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Dallas-Fort Worth Is Likely In A Housing Bubble, But Don’t Worry, It Won’t Pop

When it comes to the housing market, “bubble” is a four-letter word. Inextricably linked to the crash of 2008, even the hypothetical mention of a bubble can make a person squirm. But is it possible for a bubble to exist with virtually no risk of a pop?

Housing experts say not only is it possible, it is the reality in Dallas-Fort Worth today.


A housing bubble is defined by a period of unusual growth in demand paired with a spike in pricing caused by limited supply. While this sounds eerily similar to the situation DFW is in now, there are several key differences between the housing markets of 2008 and 2022 that should prevent an eventual crash. 

“The bubble that we had for the Great Recession, the demand was artificially driven by irresponsible mortgage underwriting,” said Phil Crone, executive director of the Dallas Builders Association. “Now, the demand has been driven by years and years and years of our inability to supply it and meet that demand.” 

Demand for housing in DFW crescendoed in the early months of the pandemic when historically low mortgage rates sent a flood of new buyers into the market. This, paired with high levels of in-migration, strained existing home inventory, but it also put pressure on the building community, said Ted Wilson, principal at Dallas-based Residential Strategies.

“There’s no question that we have seen unprecedented year-over-year appreciation of housing values in this market,” he said. “Builders were overrun with demand for new housing when mortgage rates were around 3%.”

According to Wilson, Dallas has been running on a short supply of housing since at least 2012, when institutionally backed investors converted large batches of inventory to rentals post-recession. The shortage has mushroomed over the years, and by the end of February, housing in DFW was at a 0.7-month supply, down from 1.4 months a year prior. 

The widening gap between where housing prices are and where they should be based on long-term pricing trends means DFW’s home market is overvalued by nearly 46%, according to data from Florida Atlantic University. At the end of March, the average price of a DFW home was $370,501, an increase of roughly 29% year-over-year, according to Zillow.

“We’ve never seen anything like this in the Dallas market,” said Ken H. Johnson, a real estate economist and the associate dean of graduate programs at FAU’s College of Business. “Could we be a little bit off? Yes. Are we off tremendously? No. The fact is, the market is significantly overvalued.”

Buyers privy to the uber-competitive market are paying hundreds of thousands of dollars over asking, oftentimes in cash, inflating prices to the degree that the prospect of homeownership is no longer in reach for many families. For every $1K increase to the cost of a new entry-level home, 20,000 Texas families are priced out of the market, Crone said.

“Last time, it was a bubble that burst, and we all dealt with the fallout,” he said. “Now, it’s a bubble that’s floating away from so many families.”


Rentals are feeling the heat, too, because with so many buyers priced out of the purchasing market, demand for apartments has reached an all-time high. According to a new report by Cushman & Wakefield, rents in DFW grew by an average of 18.5% year-over-year in Q1.

“The rental market is also very expensive,” said Kelly Mangold, principal at RCLCO Real Estate Consulting. “Households that can’t afford to buy move to the rental market, but even the rental market isn’t that affordable.”

The building industry has struggled to regain its footing amid historic levels of demand, Wilson said. Housing starts in Dallas were at about 51,000 per year in 2006, but after the market collapsed, that number dropped to about 12,000. To make matters worse, the construction industry saw a steep descent in manpower post-crash. 

“Everybody is talking about [labor issues] off the tail end of the pandemic, but the reality that seemingly every other sector finds itself in now is the reality that construction has had to deal with for almost the last decade,” Crone said. “The workforce that was here pre-Great Recession never came back.” 

Last year, new home starts hit a record high of more than 58,000 units, up 20% from the year prior. The building industry wants to do more, Wilson said, but an already-tenuous environment became more fragile when supply chain disruptions ratcheted up the price of building materials. According to the Producer Price Index for Residential Construction, direct construction costs have gone up 43.7% since May 2020.

“The implication that everybody was raising their prices because they’re making all this money really wasn’t accurate,” Wilson said. “Builders were raising their prices because their costs went up, there wasn’t enough manpower and there were shortages of everything from windows to bricks to you-name-it. And it continues to this day.”

Demand for housing in DFW shows no sign of slowing. It is expected the region’s population will outpace the nation by about 250% for the next five to seven years, in part due to in-migration. Many buyers from coastal markets are able to bid up the price on existing homes, which inflates the value of the market overall, said Jon Redmond, vice president of Alliance Tax Advisors.

“For those people who don’t want to pay the high prices of coastal cities but still want a really nice house to live in, Dallas is really attractive,” he said.


Supply issues aside, there are some ways to address the worsening affordability crisis in DFW, Crone said. For starters, local officials need to have a frank conversation about the exclusionary impacts of zoning that make housing unattainable for many families, Crone said.

“Since its inception, zoning has been used to exclude people … and the discriminatory impact of zoning is still being written,” he said. “It’s being used to artificially inflate the price of housing, which is allowing that bubble to float away from a lot of families, and disproportionately ones in the minority community.”

There may be some relief on the horizon. After increasing in February and March, new data from the U.S. Census Bureau shows that housing starts decreased in April, which Mangold said is a direct result of increasing home prices and rising mortgage rates. 

“Interest rates have now in many cases surpassed 5%,” she said. “That’s starting to make a difference for people, and we are starting to see that in the starts.”

With inflation surging, some question whether the Federal Reserve can prevent a recession. But if the dreaded R-word does come to pass, DFW is in a better position to withstand it than most other markets, said Rogers Healy, owner and CEO of The Rogers Healy Cos.

“Dallas is one of the most protected real estate cities in the world, and we have the data to support that,” he said. “If we keep having interest rates increase and the war [in Ukraine] continues and people are still uneasy, then obviously, something is going to give, but I don’t think it’s going to be real estate.”