I was visiting with a fellow landlord – let’s call him Thurston H. – who offered this lament: “I sold out in Dallas, lured by the cash flow return that Abilene had to offer. Now, when I look at the value of the properties I’ve sold, I’m kicking myself because gave up the appreciation that comes with owning rentals in DFW.”
To put this comment in context, I:
- Used multiple listing service data provided by NTREIS
- I looked at 24-months of rental data for Dallas, Tarrant, Denton, Collin, Kaufman, Rockwall, Ellis, Johnson, Parker – my definition of the Metroplex. I did the same for Taylor County. From this data, I devised a 12-month average of rent/sf.
- Using the same counties, I sampled 30 days of real estate sales in from 3/18/2018 to 2/16/2018. This captures current sales performance. I also sampled real estate sales for the same counties from 3/18/2017 to 2/16/2017 so I could compare appreciation in sales price between today and one year ago.
- Data at the county level doesn’t tell a good story, so I broke down the data by school district. Taylor county data only looks at Wylie ISD and Abilene ISD – data on Jim Ned CISD is too limited to make good inferences. The same is true for smaller DFW-area schools – for example, districts like Brock ISD and Argyle ISD have an interesting story; there just isn’t enough data to tell it well.
Before I launch into my comparison of Taylor county v. the Metroplex, note that I’m being intentional in my use of “price” and “rent”. Price is the sold price of homes; rent is, well, rent.
To get a sense of cash flow, the bar graph below summarizes rent per sf by district. Districts with short bars have a rent per sf that mirror the average. Districts with long bars (like Highland Park ISD to the positive and Abilene ISD to the negative) have rents that are distinct relative to the market average. The 12-month average rent for all districts was 91 cents in 2017 and 94 cents in 2018 – a 3 cent gain. Homes in Abilene ISD and Wylie ISD kept pace with this trend, Between 2017 and 2018, the 12-month average for AISD rents rose from 71 cents to 74 cents and WISD rents rose from 88 cents to 91 cents. At 74 cents for the 2018 12-month average, Abilene rents were the lowest across the school districts considered. Lancaster and De Soto ISD came closest to matching Abilene ISD rent/sf. In 2018, Wylie ISD rents were identical to average rents in Arlington and Mesquite..
A significant determinant of Abilene rents is the age of its housing stock. At 57 years, Abilene has the oldest housing stock of all comparison districts. Cities like Fort Worth and Dallas – the original economic nucleus of the DFW region – obviously have an older housing stock and the proximity to the urban center of this market overcomes age in some cases. This is most pronounced in Highland Park – they have a housing stock that is comparable in age to that of Abilene. Of course, that’s where the similarities leave off as demonstrated by rent and price for homes in this school district. The bar graph below summarizes this information and is sorted by margin from the mean. Prosper ISD is at the other end of the bracket from Abilene with homes that are 17 years newer than the average of 24 years for all rentals considered.
With the cash flow component of the story addressed, let’s turn to appreciation. In 2017, the overall average sold price per sf was $126.11 and in 2018, it rose to $134.65/sf for a gain of $8.54/sf. Over that period, AISD prices rose faster by $9.53/sf and Wylie ISD, Taylor Co. homes rose slower by $4.38/sf. The bar chart below captures these gains relative to the average. Again, districts with short bars have a price per square that mirror the average. Districts with long bars are dissimilar to the market average. It should come as no surprise that the most inexpensive rents travel with the most inexpensive prices and older properties found in Abilene.
Bringing it all together, the final bar graph looks at percent gains in rent/sf, price/sf and total price. The table is sorted by gains in price per sf to measure a years worth of appreciation in market value. Price per square foot ranges from no gain in Anna ISD to a 24.3% gain in Cedar Hill ISD. Abilene ISD is in the top quartile with 12.3% gain in per square foot price. Wylie ISD, Taylor Co. is in the bottom quartile with a 3.7% gain. If we consider that in the context of the 2.3% inflation we experienced over the last 12 months, Abilene homes experienced a 10% real gain and Wylie ISD, Taylor Co. homes experienced a 1.4% inflation-adjusted gain in value.
