Dallas Home Prices Could Get Hammered by Economic Shakeout
The virus pandemic that’s shutting down the U.S. economy could cause a drop in home prices. Fitch Ratings is warning that home values in some markets will be vulnerable to declines because of the economic shakeout from the coronavirus.
“The broadening spread of coronavirus in the United States will slow down home buying activity and possibly lead to a decline in home prices, with a widespread and protracted period of containment,” the Wall Street ratings firm said in its latest housing market report. The home markets most vulnerable to value declines are in cities that have been considered to have overpriced housing, Fitch says.
According to the report, half of the overvalued counties in the U.S. are in Texas, Florida, Washington and California. Fitch says regions where home prices are most overvalued are Las Vegas (20% to 24%), Dallas and Austin (both 10% to 14%).
Nevada and Idaho (20% to 24%) are listed as the most overvalued markets at the state level, followed by North Dakota (15% to 19%).
Fitch Ratings has been warning for years that some of Texas’ major metro markets have had overheated home prices because appreciation has far outstripped income growth. The economic plunge expected because of the pandemic is adding downward pressure.
James Gaines, chief economist for the Real Estate Center at Texas A&M University, agrees with Fitch Ratings’ assessment. “I think that is a very likely outcome,” he said. “The effect will be local and variable. In short term, expect some price disruption. Longer-term recovery could be significant.” Gaines said the key to housing markets’ health will be job and income recovery after the worst of the pandemic is over. “I can’t see us avoiding another wave of foreclosures, but I’m not at all certain about the extent,” he said. “Government is going to bend over backwards on forbearance. Notice that the areas they mention were among the strongest growth markets of the past several years, where prices had accelerated significantly. These areas will re-emerge for growth again, but it’ll take some time.”
North Texas home prices have had some of the biggest gains in the country — up almost 70% since the worst of the Great Recession. And area median home sales prices were up an additional 7% in the first two months of 2020 compared with the same period last year.
Lawrence Yun, chief economist with the National Association of Realtors, said he doesn’t expect a big home price decline if the government and medical community are successful in mitigating the impacts of the pandemic. “If stimulus is rightly structured to help these companies and if a vaccine is discovered, then the housing demand will roar back,” Yun said. “If the economic quarantine is extended for over six months, then there will job cuts that feed more job cuts...”
