Renters may build the floor for home prices
December 2, 2010
By Steve Brown/The Dallas Morning News

Everybody from Adam Smith to J.C. Penney has understood that price is a function of supply and demand.

So if North Texas home sales are down 30 percent and the supply of houses on the market jumps 16 percent, what happens to prices?

That's right - hold on tight.

The latest Standard & Poor's/Case-Shiller Home Price Index numbers show that Dallas-area prices are down about 2.6 percent from a year earlier.

Don't be surprised if that index shows more declines in the months ahead.

The supply of single-family homes listed for sale with Realtors in North Texas has grown to more than seven months' worth - about the highest level in more than three years.

More than 39,000 houses and 3,600 condos are currently listed for sale with agents.

And new studies show that there's another 6.7 months' worth of "shadow inventory" - homes expected to come on the market at some point - out there in the D-FW area.

If the increases in inventory aren't enough of a drag on home prices, the drop in sales volumes makes it a done deal.

In October, existing home sales in North Texas were 30 percent lower than a year ago, when federal tax credits were still luring buyers into the market.

Housing forecasters warn of further double-digit percentage declines in home purchases in the months ahead, thanks to those pesky tax credits, which didn't run out until April.

Nevertheless, David Brown, director of the Dallas office of housing analyst Metrostudy Inc., expects current price declines to be temporary.

"Sales should begin to show a much stronger recovery by the middle of next year, causing prices to increase," he said.

Of course that's what we heard last year. And for a while in early 2010, it looked as though home prices and sales in the D-FW area were staging a comeback. It just didn't last.

Even the perennially optimistic National Association of Realtors has now tempered its tone and is saying that nationwide housing prices are likely to be flat in 2011.

I see a glimmer of hope for the local housing market that some sales agents may be missing.

With the increase in apartment occupancies in the D-FW area, landlords are starting to ramp up rents. Tenants who haven't seen a rent hike in years could be getting their notices in the months ahead.

"We are starting to see annual rent growth rates at that double-digit level start to emerge for select properties," said Greg Willett, vice president of apartment analyst MPF Research.

So with home price bargains abounding in North Texas and mortgage rates running at the lowest levels in decades, what will apartment occupants do when they start getting hit with hefty rent increases?

Many tenants in the newest rental communities are already spending the equivalent of a monthly mortgage payment.

"Property owners and managers absolutely do realize that significant rent increases will push some of today's residents into more affordable apartments or into home purchase," Willett said.

"Texas, in fact, should be the big test case nationally where we'll learn how vulnerable the apartment sector actually is to loss of renters to purchase," he said.

And any meaningful increase in home purchases will help build a floor under housing prices here.

Courtesy The Dallas Morning News
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