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It's easy to focus on the national outlook; but we're locals and wanted to give you a local perspective on where we see the single family markets in houston and dallas today.

Real estate markets follow a predictable cycle, the most common outlined by Dr Glenn Mueller, below, has four phases and there is a strategy for each phase.

We've looked at the Houston and Dallas single family markets. Single family doesn't exactly have "occupancy" like commercial markets, so location strategy used the inverse of active new home listings to create an index that behaves similarly to an occupancy metric. It's not a perfect measurement, but it does offer a clear perspective on the market's performance. The horizontal orange line represents the 10-year historical average for the occupancy index.

Some observations on these charts:

• A real market doesn't follow an exact curve like the example; the cycle chart is a tool for understanding. As such it allows us to draw conclusions about the market.
• The cycle in Houston is usually about 7 years, dallas is a little longer. The flood of cash from the federal reserve collapsed these cycles into about three years. Both appear to have been in the hyperinflationary period for most of 2022 and the curve suggests they bottomed in 4q22. We saw this in the recovery in sales in December and January as mortgage rates dropped.
• We do not expect a sharp upward rise from this point - given our expectation that the FOMC will raise rates into the summer, and the deliveries we expect for the spring. However, by summer we think the reversal will be clear and both markets will be an identifiable recovery.

The chart above shows recommended strategies for each phase of the cycle. Right now Location Strategy believes we are between stages 2 and 3 in both Dallas and Houston, with Dallas probably closer to stage 3.

• We were fast to enter this cycle and based on long term housing shortages and strong demographics mean we should be out of it quickly as well.
• Some stage 2 strategies may still work, but we are seeing fewer and fewer viable distressed opportunities for sale. We expect these will largely be gone by early in 2q23.
• We expect to see a clear marker in 2q23 moving to stage 3 and by midyear you should be ready to acquire long term holdings. Have capital in place to do so.
• Be ready to start homes in 2024.
• Keep your teams in place and early next year it will probably be time to expand.

One of the long-term problems with housing is home price growth exceeds wage growth, and the drops in pricing that we have seen in 2022-2023 have failed to close that gap in any appreciable way.

Overall, prices declined – but the lowest tier of homes actually saw prices go up in January.

Which one of these are not like the other? Texas markets excluding Austin have generally been spared significant price declines.

But those price declines along with mortgage rate drops caused January sales to exceed expectations.

More pain is likely to come though as rates come back up, and we still have large numbers of houses under construction or not yet started:

Prices are dropping in the existing market at the fastest rate of any down cycle, but my suspicion is that so few sales are taking place that drops in price are having an outsized impact on average sales prices.

Apartments have been declining in size for years, but the biggest jump came last year when they dropped by 30 SF, according to RentCafe.

Work from home holding steady at about 30%

Commercial rents are still up YOY but they are declining, with apartments experiencing the steepest drop.