I’m not an economist, nor have I ever played one on TV, but I can confidently tell you that it’s still an excellent time to buy real estate in Dallas. Working as a real estate broker for the past 25 years, I keep my finger on the market’s pulse and have a great feel for what’s happening out there. And while most real estate asset classes have slowed down, they have not hit the pause button. Undoubtedly, some attractive deals are still waiting to be uncovered; you just need to know how to find them.
DFW is a powerhouse of economic growth and has become an epicenter of America’s boom in real estate investment. The extraordinarily low vacancy rate in investment real estate properties has also been maintained.
Many of my investor clients have taken the Warren Buffet approach and have chosen to wait until there is “blood in the streets,” several call me weekly to tell me that they have cash ready to deploy. Because many investors with cash are waiting for the right opportunity, many are looking for the same thing, causing increased demand with low supply. As a result, they end up competing for the same stressed properties and inadvertently overpaying. However, a property doesn’t have to be labeled “stressed” to be a shrewd acquisition. It’s the equivalent of stepping over dollars to pick up dimes. A good example is the 2008-2009 market when many investors chased properties labeled “foreclosures” and missed out on other properties because the label gave them some innate value.
For retailers looking for locations in Dallas, the market is incredibly tight. Retail businesses have been very healthy in DFW, with few going out of business to free up space. It’s the same pattern we’ve seen before with high demand and limited supply. In my opinion, there will continue to be a fight for companies searching for retail space because there is not enough construction of new spaces. Banks in this sector have also pulled back from lending, with a few projects recently denying new construction loans even when the shopping centers were over 50 percent pre-leased.
In the residential sector, this may be one of the better times to purchase a property for the foreseeable future. Despite a slight slowdown, we are seeing record prices, and occasionally, we are seeing bidding wars for certain properties in high-demand neighborhoods. And while selling a home in this market may take longer, this does not mean the residential market isn’t growing. Dallas has seen an increase in population growth over the past few years as more jobs continue to be created in the region, properties are still being sold, and inventory is still relatively low. Because of this, homes in desirable neighborhoods haven’t seen a notable change in price.
The combination of low inventory, a lag in new construction, and high demand is a formula for price increase once interest rates drop again, whenever that may be. Please don’t ask me when, again, I’m no economist. However, when this happens, I believe prices will adjust quickly, and there will be bidding wars all over again until the supply catches up to the demand.
The perfect recipe for wealth-building in residential real estate is brewing. I’m recommending that my investors purchase lots and homes right now. We know the demand is already here.
The banking industry has affected each of the real estate asset classes. Higher interest rates and stricter lending rules have dealt a blow to real estate and businesses, often forcing them to seek new funding alternatives. However, when new challenges pop up, innovative solutions sprout. Private credit, often called direct or hard money, involves individuals, companies, or funds that lend directly to buyers, builders, and investors without involving a bank. They hold the loan and earn interest instead of selling it to other investors like banks do. Many of these direct lenders are experts in the local real estate scene. But it’s worth noting that with these new solutions come new risks. As Kate Marino pointed out for Axios, “A private credit market of this size is untested in a downturn, and regulators have little visibility into the risks it could pose to the markets.” Locally, I’ve seen hard money loans go from interest rates as low as 7-8 percent last year to 15 percent today. Some of my savvy investors have realized they can make more money loaning on real estate than by owning it, and it can be less risky if done right.
The real estate market is constantly changing, and there is money to be made in up and down markets, alike. And while no one has a crystal ball to predict what’s next, it pays to follow the real estate market closely so that you don’t miss out on the exciting opportunities the Dallas market still offers.
Arthur Greenstein is a luxury real estate agent for Douglas Elliman.