Dallas and West Coast Ground Zero for Next Housing Bust

The U.S. housing boom is not ending, it's over. Dallas and the west coast are in the spotlight.

Recent housing data has been downright miserable. New home sales fell through the floor and existing home sales had a string of six consecutive declines. That trend broke last month but it won't last.

The pending home sales index for October is down a very steep 2.6%. The lowest Econoday guess was -0.5% with the consensus unchanged.

The Wall Street Journal reports The U.S. Housing Boom Is Coming to an End, Starting in Dallas.

A half-hour drive straight north from downtown Dallas sits one of the fastest-growing counties in the country. Cotton fields have been replaced with Toyota’s new North American headquarters, a Dallas Cowboys training facility and a sand-colored shopping strip with a Tesla dealership and a three-story food hall.

Yet even with the booming growth, Dallas’s once vibrant housing market is sputtering. In the high-end subdivisions in the suburb of Frisco, builders are cutting prices on new homes by up to $150,000. On one street alone, $4 million of new homes sat empty on a visit earlier this month. Some home builders are so desperate to attract interest they are offering agents the chance to win Louis Vuitton handbags or Super Bowl tickets with round-trip airfare, if their clients buy a home. Yet fresh-baked cookies sit uneaten at sparsely attended open houses.

Dallas has been the “canary in the mine shaft” this housing cycle, said Paige Shipp, regional director for Metrostudy, a consultant to home builders. Homes are taking longer to sell, bidding wars are rarer and price cuts are more common as buyers absorb the impact of higher rates.

Inventory Change and Valuations

Builder Speculation

Two days ago I commented Builder Speculation: Supply of New Homes for Sale Surges to 7.4 Months.

Completed Homes for Sale

DFWRealEstate commented to my post "There were no consequences for those who created the last catastrophe, so it's not surprising to see a repeat of something similar."

SMF commented "I've been in construction for almost 30 years in California. After the dot.com bubble, I worked on far more residential projects than my prior years. This housing explosion ended in 2007/2008. During the last few years, we've been involved in even more residential projects than in any prior time period. Way overbuilt, again. No one learned the lessons of a decade ago."

Most Splendid Housing Bubbles

Wolf Richter at Wolf Street discusses The Most Splendid Housing Bubbles in America Deflate.

Case-Shiller National

Now let's check out some real gems.

Case-Shiller Dallas

Case-Shiller Seattle

Case-Shiller San Francisco

Wolf has a series of 10 charts that inquiring minds may wish to check out.

Party Over in The Hamptons

The Wall Street Journal reports The Hamptons Home Market Cools.

The Hamptons, the chain of moneyed oceanfront villages on Long Island’s Eastern tip, are considered a highly desirable place to be—unless you’re a home seller.

“Every block has a ‘For Sale’ sign,” said Robert Hohmann, who has been trying to move his five-bedroom Southampton house for the past two years. First priced at $3.7 million, the roughly 5,200-square-foot home with a swimming pool is now listed for $2.999 million with Frank and Dawn Bodenchak of Sotheby’s International Realty.

The Hamptons saw a dramatic drop in activity in the third quarter, with home sales plummeting 13% to 448 from 517 in the same period last year, according to a Douglas Elliman Real Estate market report. That is the third consecutive quarterly decline, said the report’s preparer, appraiser Jonathan Miller, who said he hasn’t seen such a scenario since 2008. Meanwhile, the number of luxury listings (those priced at the top 10% of the market) surged to 452—the highest level in seven years.

Housing Bubble Two

I believe we've proven the Fed re-blew the housing bubble.

They do not see it. Nor does the Fed see the stock market bubble or the junk bond bubble.

Powell is Blind

On Wednesday, I noted Lovey-Dovey Interpretation of Powell Speech Sends Stocks Flying.

In his speech conclusion, Powell offered these lines: "Eternal vigilance is the price of financial stability. We will publish these reports regularly as part of our vigilance."

I repeat my comment: Eternal vigilance my ass. These alleged wizards could not spot a flamingo in a pen full of turkeys.

Mike "Mish" Shedlock

Comments (30)
No. 1-13
offintherough
offintherough

HARP program ends Dec 31st...amazing that in a "booming" economy that this program wasn't sunsetted 3 years ago...3 million NINJA loans out there just waiting to roll over this recession.

shamrock
shamrock

Yes, the FED re-inflated housing prices. Wasn't that the goal, in order to avoid 10's of millions of foreclosures?

