2023 FORECAST in DFW real estate!
Hey, this is Jay Wu from White Pagoda Group. Wish you all a great year of 2023 moving forward! In this blog, we are exploring the economy forecast of year 2023 and how it will impact our regional economy in DFW area along with its impact on DFW real estate.
First, let’s talk about macro-economics. 2022 is a very turbulent year. We’ve heard in news record-high inflation, massive COVID government subsidies, high interest mortgage rates. But we beg the fundamental question of how we got here in the first place?
Since COVID, government across the globe has applied Quantitative Easing (QE) strategies to stimulate economy, which essentially is another way of saying “printing money”. At the same time, people quarantined themselves at home and had nowhere to spend their money. This led the personal saving rate to soar, and we estimate that U.S. households accumulated about $2.3 trillion in savings in 2020[1].
When COVID ended or seemed to end in 2021, people started their shopping spree, high demand and low supply both caused inflation. Despite high inflation spiking spring 2021, Fed ignored its mandate to fight inflation, suggesting inflation was “transitory”. On top of all of that, Russian invasion of Ukraine in early 2022 that further limited supply of oil, gas, wheat, metals, etc. Only in early 2022 did Fed start hiking Fed Funds Rate and reversing Quantitative Easing, but once inflation gets out of control it is hard to stop.
How about housing market? Well, as we all know, houses are one of the most efficient financial instruments to combat inflation. People had money, they saw everything more expensive all of a sudden and they bought houses to put their money where it was worth. Record-low mortgage rates and low inventory along with high demand drove the housing prices to explode. [Figure 1]
Figure 1 Home prices exploded in 2021 and 2022.
Things started to change since the Fed raised prime interest rate mid 2022 to cool off the “inflated” economy. Unemployment then was lowest in the past 50 years, but the Fed was even willing to sacrifice employment to get the artificially inflated economy under control. That’s why you see massive layoffs (even more to come) around the country. Spikes in Fed interest rates led to mortgage rates to surge, which resulted in a housing sales halt and sharp price drop. [Figure 2 & 3]
Figure 2 Sales volume in DFW area
Figure 3 Home Price Appreciation in DFW since 2008
So, what’s going to happen in 2023? [2]
9 out of 10 economists are predicting a 2023 recession.
Fed raising rates and vacuuming excess cash from market are going to cause layoffs and profit difficulties for companies
There are going to be more people who are forced to sell their homes due to financial stress, adding to supply of existing. Fortunately, high levels of equity will minimize foreclosures, and you won’t see a systematic failure that was observed in 2008.
Well, that’s again the analysis of national economy of the past, present and the future at the macro-level. How about the DFW area, the regional economy, and the local real estate market? Before we look at DFW of 2023, let’s dive into the economy of DFW in a longer timeframe, say next 5 to 10 years.
DFW area has witnessed a consistent population growth over the past decade. People are moving to the area from all parts of the country. US Census Bureau estimated an average of 150 people moving to DFW every day [3]! DFW is already the 4th largest metropolitan area in the US and Texas Demographic Center projected its population to reach over 10 million in 2040, replacing Chicago as the 3rd largest metro area [4] [Figure 4].
Figure 4 DFW population growth and projection
At the time of this writing, Jay has witnessed a large number of people from California (including himself) relocating to the DFW area because of job opportunities, no income tax, lower regulations, affordability and most importantly, larger houses.
Job growth outlook is also good. US Bureau of Labor Statistics has listed DFW area #1 in terms of job creation. [Figure 5] Many large corporations are moving (or in the process of moving) their headquarter to the area.
Figure 5 Job Creation in US Metro areas
In a nutshell, DFW metro is certainly going to grow, more people are moving into this area. So, your real estate investment is going to be safe in this area, regardless. But how about housing prices in year 2023?
Da-dang! Below is the DFW home prices forecast report from Texas A&M University Real Estate Center [5].
Figure 6 2023 DFW Home Price Forecast
It assumes several scenarios for the economy and its impact on the home prices [Figure 6]. They expect the economy to be somewhere between soft landing and 2.5% GDP growth (where the red circle is). That translates into 0.19% – 3.61% home price increase. Below is the graph they’d project the home prices to be over the entire 2023 using a regression model analysis [Figure 7].
Figure 7 2023 Forecast of Seasonal Price Movement for DFW homes
[1] https://www.federalreserve.gov/econres/notes/feds-notes/excess-savings-during-the-covid-19-pandemic-20221021.html
[2] Fair Texas Title Report: https://www.fairtexastitle.com/
[3] US Census Bureau: https://www.census.gov/
[4] Texas Demographic Center: https://demographics.texas.gov/
[5] Texas A&M University Real Estate Center: https://www.recenter.tamu.edu/
