Friday, February 06, 2015

Clouds appear in the crystal ball for Dallas real estate in 2015

I tell people that I’m paid to worry. Actually, I would do it for free.
Even when things are booming like they are now for the real estate market in North Texas, I’m always hunting a dark cloud or two to muck up the silver linings.
Until recently, that was hard to do. With booming job growth and some of the biggest population gains in the country, it’s almost guaranteed that everything from office space to suburban homes is in hot demand.
Home prices are at a record high — up almost 20 percent in the last couple of years.
Office vacancy rates are at the lowest level in more than a decade. And net office leasing has zoomed past pre-recession levels.
Even the shopping center market, hardest hit of the property sectors during the economic downturn, has rebounded with new construction and investment.
What could go wrong?
Of course, interest rates are a worry.
The Federal Reserve has all but promised that it will hike the cost of borrowing money sometime in 2015. It’s only a question of exactly when and by how much.
Currently the cost of financing properties — everything from houses to hotels — remains near the lowest point in generations.
When mortgage rates rise, already expensive houses will cost more in monthly payments.
And new real estate developments like office buildings and apartments will be harder to finance and build.
But even more than interest rate hikes, I’m more worried about the collapse in energy prices.
I was around for the 1980s Oil Patch bust when oil prices went in the tank. So, I’ve seen this movie before.
The 1980s oil price plunge was by about two-thirds. Recent declines haven’t been quite that extreme.
The energy sector has been giving a super boost to Texas’ economy during the last few years.
Even in markets like Dallas-Fort Worth, where energy companies aren’t the top employers, thousands of residents have been getting direct profits from the oil and gas boom.
Now their royalty checks and stock dividends will be lower.
The impact will most likely first be felt in luxury housing and luxury goods.
It’s too early to predict just what kind of a job growth slowdown this will actually mean for North Texas.
The bite will surely be harder in Houston and Midland.
But make no mistake, the savings you see at the gasoline pump mean someone in the D-FW area will make less money next year.
That could be bad news for the real estate market.
So that’s what has me worried. But here’s hoping rosy forecasts about our diversified economy aren’t just wishful thinking like they were in 1986.

Steve Brown, The Dallas Morning News