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8 Rules to Survive in Dallas’ Real Estate Market

Subprime fears got you down? Don’t worry. We’ve got some simple advice on how to weather the storm.
By Trey Garrison |

Subprime mess got you worried? It shouldn’t. Dallas hasn’t been hit nearly as hard as other parts of the country. (We’re looking at you, Miami.) Here’s your road map for 2008.

1. Don’t Panic
The market just ain’t that bad. Newspapers thrive on bad news and simplified headlines, especially in election years. Don’t pay attention to national news. Economics, like politics, is local. Yes, the national economy might be flirting with recession. No, North Texas is probably not. Yes, the “national housing market”—if there is such a thing—saw a boom and bust. No, the Dallas area did not. A slowdown in growth isn’t the end of the world. Yes, the far eastern and southern sections of Dallas saw price declines, but North Dallas homes saw an 18 percent growth in prices from 2006 to 2007. And overall, 2007 was the second-best year ever for home sales in North Texas, posting something like $17.7 billion in sales, compared with $18.2 billion in 2006. Median home prices are projected to grow by 6.4 percent between now and the end of 2009, while job growth will continue outperforming almost every major American city. A detailed demographic study suggests the Dallas area will add 6.4 million people in the next 20 years. Those folks are going to need homes. Hang in there.

2. Buy Now
A home, though, not a house. This is the time to look for a new home, not an investment property. Economic news is always told from someone’s perspective, and right now they’re telling it from the seller’s point of view. A leveling off of housing prices or a glut of homes on the market is bad for sellers but it’s a boon for buyers. Some sellers around White Rock Lake and Lake Highlands were getting a little uppity with prices, and the market correction is working in the buyer’s favor there. Meanwhile, in places such as Plano and Preston Hollow, while prices haven’t necessarily declined, properties are sitting on the market longer. What’s more, you’ve got a friend in the Fed. Rates are hovering below 6 percent and the Fed chairman isn’t shy about using the shears. On that note, in fact, if buying is just not in the cards, it might be the right time to refinance and lower your monthly payments. But this is only if you meet two conditions—great credit and you’re looking at a refinance for less than $417,000. If you treat your home purchase like what it is and not some cunning stock trade, there’s no reason not to pull the trigger now.

3. Buy From a Builder
Here’s the deal: new home starts in north Texas did, in fact, drop 36 percent between 2006 and 2007. Home builders were the first to take note of the changing housing market, and they scaled back their operations accordingly. Even as the canary in the coal mine, however, they weren’t fast enough. There are certain areas of the city and in the ’burbs where plenty of new homes are sitting empty and unsold. An existing homeowner with his home on the market who doesn’t get enough interest can always pull the property off the market and wait for the cycle to swing back in his favor. He can still live in it, rent it out, or take other options. But for builders, an unsold home is a liability on the ledger. Period. Right now, there are three North Dallas areas with a surplus of unsold new homes and highly motivated construction companies looking to make deals. Look to the area between the Dallas North Tollway and North Central Expressway, and between Northwest Highway and LBJ Freeway. Look at Lakewood Heights and Preston Hollow. These aren’t just builder specials—they are custom homes and nearly 200 of them are listed for more than $1 million. Custom builders are normally cocky and aloof. Now they’re cutting prices and throwing in plasma TVs and media room setups gratis. Heck, there’s a new custom home in Lakewood that has had its price cut from $1.07 million to $939,000.

4. Don’t Give a Buyer a Reason to Walk Away
okay, despite the best advice to sellers being to ride this cycle out, you’re determined to sell. House is too small, too big, too far, too near, whatever. Fine. Notice how we emphasized that this is a buyer’s market? They have a lot of choices and a lot of worries. For you, the seller, that means it’s time to get in touch with your inner contractor. If you live in Lakewood and you don’t have foundation problems, then rest assured you have foundation issues. Go ahead and get it checked and get any work done now. In a competition between a slightly better property and one with a guaranteed, already fixed foundation, you’ll probably win. Same for older homes in neighborhoods like the M Streets—invest in updating the wiring and data lines, and put in a new water heater. You did a great job sponge-painting little Jackson’s room that shade of royal blue you blended just for him—now roll over it with a neutral color. While you’re at it, go ahead and get the whole thing inspected. Show buyers they don’t have to worry that the pool heater is 10 years old, or that not only did you know about the condensation in the windows, you had them replaced. Look, Phil Romano’s Strait Lane manse might be worth the $17.5 million he was asking when he put it on the market in December. But buyers stayed away because of the bad décor. Keep it simple.

