Hexter Fair First American Economic Forecast 100615

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DFW Housing Forecast

Britt Fair

October 6, 2015


Economics Trivia

• Who is the #1 State for job creation for the most

recent 12 months measured (August ’14 to August

’15)?– California, which added 438k jobs. Florida was second,

with 243k. Texas was third with 212k.


Roadmap for Discussion

• Update on DFW housing– Highest $ volume in DFW residential resale history

– Transactions up 6% vs YTD’14; average sale price up 8%;

median sales price up 11%

– And 2015 gains are on top of records in 2013 & 2014

• Evaluation of possible economic threats predicted

early in 2015

• Final thoughts and predictions


Metro Job Growth (8/14-8/15)

Source: US Bureau of Labor Statistics

New York City 161,800

Los Angeles 124,800

Dallas/Fort Worth 103,500

San Francisco 70,600

Boston 70,300

Miami 68,700

Seattle 67,800

Atlanta 66,400

San Jose 55,500

Metro Areas With Largest Employment Growth


Employment Change (8/14-8/15)12 Largest US Metro Areas

Source: US Bureau of Labor Statistics


NTREIS Dollar Volume Since 2007

August 2015 home resale dollar volume was $2.683 billion, the third highest month all-time in DFW and an increase of 22% versus August 2014


August 2015 YTD NTREIS (resale) stats

# of

Sales

% Change vs. Prior

YearAverage

Sale Price

% Change vs. Prior

Year

Average Days on Market

% Change vs. Prior

YearMonths

Inventory

% Change vs. Prior

Year

22 Carrollton/F.Branch 1,312 2% $260,152 10% 25 -29% 1.1 -25%

21 Coppell 363 -4% $402,529 7% 41 37% 2.4 14%

10 Dallas Far N 852 3% $430,671 7% 32 0% 1.7 -18%

11 Dallas N 482 -5% $1,117,652 10% 55 -20% 4.4 4%

16 Dallas NW 505 -2% $324,287 9% 33 -18% 1.6 -18%

31 Denton County N 3,355 9% $227,660 10% 37 -18% 1.6 -26%

41 Denton County S 3,233 4% $316,857 13% 34 -6% 1.9 -5%

124 Grapevine 433 9% $336,100 15% 30 -3% 1.2 -21%

26 Irving 957 1% $266,091 8% 45 0% 2.1 -10%

20 Plano 2,456 -2% $353,158 9% 26 -16% 1.3 -7%

125 Southlake 448 0% $753,287 8% 59 26% 3.6 12%

9 The Colony 349 -8% $204,241 10% 19 -14% 0.8 4%


Case-Shiller Index: Prices Still Rising

Source: S&P / Case-Shiller


Case-Shiller Index: Prices Rising


Stock market wealth effect:Recovery has helped rich feel richer

Those with assets over the past 6.5 years are feeling good financially

• Stock market indices are at all-time highs• “Wealth effects”, combined with cheap financing, have fueled the current boom• In a nutshell, the rich continue to get richerSource: BigCharts, MarketWatch.com


Evaluation of Threats to DFW Housing

• Impact of low oil prices• The new 4-letter word: CFPB• Consensus prediction of rising

interest rates


Threat #1: Oil Prices Fall

Source: CNBC.com

Price of West Texas Intermediate Crude Oil has fallen dramatically since mid-2014


Impact of Oil Price Decline

• Has not been as problematic for DFW as feared– Diversified DFW economy has avoided much of the

impact, whereas Houston has taken a bigger hit

• But it could still negatively impact DFW jobs– Cost to produce a barrel of oil from a new well is ~$70

– If sale price per barrel remains below that, when

current wells in operation get depleted, oil companies

will lay off people and not drill new wells

• This will continue to provide negative pressure on

DFW/Texas economy for many months to come

• Housing threat level: 3


Threat #2: TRID

• New mortgage world started 10/3/2015– Consumer Financial Protection Bureau (“CFPB”) was

created by the Dodd-Frank law to protect consumers

• “TRID”: TILA/RESPA Integrated Disclosure– No more TIL, GFE, and HUD-1 forms

– “Loan Estimate” and “Closing Disclosure”

• Will be very annoying in initial months

• My tip: Build in longer lead times, longer leasebacks

• Don’t be concerned if November home closings are

low – it’s a one time statistical anomoly

• Housing threat level: 2


Threat #3: Interest Rates to Rise?

Rates have barely risen, not enough to choke growth

Source: CNBC.com


Impact of Interest Rates

• Asset values (real estate, stocks, etc) have gotten a

boost from low interest rates in recent years

• A large increase in interest rates will be what

eventually causes us financial pain– Home prices would have downward pressure from rising

mortgage rates

– Stock market would also be hurt, which could then also negatively

impact housing in its own way

• But the good news is that interest rates don’t look

like they will rise significantly over the next year– Core inflation is below Fed 2% target, and GDP growth still weak

– Appreciation of the dollar creates more deflationary pressure


US Treasury interest rates

• US national debt is $18 trillion, so for every 1% increase in interest

rates, we will pay $180 billion more in interest per year

• If “normal” interest rates are ~3-5% higher than current levels, you

can see that a return to “normal” would add significantly to the debt

• Thus, the US government’s financial stability stands to be harmed if

rates rise significantly

• CONSPIRACY THEORY: Given the negative consequences of a

normalization of interest rates, wouldn’t you think that the US

government (Treasury, Federal Reserve, etc) would do all it can to

keep rates low?– Lip service about being tough on inflation and ready to hike rates

• PROBLEM: Interest rates are controlled by the market, not gov’t

• Housing threat level: 3 in short term, 10 in the long term


Final Predictions

�DFW housing will continue to set all-time monthly records for months to come

�2015 key threats (low oil prices, TRID and interest rates) don’t appear ready to derail housing�The party will end when interest rates start rising, but that

does not appear imminent�Don’t panic when November sales figures look terrible

� We will probably see a 1-month temporary setback in sales volume, due exclusively to longer contract times due to TRID

� December and early 2016 months will return to setting records

�2016 looks strong for DFW housing, too�“Goldilocks” US economy (not too hot, not too cold) to keep

DFW housing on positive trend

Hexter Fair First American Economic Forecast 100615

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