Dallas for the past several years has been a growth story. For most people, that story has been felt most readily in the value of local homes. As the population of DFW has grown, so have home values. In this issue of The Bright Report, we focus on factors affecting the growth of home prices locally, and what the future may bring.

Home values are tied to many variables, but one of the most important variables is the number of new people looking to buy homes. As the chart at the top of this page shows, the total number of people moving to the DFW area (Collin, Dallas, Denton, and Tarrant counties) has been growing at a fairly steady 10,000 to 25,000 net people per year. Interestingly, Castle Hill’s own Denton county has seen the largest share of that migration, logging a full 20,000 new residents last year. Dallas County, on the other hand, saw about that many residents lost last year—many of them likely moving to the suburbs.

Of course, this migration out of city centers is not new. Suburban areas have seen massive growth as ex-urbanization has increased over the past years. Even so, the data shows that not all new suburban residents are from this particular trend. Many are transplants from other states following job opportunities or family. Indeed, what began in suburbs as a move away from the city has crossed the threshold of self-sustaining growth. The intersection of Dallas North Tollway and 121 is a perfect example. Already boasting the headquarters of JC Penney and Frito Lay, other companies have followed their lead, such as Toyota and JPMorgan, moving to the area more recently. These “anchor” businesses have pushed ancillary developments, such as The Star in Frisco, further boosting local development.

All of these professional jobs bring employees and those employees need a place to live; hence the swiftly rising home prices over the past years. Since January of 2014, home prices in the greater Dallas area have risen an average of 35%, and it isn’t just residential real estate reaping these benefits, commercial developments have filled the ever-growing demand for office and retail space in the area.

All of this growth has created a shortage of raw land. Indeed, as the rate of development increased over the past years, raw land prices have sharply increased. There are many fewer plots on which to develop than there were even five years ago. This scarcity should naturally lead to higher prices, and it constrains future development, lowering competition for those already here.

On the other hand, there are factors which should serve to mute the rate of growth over the next five years. In addition to inward migration, the last five years also saw historically low interest rates. Since most people finance their homes, lower interest rates make housing more affordable, and this naturally generated a surge in home demand. Most experts expect interest rates to begin moving upward—a trend already begun—which should serve to soften the future growth rate. Indeed, combined with already higher home values, this trend has priced (or will price) many out of the housing market. This change in market dynamics increases the demand for entry-level homes and more efficient housing, like condos and multi-family apartment homes. People will live somewhere, and as they are priced out of traditional homes they will seek non-traditional options.

Finally, the economic cycle also serves to either boost or drag down home values. As economic expansions take hold, people tend to see increased incomes encouraging them to “trade up.” Conversely, economic contractions tend to pull down the value of houses. As we enter the late-stages of the current economic expansion, there is doubt about the viability of future home price increases.

Our view is a bit nuanced on this issue. While it is true that economic contractions will create a drag on home prices, DFW has been somewhat insulated from these effects in the past. Through the 2008 crisis, for example, DFW home prices dropped “only” 12% on average—a drop which took just over two years to complete. Compared to the six year, 32% drop in national average prices, DFW proved remarkably resilient. That said, DFW isn’t immune to these cycles. And, as we see a recession likely within the next three years, we must account for this in our expectations.

That isn’t to say our view of future home price growth is negative; we expect a continuation of the upward trend. Rather, it is our view that the next five years of value increase may not be quite as stellar as the previous five.

All information provided herein is for informational purposes only and should not be relied upon to make an investment decision. This presentation is neither an offer to sell, nor a solicitation of any offer to buy any securities, investment products, or in-vestment advisory service. The presentation is being furnished on a confidential basis to the recipient.

The information herein contains forward looking statements and projections representing the current assumptions and beliefs based on information available to Bright Wealth Management, LLC at time of publishing. This information included is believed to be reasonable, reliable and accurate, (however no representation is made with respect to the accuracy and completeness of such data) and is the most recent information available (unless otherwise noted). However, all the information herein, and such beliefs, statements and assumptions are subject to change without notice. All statements made involve risk, uncertainties and are assumptions. Investors may not put undue reliance on any of these statements. There is no guarantee that the market will move in any direction, as there is no way to predict with certainty future market behavior. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make an informed investment decision based on individual objectives and suitability.

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It is the policy of Bright Wealth Management, LLC (“Bright Wealth Management”) that we do not disclose any nonpublic information about our clients to anyone, except as permitted by law. Bright Wealth Management restricts access to personal and account information to those employees who need to know that information in order to provide products or services to our clients. Physical, electronic and procedural safeguards are maintained to guard clients’ non-public personal information.
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