5. Don’t Educate Yourself to the Point of Stupidity
Channels like HGTV are probably the best and worst things to happen to the real estate market. They’ve spawned a legion of armchair real estate professionals, home investors, and house flippers. The democratization of information is good. There is a world of hyperlocal websites that provide information on neighborhood schools, crime rates, and environmental issues no buyer should be without. The problem is, a little knowledge is a dangerous thing when it comes to an asset where there’s an emotional investment. If you’re selling, you have to be realistic about the asking price—and that’s whether you’re in the humblest little cottage in McKinney, the most lavish thing on the block in the Park Cities, or the swankiest renovation in the Disney streets of North Dallas. It might be part of a well-considered plan you hatched three years ago to buy, renovate, and sell, and you might have already spent that profit in your mind. But the marketplace doesn’t always return 100 percent of the sweat equity you put into improving the home. It doesn’t care that last year your neighbor got X amount per square foot when she sold, and that your house is twice as beautiful and that she had hideous floors. Not every Realtor is a genius, but the good ones know better, and, most important, they can be objective when you can’t. One Dallas Realtor last year walked away from four $1.5 million-plus listings in Preston Hollow because the sellers wouldn’t come down on their asking price to something more in line with the comps. There’s no commission if there’s no sale, he figured.

6. Easy Pickings?
All this talk you’re hearing about foreclosures and short sells may have whetted your appetite. There were 40,000 foreclosures in North Texas in 2007. Frisco is now known as Frisclosure. Isn’t this, then, the time to look for investment deals at fire sale prices? Not really. There are people who work the foreclosure market from the time they wake until the time they clock out. It’s their profession. They can swoop in with cash in hand to buy a troubled property that fits their profile. That tip you got from your brother-in-law or co-worker? Old news to them. That’s not to say there aren’t some opportunities to be had if you’re looking for a home and not an investment property, but tread carefully. A foreclosure might be someone who either walked away from a ballooning, creative 3/1 ARM or who simply didn’t pay the bank. It could also be a property with inflated appraisals from banks looking to encourage homeowners to use their mortgages like ATMs. Or worse, it could be connected to some kind of mortgage fraud scam, reports of which have doubled since 2005, according to the FBI and the U.S. Department of the Treasury. Such scams, where home prices are inflated and the properties then abandoned, have damaged entire neighborhoods in Dallas. You don’t want a piece of that.

7. Okay Fine. But Invest Wisely
Here’s the lowdown. The area west of Inwood and south of Lover’s Lane is the Next Big Thing™. Really. The homes there are little World War II-era, 1,100-square-foot shacks that are seriously undervalued—many priced below $100,000. These work as teardowns or, because most have brick structures, can be the basis for additions. The location is premium and possibilities abound. A number of Realtors have told us if they had the capital, this is where they’d invest both to buy rental properties and with an eye toward the long game of gentrification. Two places not to do this, though? The Disney streets and Little Forest Hills, where overzealous neighborhood organizations are working their hardest to ensure new owners can’t do a thing with their properties. Meanwhile, anyone not looking at the opportunities in Richardson isn’t that serious about finding hidden options close to Dallas. Same with Midway Hollow.

8. Get Real
You have to be realistic, no matter what side of the table on which you find yourself. It’s a buyer’s market, but you can’t assume the seller has to negotiate. He might be perfectly happy to wait around until the pendulum swings back his way. And if you’re a buyer, play it safe. Be sensible about what you can afford, not just what you can afford for the next two years using some way-too-creative financing scheme where you’re banking on knowing the future. Too many people in places like the higher-cost, fast-growth exurbs of Prosper and Frisco got in way over their heads with homes they would never look twice at under more traditional mortgage vehicles. This is why foreclosures in Collin County skyrocketed in 2007. While it might not seem fair, that’s the way the market works. Sometimes there is free money to be made and sometimes you get stuck holding the bag. Risk comes in equal share with reward. That said, the real estate market is pretty stable. In the long run, it always gains as an investment. If you got in over your head with creative financing, you might have to cut your losses and bite the bullet. Or you might need to rethink how badly you need that extra 2,000 square feet and the media room—and downsize accordingly. Even though Dallas is well prepared to weather the choppy economic seas of 2008, you don’t want to pretend you’re the star of Flip This House. Again, play it safe.

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