Are Chicken Little analysts right about Dallas home prices?

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By now you may have heard that the sky is falling on the Dallas housing market.

Tens of thousands of folks have read my report about Wall Street firm Fitch Ratings’ warning about Dallas-area home prices being overvalued.

It’s not the first time out-of-state analysts have raised the red flag on the rate of home price growth in North Texas. Fitch has been alarming about our residential values for three years.

The rise in prices has been stunning.

Median home sales prices in the area have jumped by almost 80 percent in the last decade. And prices of preowned single-family homes are almost 60 percent ahead of where they were in the last real estate boom in the early 2000s.

Obviously growth of wages and income in the Dallas area isn’t rising nearly as fast. That’s why analysts like Fitch Ratings are fretting.

I get where they are coming from.

Last year’s 10 percent annual increase in median home sales prices in North Texas was more than twice the long term annual appreciation rate. While there have been some signs of moderation in the rate of price increases, the area is still one of the U.S. markets seeing the most gains.

That doesn’t necessarily mean that at some point values will collapse – especially with D-FW’s population and job growth.

"Typically, analysts compare price to income in a metro area over a long period of time, and use an ‘average’ as a benchmark," said Frank Nothaft, chief economist for CoreLogic. "This is a reasonable approach but needs to be interpreted carefully in an area that is growing quickly, like Dallas.

"Dallas is attracting a lot of higher-paying jobs as tech firms — start-ups as well as established firms — grow," Nothaft said. "As tech employees migrate to the Dallas area for higher-pay jobs, their earnings often exceed that of the median Dallas resident.

He said Dallas-Fort Worth home prices aren’t overvalued for many of the thousands of people each year moving to North Texas – especially those from high home price markets on the West and East coasts.

"In contrast, the median long-time Dallas resident sees prices grow more rapidly than their income and may feel priced out of the market, and/or that the market is overvalued," Nothaft said.

Nothaft and other analysts so far aren’t worried about the rate of D-FW home price increases as long as our economy is still growing.

"As long as job growth — especially for higher-paying jobs — continues in Dallas, then I would expect prices to continue to rise," he said. "The risk is if there is an abrupt slowdown in the creation of higher-paying jobs, or a sharp run up in mortgage rates

"Either event could trigger a marked slowdown in new demand, leading to stagnation in Dallas metro prices, or even a decline."

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