Some districts – like Wylie ISD, Taylor Co. – experienced an initially counter-intuitive drop in overall price but a gain in price per square foot. If you look at the majority of districts that experience the same phenomenon, it appears developers in these districts are attempting to meet the demand for new, affordable homes and still make a favorable return as builder. Along with Wylie ISD, Taylor Co. we see homes with rising price per square foot and falling overall prices in Anna, Allen, Frisco, Forney,, Royse City, Lake Dallas, and Keller – all districts where the average home age is less than the 24-year average.
The next time I see Thurston H., I’ll attempt to assuage his anxiety regarding foregone equity in the Abilene rental market. Abilene may not be Dallas ISD at just under $200/sf, but considering the 10.6% current dollar gain in Dallas prices and factoring out 2.3% inflation, he’s up on Dallas by a 1.7% gain in the AISD as he enters 2018.
Thurston H. read this comparison of Abilene v. DFW real estate appreciation. Unmollified, he responded: “A one year comparison provides a start, but I sold out in 2011 – what have I lost since then?”
This time, I looked at the current-dollar closed price per square foot of homes in the same school districts as those presented in the last bar chart. I considered homes that sold in the 30 days between February 16 to March 18 in the years spanning 2010 to 2018. I used these 30-day snapshots taken same time each year to develop an annual average price per square foot to compare.
The bar chart below summarizes these snapshots. They are reported by school district and, upon mouse-over, the viewer will see the percent gain for price/sf between years. I calculated an average of the annual average to get an eight-year summary of appreciation and I used this measure to rank the schools. A few observations:
- Average appreciation for all school districts was 13.6%
- Abilene ISD under-performed against the average by -2.1% with an 11.5% appreciation gain. In terms of appreciation, AISD ranked 40th out of the 54 districts considered.
- Wylie ISD, Taylor Co. under-performed against the average by -3.7% with an 9.9% appreciation gain. In terms of appreciation, WISD ranked 51st out of the 54 districts considered.
- The Highland Park ISD ranks last in appreciation – over eight years, they experienced a 7.1% gain.
- Melissa ISD ranks the highest – over the eight years they experienced a 24.1% gain. This gain is no surprise because Melissa ISD is one of the districts with some of the newest homes – recent sales in Melissa ISD averaged an age of 9 years.
So I thought my work was done. I let Thurston H. know that I had provided longitudinal detail to his concerns about Abilene appreciation. He was appreciative of the efforts, but the chase for granularity was on and he made second request: “Can you perform the same analysis by ZIP code? I’d like a better snapshot that focuses on a smaller, more homogeneous area.”
Comparing ZIP code appreciation rates to the overall 13.6% appreciation rate reveals.
- 79601, 79602, 79605 and 79606 under-performed against the average. 79601 experienced appreciation of 2.16%, 79602 experienced appreciation of 5.81%, 79605 experienced appreciation of 1.43%, and 79606 experienced appreciation of 10.25%.
- Only 79603 over-performed relative to the average. 79603 experienced appreciation of 17.75%.
The bar graph below summarizes Abilene ZIP codes along with DFW ZIP codes. The data was ranked from the greatest 9-year depreciation loss in 75215 (-27.2%) south of downtown Dallas along I-45 to the largest 9-year appreciation gain in 75235 (+31.91%) in the neighborhoods nearest Dallas Love Field. The first 20 ZIP codes on the bar graph experience depreciation across the 9 years assessed.
Apart from knocking doors, we feel this is as deep we can get and still have somewhat meaningful results. Information regarding 9-digit ZIP codes is available, but there aren’t enough transactions at this level of detail to provide solid results. In fact, some growth rates in this chart were based off less than 10 observations – those degrees of freedom won’t get you an A on your introductory statistics test.