IS DFW in a housing bubble?
Bedford, TX · Member since 2016 · 79 posts · 24 votes
Hi all,
I recently read rich dad, found bigger pockets, listened to podcasts... and wanted to get into RE. doing a little research, it would appear that my timing is off as usual. Homes that where selling for 80k 2 years ago are now selling for 150. people getting into bidding wars, paying more than asking, this sounds like a bubble to me.
I also went to the Tarrant county foreclosures on Tusday, and people where bidding over appraised value on homes they could not get inside and do any kind of inspection.
So am I right to say that DFW is in a bubble and sit this out for the next few months or is this the new norm? are we going to see rents double since homes have doubled?
Curious to know what those that have been doing this for a while are doing.
There is likely no bubble in Dallas. There could be price points or property types with higher inventories. In LA that is 1 million plus SFRs and still not in a bubble for those. Some folks who commented have been saying LA was in a bubble 3 and 4 years ago. Wrong. Now they are probably wrong again 1000 miles away. At least they are consistant. Consider the fundamentals of supply and demand as noted. Then consider in order to have a bubble normally a certain level of over leveraged financing exist. This does not exist yet. Yes, prices are higher than before. That is what happens when supply does not keep up with demand. I am sure there is an insitition in Dallas who covers the REI forecasts that can break down all the major stats as to exactly what, where, when and why. Good luck with your search!
I kind of agree. Matt knows his stuff. I think people are waiting on sidelines waiting for a huge bubble to burst and they;re going to be sorely disappointed if they don't start making some investments now.
I'm not saying overpay for a non-cash flowing fixer. Just get in, do a ton of due dilligence, and grind hard to make the investment work.
Like Matt said there's so much equity, not a lot of leverage on unsound properties. It's not like the last bust.
I think there will be a correction. I also think our market is "bubbly" and full of speculation, but there's so much equity and cash in RE that any downturn in economy won't be like the recession of 2008-2010 years. I also think locally (so cal) prices will go up 5-15% or stagnate before any measureable correction. Could they just drop if there's a recession in china or some other event? Yes. But it will be OK for people who are smart, savvy and prepared.
I'm still buying properties distressed at 20-40% off retail prices. If the market tanks 10-30% I'll be OK. I'll just adjust to the times. Grind. and repeat
I owned and self-managed properties during the recession. It was a pain in the *** but it's not like the property prices dropped as fast as stocks. Nor did the tenants all stop paying rent at same time. We managed to get by and held on to properties and watched them return through the 2011-2016 run up.
To very worried noobs: if you're afraid of a big crash just dissolve the assets and then repeat... that's what the big successful investors do. Fail then brush off and repeat. Go build something, house hack, downsize your current living situ and make an investment for future.
I keep making mistakes every day. My suggestion to the noobie (that is well educated of course) is just go buy the property learn, fail, break even or make a **** load of money
PS I guess if Trump decides to go to war with China or something then we could have more probs then taking a hit in RE. If that happens then I'll just wait it out on my land w/ my revolver. Bring it! j/k
I know this is an old thread but just came across it Hey George I have grown up in DFW area and also work in austin area and have rentals in both and lots of what people are saying is correct. I think lots of people in DFW keep assuming that the high end jobs will keep coming and that all companies want to move to texas. The thing is that Texas market has been hot for about 10 years where investors from cali, NY and other states have been flocking to DFW, Houston,Austin so for rental housing that has increased the price a lot where rents would have to keep increasing in order to be + cash flow and low vacancies to be good investment people who bought homes in 2009-2013 got some deals. I think if the companies stop moving to texas and decide to move to other states (who now are offering good bonuses to come to their state since they saw how good it worked for Texas) they will move remember companies are there to make profit and give good returns to their investors so they will cut any cost and take any benefits any state gives them to save cost on moving and bonus and benefits the other thing it takes it really smart people to work for them which Texas has a lots of Just like California but other states are not too far off either some have even better talent (Mass,NY, Penn) etc and people will move for jobs if they get paid better so not only high rents but Texas will have competition from other states as they need to create more jobs in their state. So I would be very careful if you need more than $1500 rent to break even or just barely get +cashflow I think the rents will stagnate and as more apartments get build and rehabbed they will create more options for singles and the people with families who can afford to pay $1500+ in rent will be looking for a home to own renting is prob temp and if they like renting they would prefer swanky place which usually new apts offer that lifestyle and pet friendly its prob only credit that is stopping them and as time passes if they make good decisions the old stuff on their credit comes off increasing their score. May be look at surrounding and not famous areas to see if you get good deals as people from DFW who work regular low to mid pay jobs will have to move out to those areas to rent that is what is happening to austin where people making less than $15/hr are having to move out to get cheaper rent a little just to be able to pay bills. I dont know if DFW is too overvalued but I think the growth will slow down a lot next few years and rents will stagnate so be careful with deals where 2-3 month vacancies will put you behind and get into foreclosure status. Good Luck
@George Genovezos I'd say it's on the verge but it depends on the area. Let's compare Frisco and Dallas for example....Dallas is mostly built out and development is much, much more expensive to get started right now. Frisco is booming and has developments left and right because it's cheaper. Both areas are experiencing high, high demand and developers are currently losing ground because demand is increasing which is driving up the price.
no bubble gets my vote. Leverage is still low (relative) and increasing demand from new residents will maintain pricing at a minimum
If everyone tries to sell at the same time, then yes, classic bubble. In the long run (millions of years) isn't everything a bubble?
