New study turns down the heat on D-FW home prices

The outlook for the Dallas-Fort Worth home market has been upgraded in the latest forecast from a leading Wall Street analyst.

Fitch Ratings has warned for years that north Texas real estate values ​​are overheating. It is only one of the analysts who raised the red flags on the enormous house price increases that the D-FW area has seen in recent years.

But a new assessment by D-FW and other major markets explains that house prices here are “sustainable,” according to Fitch.

“Fitch considers real estate prices in 75% of the country’s statistical metropolitan areas to be overvalued,” said analysts from rating companies in a recently published report. “About half of the statistical metropolitan areas are overrated by more than 10%, compared to just 4% before the pandemic.”

According to Fitch, home prices in the D-FW area were 10 to 14% overvalued in the second quarter. But that’s a big improvement from earlier this year when the Wall Street firm said local house prices were between 20% and 24% overvalued.

Why the change? Fitch says it adjusted the way it looks at the numbers.

“The methodology has been revised to reflect recent pricing and macroeconomic dynamics,” Fitch’s Eleis Brennan said in an email. “Dallas is one of the markets that is seeing improvements with this model change.”

While D-FW’s homes got better marks, Fitch still referred to Austin as one of the most eccentric housing markets in the country.

Home prices in the Austin area were 26.7% overvalued in the second quarter, Fitch said. Only Boise, Idaho, had overheated property values ​​up 41.8%.

According to Fitch’s measurement, D-FW house prices rose by 16.6% last year.

The rating company predicts that property price growth across the country will slow in the coming year. “Fitch does not consider the rapid price growth of the past two years to be sustainable given the underlying fundamentals,” the new report concludes. “Existing home sales are also slowing, possibly due to affordability restrictions with first-time buyers.

“Factors such as falling timber costs, expired foreclosure and eviction moratoriums, new construction activities and potentially higher mortgage rates could limit future home price growth.”

North Texas real estate prices have increased more than 45% in the past five years. In July, single-family home prices in the Dallas area rose 23.7% year over year, according to the latest estimate by the S&P CoreLogic Case-Shiller Home Price Index.

Several analysts have warned that D-FW’s property prices are rising so much faster than wages for space that property could become unaffordable.

Another study just published by Florida Atlanta University and Florida International University said D-FW house prices are more than 30% above long-term price trends.

The same report said that Austin home prices are more than 55% higher than they should be.

“Buyer demand clearly exceeds supply in Austin and many other areas,” said Florida-based Atlanta economist Ken H. Johnson in the report.

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