Stuki
Stuki

"Recent housing data has been downright miserable"

Now, what cold possibly be more miserable than being able to afford something?

Drinking water data must surely be really miserable, by that metric.

Kinuachdrach
Kinuachdrach

As it happens, earlier this year I made some comparisons of parts of the housing market in Dallas and in a rather attractive Second Tier Chinese city. Astonishing thing was that price levels were similar, despite the differences in incomes -- and making hedonic adjustments for size & quality, housing in Dallas was a much better buy.

If housing in Dallas is now mean-reverting to reasonable affordability (as it must), what does that suggest about the future of the Chinese property market? And if the Chinese property market starts to fall, that does not augur well for global stability.

Schaap60
Schaap60

It is different from 2006, at least where I'm at in LA. West Los Angeles and interior suburbs like Studio City, Encino, Culver City, and Santa Monica are through the roof. Even transitional areas like Westchester are insanely priced. Well over the 2006 bubble. Thousand Oaks where I live is about 35 miles from downtown and still 10-15% below the first bubble peak (even before the fires). Prices on the Westside and areas like Westchester are up roughly 40-50% more than areas just a little further out. I think it's a bubble everywhere, but there are spikes in some areas that weren't there during the first bubble. I'm told by people I know that it's due to jobs and proximity to downtown. We'll see.

2banana
2banana

Mel Watt retires in about a month...

Just saying...

KidHorn
KidHorn

I live in the Washington DC area. Prices area bout where they were at the peak of the last bubble. Not adjusted for inflation. DC doesn't have booms and busts like the rest of the country. The federal government is a very stable employer. Whereas some places may see + or - 25% in a given year, we see + or - 5%.

Peter_from_Dallas
Peter_from_Dallas

I've lived in Dallas for about 8 years now. I know you've already mentioned this in other articles, but I think the apartment market is in for an even bigger crash than the housing market. Everywhere you look, they are building new 500-1000 unit luxury apartments. (All the new apartment complexes are the high end variety) I keep hearing that there are so many people moving into the area that all these apartments are needed, however I can't imagine there could be that many people coming to fill up all these new units. If there were, the traffic would have gotten a lot worse than it has over the last few years.

The apartment I'm living in is nice and considered luxury, but it was built about 10 years ago. I started noticing about 3 or 4 months ago there are more empty units in my complex. I'm assuming if there's nothing at all on a balcony and I'm not seeing lights on at night, that these places are empty. I'd estimate there are probably 1/5 to 1/8 of the units in my place are sitting empty right now. They've built at least 8 apartment / condo complexes around the man made like I'm on in the past two years. There's at least three or four new units under construction now. Again, all of these places look like they have 500 to 1000 units. It's just insane the number of places going up.

BillinCA
BillinCA

While there is no doubt about the surge in housing prices since the last bubble, it would be helpful if folks making new bubble arguments (including this blog) would use real, inflation adjusted data. seeing it otherwise is mostly pointless.

Mike Mish Shedlock
Mike Mish Shedlock

Editor

Inflation-adjusted prices are pure bullshit to a new buyer. For starters, income did not keep up home prices. Which is why new buyers cannot afford the damn things.

JG1170
JG1170

A very high percentage of the houses you click on - be it on Zillow or Redfin, Trulia, etc - are sitting EMPTY. Many have been on the market for 200 days and more. How can so many sellers carry these empty homes for so long? Chinese buyers? Something just doesn't feel natural or right.

chongcheech
chongcheech

The corpse just got trillions of dollars in wall street cash infusions. I suspect its artificial reanimation will take a while to die again.

Tru$north
Tru$north

Smart readers take all these doomsday articles with a grain of salt. Remember, shocking articles generate clicks. Most of these gurus predict 10 crashes for every one that actually happens. That's not to say that there isn't some valuable information here worth looking at.

I've been trading property in DFW area for the last 2 years (buying and renovating or building) and while prices are up, every house I list for sale has sold within a reasonable time for fair market value.

Real estate moves in cycles and we may be nearing cycle highs, but that by no means implies a bubble and catastrophic bust. We will likely have a normal slowdown and an adjustment in prices that will give inventory and wages a chance to catch up - that's called a healthy market, not a bubble. Real estate is the best long term investment out there. Dont let these "expert" predictors scare you away. I'll bet THEY all own their homes.