North Texas Homes Nearing Unaffordable Level


As the Fed hiked rates 0.50% on Wednesday, mortgage rates are still struggling to find their groove and react to a multitude of market variables. The hope is that higher rates will stave off price increase nationwide as homes, especially in hot markets like North Texas, approach unaffordable levels based on Fannie Mae lending guidelines. This has investors on edge about the short-term future and the implications of higher rates and prices.

Fannie Mae guidelines stipulate that the loan total be no more than 28% of the borrower’s gross income in most situations. That number goes up to 31% if the borrower has other debts, and can be as high as 45% in certain cases. As home prices continue to rise, the hope is that higher rates will flatten them out, allowing borrowers to remain eligible for conforming loans and not become priced out of the market.

The median income for the Dallas/Fort Worth metroplex currently hovers around $80,000/year. The median home prices is approximately $320,000. This means that, at current interest rate levels, North Texas medians are towing the 28% line into unaffordable territory. If prices keep rising and rates remain the same, most North Texas residents will no longer be able to afford a home.

This is a cause for concern for many, as it could lead to a decrease in demand and, eventually, prices. While this may be good news for first-time home buyers or those looking to trade up, it’s not so great for current homeowners who are trying to sell. Another possible scenario, as investors gobble up more inventory at current rate levels, is that rental demand continues to increase as a reaction to the lack of affordability for would-be homeowners. In this scenario the increase rental demand could push rental rates higher. Investors used to locking in 3% rates on their properties are likely to need to charge more in rent to make deals work in a tight market. If that happens, the push and pull between supply and demand of rental properties will be influenced primarily by inflation and wage levels. If wages stay stagnant, rental rates can only go so high, making North Texas less desirable for investors and bringing home prices back down.

The next 18 months will be an interesting time in both the local and national real estate markets. Investors looking to acquire more properties in this tight inventory market are wise to connect with a reputable management company that will not only look after their portfolios, but help find them new opportunities before they hit the market.

If you’re looking for a premier property management service in North Texas or are interested in investing in real estate locally, give us a call today at 469-649-7666!


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