North of Dallas housing inventory is low, and home prices are high. It is a trend homeowners have become all too familiar with in the past several years.
From 2007-16, new home values in Collin County increased by approximately 43 percent, and new home values in McKinney increased by approximately 60.39 percent, according to data from Residential Strategies Inc., a residential real estate market research company based in Dallas.
Industry officials say the result of these increases is that housing inventory that has been considered affordable has changed.
From 2015-16, the average home price in Collin County increased by approximately 8 percent. During the same time period, the number of homes on the market in the $200,000-$249,999 price range decreased by 2.4 percent while the number of homes in the $300,000-$399,999 range increased by 4.4 percent, according to the Real Estate Center at Texas A&M University.
“Currently there’s not enough housing that is being produced in the entry level, and what we used to think [of as] being entry-level—a $150,000 home—is virtually nonexistent,” said J. Martin Sanchez, CEO of the McKinney-based development company the Sanchez Group and president of Creu Capital, a development firm that will develop the future Cross F Ranch mixed-use development in McKinney.
Issue of affordability
Six years ago, at any given time, there were about 25,000 home listings of less than $200,000 in the Dallas-Fort Worth area, and that number has shrunk to less than 5,000 today, said Ted Wilson, principal at Residential Strategies.
“At the same time, to be able to afford a $200,000 house, you have to have a minimum household income of about $55,000,” he said. “The number of people that make $55,000 or less has increased by 58,000 in Dallas-Fort Worth the past six years.”
Wilson said this means there are more people competing for fewer properties in the $200,000 price point range.
“Affordability has been the real issue,” he added.
Sanchez, who plans homes ranging in cost from the high $200,000s to upward of $2 million in the future Cross F Ranch development, said homebuyers need a range of cost points.
“I think if we can continue to focus on making sure that we deliver to market the broad spectrum of housing choices, then I think we’re in to see more years of prosperity,” Sanchez said. “We just can’t continue on this pace of [relatively] unaffordable housing stock because it’s just not sustainable.”
A typical housing market sees a 1-2 percent annual price increase, Wilson said.
However, from 2015 to June 2017, there has been a 9-10 percent annual increase in home prices and about an 8.9 percent increase in appraisal values across Collin County, said Derek Baker, a McKinney Realtor with Keller Williams North Collin County.
“I honestly don’t see there’s any reason to expect any change [in the housing market],” he said. “Meaning we are still going to have high demand all across Collin County, especially [in] McKinney and Frisco and [Allen and Plano], plus Prosper.”
Major Collin County developments taking shape along the Dallas North Tollway in Plano and Frisco have drawn thousands of workers to an influx of relocated national headquarters and a range of companies big and small.
Wilson said since 2011 the Dallas-Fort Worth area has seen “an incredible influx” of jobs—to the tune of 600,000 positions—which has put an increasing strain on the market.
As of today, it would take about 35 days, give or take five days, to sell all homes on the market in McKinney. The ideal inventory is 60 to 90 days, Baker said.
“[With the exception of] some natural catastrophe or political event, [in] the next three to five years we [will] have somewhat of an insulated market here,” Baker said. “So what I mean by that is you have almost guaranteed equity from year to year for homebuyers, and the evaluation and the prices are going to go up at least 8 percent a year.”
The ‘California effect’
The recovery from the Great Recession, which started in late 2007, and a flood of homebuyers from other states has also affected the affordability of the Collin County real estate market, Sanchez said.
According to the January 2017 Texas Relocation Report, the total number of residents moving to Texas from out of state in 2015 increased 2.8 percent year over year to 553,032 incoming
The highest number of residents moving to Texas came from California with 65,546 people, Florida with 33,670 people and Louisiana with 31,044 people, according to the report.
“What’s really kind of single-handedly held this market up is the fact that we’ve had so many people move in here,” Wilson said. “People need a place to live.”
The relocation report also showed 21,568 people moved to Collin County from out of state in 2015, ranking Collin County seventh out of the top 10 Texas counties with the highest gains in out-of-state residents.
Although many people lease homes in California, they are able to purchase homes in McKinney because prices are lower, Baker said.
He said in his experience, people relocating from California typically buy homes in the $250,000-$350,000 range.
Baker said he believes there is a misconception that California buyers are paying for homes in cash, which he said is not the case. He said he does not think there is any difference in the number of cash home buys because of California resident relocations.
In May, there were 69 cash home buys in McKinney and 690 cash home buys from May 2016-17, according to the Collin County Association of Realtors. These numbers are not specific to California residents.
However, the influx of California residents, or the “California effect,” has helped create and maintain the seller’s market Collin County is experiencing, Baker said. The demand to meet the influx of new residents puts more pressure on the housing market, which results in more bids on a single home.
Baker said he has seen homes receive 27 offers over the span of 72 hours.