One local investor says the shortage of supply is the problem, not investors.
By Mike Albanese
Special Contributor
Analysis from Redfin reinforces the notion that Dallas is among the hottest, if not the hottest, real estate market in the nation. The demand is so high that local governments, including the City of Dallas, are looking at ways to slow rising prices.
“Are we working on a bigger policy regarding the scourge of investment buyers?” asked District 11 Dallas City Council memberwoman Jaynie Schultz. “It is across the country, where individuals are no longer buying homes, but REITs (real estate investment trusts) are.”
One report on the matter said that Dallas city officials might consider limiting the number of homes that real estate investors can buy.
How to Slow Skyrocketing Prices?
April home prices in Dallas were up 13.1 percent year-over-year, listing on average for $440,000. The average home sold after just 15 days on the market compared to 24 days last year. Homes sold for about 4 percent above the asking price.
Limiting real estate investors’ activity in the market is not a new idea. Canadian Prime Minister Justin Trudeau in April imposed a ban on foreign investors from buying homes in Canada for two years, hoping to settle the housing market.
Ty Lee, Founder of Dallas real estate investment start-up Common Dwelling, a said that while he appreciates the city’s effort in addressing the problem, he is not on board with the approach.
“I can’t speak for other investors, but we can’t overpay. That’s not a profitable strategy. Consumers are driving up the housing prices because they aren’t buying based on a proforma,” Lee said. “It’s an emotional purchase so they will overpay and in the long run, it will still be a good investment for them. Shortage of supply is the problem, not investors.”
When asked to comment on a potential policy aimed to limit investor activity, Dallas’ Director of Communications Catherine Cuellar, said “the city doesn’t have such a plan, so there is nothing to discuss at this point in time.”
Lee said renters could be the sector impacted, explaining that in a rising interest rate environment, people need homes but can’t afford available homes.
“Limiting investor activity would remove a much-needed product for renters. Families need schools and space and sometimes an apartment doesn’t work for them,” he said.
Interest Rates Will Reduce Demand
He added the housing market is already being impacted by the higher interest-rate environment due to less competition in the marketplace and stabilizing prices.
“We’re able to acquire properties at or below list price. There are so many factors that can affect home prices: Interest rates, wage growth, population, and job growth,” Lee explained. “Short-term volatility can come from many places and mid-term elections are coming up.”
Restricting sales for real estate investors will not positively impact the single-family market, Lee said, noting the 5 million housing unit shortfall across the nation.
“If the intent of regulation is to increase supply and normalize home prices, focusing on providing permits and land rezoning faster would help more,” Lee said. “Logistics and supply chain issues are creating a negative impact on almost every industry. Time and energy should be prioritized to those issues.”
While Dallas’ housing market is red hot, it does not come without its challenges. Lee said there is substantial activity occurring on the periphery of Dallas-Fort Worth due to lower land costs. However, he questions if rents will grow enough to justify the increased cost of construction and delayed material timing.
Overall, Lee said Dallas’ economy is “strong and diversified” and job growth has been consistent. He said that once supply catches up, he expects prices to stabilize toward a “more traditional” appreciation of around 4-7 percent.
“We’re the 5th largest city in the country, but our cost of living is still below [New York], Chicago, and [Los Angeles],” Lee said. “We still have a ton of runway here for growth.”