However, job market still strong, people are still moving to the area, and home prices are holding steady.
@George Genovezos - There is always profit in all the markets all the times, depends on your game plan and where you are in REI journey. Few cases:
A. A friend sold CA property in 1986 bought in DFW with that money, sold in 2016 at discount.
B. Investor friend with close to 1000 properties decided to focus on selling 43 non performing properties this year. So far 26 down 17 to go. Only one purchase this year so far.
C. Investor convinced to buy in an area @75K - $80K where another CA investor is trying to sell his 8 properties for $285K.
I suspect if CA investor would get anywhere close to his asking price. You need to remember who is buying and selling.
Thanks
Vivek
I have been in real estate for 30 years as an Investor. What you need to keep in mind is you need many different exit strategies to be successful in real estate investing. What I mean is you need to know how to Wholesale real estate when the equity is there to do so. You need to be able to Buy & Hold properties to generate income on a monthly basis.
You also need to know the most popular exit these days is to Buy, Fix & Sell, but you need a lot of equity to do that. Then you also have notes, right now you can get some really good deals on notes. They may not be local or even in Texas but keep an eye out for them. Some notes may have a lot of equity in them, so if something goes wrong you actually may end up with that property and a lot of equity.
So as a real estate investor you need to be able to adjust to the market conditions as they change. Be in properties that have exit strategies that work for you now. You may also consider opening an IRA to wholesale, sell, or buy rentals & notes with. Then you are also building your wealth for the future.
The main thing is position yourself so you can maneuver positively no matter where the market turns. If you keep your eyes on the market and not so much the quick buck, you can become very successful at this real estate game!
Yes, a real estate bubble is occurring in multiple locations throughout Texas. I've been through two market corrections and even the economic gurus never disputed the evidence just prior to the aforementioned corrections occurred. The few who did were ostracized. We're now 8 years in to a 7 year economic cycle and the inevitable is getting closer. Major retailers are closing and have been for the last couple of years. Malls are becoming more and more obsolete. As these buildings become vacant, they will go back to the banks. Many folks believe that the sales staff working for these stores such as Macy's, Sears, Target, etc. will not have a big impact on the housing market. I believe they're wrong. Most of those employees are not breadwinners in the family, but making their house payment depends on that income. As more commerce is conducted online, more of these major retailers will shut down stores which impact other businesses, who then fall in a domino type effect. There are a number of other factors that will come into to play but these are the factors that are easily observable to most anyone who is paying attention. When will the next correction occur? I personally think we're already seeing a cooling in some areas and I suspect within 18 months we'll see significant signs of a correction.
This is a great thread so wanted to update it and say we are definitely experiencing some cooling off in the luxury markets (600K-1MM) in the DFW area. Inventory, price reductions, and DOM are all on the increase month over month and YoY. This is the price point/location the last recession started to rear it's head here. Also, most of your new construction is in this range as well since land prices have soared causing builders to build larger homes to make the profit margins they need. What's going on in your markets the last 90 days or so?
@George Genovezos Not speaking about cap rates here (such as the latter being compressed or not). Based on historical price-income ratios as of Q1 2020, the state of Texas is overvalued, yes, at 11% above historical levels. Fort Worth (Tarrant County) is further overvalued at 13% above historical levels. Dallas County looks better at +6% valuation. PM me for any data, further info.
@Stefan Tsvetkov
It’s all supply and demand in the DFW area. 600 people a day have been moving here for the last couple years. There just simply isn’t enough housing for all these people. Out of state jobs are coming here due to Texas being a business friendly state. Most out of state moves are from California. Incomes here have been rising and you can still find homes to buy under 300k close to all the high paying jobs. I don’t see it slowing down anytime soon.
I know this is an old thread but I'd like to continue it. I am a Washington State investor thinking about investing in this area. I really don't want to go over $100k until I build a solid team and know the market better. Looks like the metro area anything under $100k is in a rough neighborhood or is practically a tear down. I am considering out of town about an hour in the Greenville area or Sherman-Denison. I've seen lots of wholesalers posting properties for around $80k. Rents are about $800-1200. Depending on upgrades rehabs will be about $30k. Do you think they'll be room for growth and equity in these markets?
@John Morgan Housing shortage (what you call supply and demand), indeed reduces the 'overvaluation', typically shifts affordability upward to a new steady state level. It: 1) needs to be verified with Census county-level data for housing units and population; 2) Precise impact on valuations/effect on prices to be computed.
At the state level (haven't looked at county level myself), I see Texas as overvalued on top of its housing shortage. And yes, the state level data does show some housing shortage for Texas.
Overall, precarious there if a peak happens, until there gonna be momentum of course.