|Texas Housing Insight||Texas Housing Insight||James P. Gaines, Luis B. Torres, and Wesley Miller||2017-03-07T06:00:00Z||technical-report||Texas Economy|
January 2017 Summary
The Texas housing market advanced in January as overall economic conditions remained favorable. Energy prices appreciated and domestic oil production increased. Manufacturing and service sector activity also expanded in Texas. Demand for housing was stronger in the existing home market as consumers searched for lower-cost options. Supply remained constricted, especially for houses under $300,000. The combination of strong demand and tight supply drove housing prices upwards across the housing market.
The Texas Residential Business Cycle (Coincident) Index, which measures current construction activity, increased marginally in January due to rising single-family housing construction values. The Texas Residential Construction Leading Index (RCLI), which signals future directional changes in the residential construction business cycle, increased to an eight-month high because of increased housing starts and weighted building permits.
Single-family housing construction permits in Texas increased to 8,935 in January—a 25.6 percent increase. Texas led the U.S. in permits and accounted for over 18 percent of the national total. Houston remained the national metropolitan leader in monthly permits issued (2,982), while Dallas-Fort Worth (2,540) and Austin (1,244) ranked second and sixth, respectively. Permits in San Antonio (660) spiked up 47.0 percent, following large increases in November and December. Housing starts, which generally lag construction permit movements, increased in Texas and the U.S., reversing a six-month downward trend. Texas saw a statewide monthly increase of 52.6 percent* and 28.1 percent growth year-over-year.
The months of inventory in the U.S. has been stable at 4.3 months* since November 2016; around 6.5 months of inventory is considered a balanced housing market. Inventory levels in Texas remained tight at around 3.7 months*—the statewide average since June 2014. The Texas Urban Triangle saw minimal inventory movement. Months of inventory in Austin (2.5 months), Dallas (2.2 months), and Fort Worth (2.1 months) remained below the Texas average. San Antonio (3.4 months) and Houston (3.7 months) had inventories that were comparable to the statewide level. Since 2011, the months of inventory for homes under $300,000 has steeply declined. Increasing input costs have led homebuilders to prioritize the higher-end market. As the economy progresses, the supply differences between price cohorts should begin to move towards normal levels.
In January, overall economic growth led to increased housing demand. Total housing sales rose 4.1 percent in Texas and 5.9 percent nationally. Statewide sales on homes priced between $200,000 and $400,000 increased over 14 percent but fell 6.8 percent for homes under $200,000. Weak supply stunted sales for low-priced housing. The low number of days that houses were on the market illustrates the strength of demand.
Total housing demand varied throughout the major Texas metropolitan areas. Sales in Austin and San Antonio rose 7.8 percent and 9.7 percent, while Dallas' sales grew modestly at 2.9 percent. Sales in Houston stagnated (0.4 percent) as the housing market continued to lag the energy sector's recovery. Fort Worth's housing sales fell marginally at 0.1 percent.
Consumer-friendly interest rates contributed to January's strong demand for housing. Interest rates ticked downward for the first time in six months. The Federal Home Loan Mortgage Corporation 30-year fixed-rate dropped 5 basis points to a 4.2 percent average. The ten-year U.S. Treasury bond yield inched down 6 basis points to 2.4 percent. Interest rates are expected to rise throughout 2017 as the Federal Reserve plans to raise the federal funds rate to combat inflationary pressures and from stronger loan demand.
The market for existing homes continued strong in January. The average number of days on market (DOM) for existing homes decreased 2.2 percent* month-over-month to 51 days. The DOM fell to 51 days in Austin and 55 days San Antonio. Dallas had the strongest demand for existing homes, where the DOM was just 39 days. Existing DOM increased in Fort Worth and Houston to 42 days and 57 days.
Demand for new housing in Texas was relatively weaker as homebuyers shifted consumption towards existing homes to combat rising prices. The new home DOM rose 3.4 percent to 90 days in Texas. Fort Worth (82 days) and Houston (98 days) experienced an increase in the DOM for new homes for the third consecutive month, indicating new housing demand remained on its downward trend. Demand for new housing in Dallas and Austin was stable in January; the DOM fell 3.6 percent in Dallas (79 days) and was constant in Austin relative to January 2016 (92 days). San Antonio saw an abnormally high year-over-year increase (29.9 percent) in the DOM for new homes (the low value for January 2016 is considered an outlier). However, the 4.7 percent* monthly increase indicates demand has only slightly weakened.
Overall, sales prices have risen steadily in Texas since late 2011. In January, median prices for new and existing homes rose 4.1 percent and 7.5 percent, respectively. Price appreciation for existing homes outpaced that of new homes throughout the major metropolitan areas in Texas. The largest difference occurred in Dallas, where the median sales price for existing homes ($245,000) grew 9.1 percent faster than for new homes ($339,945). Similarly, the median price for existing homes in Fort Worth ($190,950) grew 8.2 percent faster. Austin was the only major metro where new home prices appreciated more than existing home prices.
Austin clearly led the major metros in terms of median price per square foot for both new and existing homes. The median prices for new and existing homes in Austin were $18 (13.8 percent) and $23 (20.5 percent) more per square foot than in other major Texas metros. However, median prices per square foot in Dallas and Fort Worth have steadily grown over the past 12 months and have reduced the gap between Austin and the rest of the state.
Since 2011, the statewide median new home price has exceeded the existing home price by 47.3 percent on average. This price differential stems from increases in home size and land costs for new housing; the median square feet for new homes has increased from 2,275 in 2011 to 2,351. Additionally, the median price per square foot for a new home in Texas was approximately 15.6 percent higher than for an existing home.
The statewide difference between the listing price and the sales price for new homes fell at the start of 2014 but has now flattened as the demand for new homes has eased; a lower ratio indicates a buyer's market. Conversely, this ratio has increased steadily for existing homes since 2011. Since 2015, the sale price to list price ratio has converged in the new and existing markets around 0.96.
* Seasonally adjusted
|Digital and Print||2120||https://www.recenter.tamu.edu/articles/technical-report/Texas-Housing-Insight|| https://assets.recenter.tamu.edu/Documents/Articles/2120.pdf|