In Dallas-Fort Worth, the pace of growth in apartment rents continued in the first half of 2022, driven by in-migration and company expansions and relocations.
In the first half of 2022, investors snapped up more than 12 billion in apartments. There was a net absorption of 23,900 units leased in the first half of the year. Additionally, Dallas ranked 3rd for construction starts in residential and commercial real estate recently. More than 17,000 new apartments have been added to the Dallas, Texas market and that is mind-blowing.
The Dallas housing market is still strong even in the 4th quarter of this year. Home prices may not be skyrocketing at the same rate that they were last year but the appreciation continues. While sales are down from this time last year, they are still well ahead of 2019 and 2020. Much of the decline from last year to this year can be attributed to inflation and recent interest rate increases that are cooling off many other markets across the country.
According to Zillow, the typical home value for the Dallas-Fort Worth area rose by a whopping 20.4% in the past 12 months and their forecast is that it will rise by 2% between September 2022 to September 2023. It shows that Dallas housing prices are likely to continue to rise even if there is a downturn in the current market.
They may not climb as swiftly as they did in 2021, but they are expected to continue northward. For the seventh consecutive year, the number of Texas house sales and the median price reached all-time highs, according to the Texas REALTORS review report for the last year. Housing demand reached an all-time high, and we witnessed numerous multiple-offer situations, including homes that drew dozens of offers and sold for significantly more than the asking price.
The Dallas apartment property market continued to record rapid rent gains during the third quarter. Rent growth in the past three months topped 3 percent; this marked the sixth consecutive period where local rents have posted a quarterly spike of at least 3 percent. Rents are being driven higher by rapid employment growth, particularly in high-wage sectors of the economy that have created a more affluent renter pool.
Operators also maintained significant pricing power when vacancy rates hovered around all-time lows late last year and in the first few months of 2022, although vacancy has trended closer to historical averages in recent quarters.
Dallas is often one of the top markets for the construction of new units, but deliveries to this point in 2022 have lagged levels from recent years. With the number of units under construction on the rise, the pace of deliveries will accelerate in the fourth quarter and carry over into 2023.
Dallas’ apartment market sector should continue to be strong for the rest of 2022 and into the coming year, but less robust than last year. National investors still place the apartment market at the top of all CRE sectors and Dallas’ job growth and high migration numbers will keep it among the top transaction markets.
Working against strong demand fueled by favorable demographics in Dallas are supply-side issues of rising interest rates and cost inflation for development inputs, including labor. These factors will depress a certain level of new construction in Dallas in 2023 and beyond.
Increasing interest rates reduce first mortgage loan proceeds, forcing developers to supply additional equity, or in the case of affordable housing, secure more subordinate gap funds. With loan underwriting now typically constrained by debt service coverage ratios rather than cost coverage ratios, any increase in development costs will stress equity funding or other sources.
By the end of 2022, Dallas is forecast to add roughly 26,500 new multifamily units, down slightly from 2021. Dallas’ annualized rent growth of 16%-17% through the 2nd quarter of 2022 is unsustainable over another year and should fall as employment growth slows from the past year’s incredible gain of 294,000 jobs and as population growth eases.
A variety of national economic forecasters expect annualized rent growth in the Metroplex to fall below 10% by the first quarter of 2023 and to 4-5% by the end of next year. Employment growth is expected to fall to less than 150,000 new jobs for the full year 2022, with population growth running between 105,000 and 115,000 new residents, again below peak years.
As informed investors we should understand the risks associated with real estate investing and that there is no guarantee. Please do your due diligence.
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What is the Dallas Apartment Property Market Report 2022?
The Dallas Apartment Property Market Report 2022 provides a comprehensive overview of the current state of the rental market in Dallas, including market trends, rental demand, and construction projects.
What is driving the growth of the Dallas apartment property market?
The growth of the Dallas apartment property market is being driven by a growing population, an increasing number of new residents, and a shortage of rental apartments.