|Texas Housing Insight||Texas Housing Insight||James P. Gaines, Luis B. Torres, Wayne Day, and Wesley Miller||2017-02-07T06:00:00Z||technical-report||Texas Economy|
December 2016 Summary
The Texas economy expanded in December as energy and housing markets advanced, and the outlook on overall economic conditions in Texas increased from November. Total nonfarm employment expanded 1.8 percent year-over-year, compared to 1.4 percent growth nationally. Employment growth was spurred by the service-providing sector where educational and health, leisure and hospitality, and government service jobs realized most of the gains. Demand for housing weathered rising mortgage rates. Housing prices further appreciated as strong demand overtook modest supply increases. Months of inventory and days on the market remained relatively low. Total building permits increased over the month and year. Nevertheless, the coincident and leading indexes suggest a slowdown in residential construction. With interest rates expected to rise in 2017, sales in the short-term may pull back, but home prices are expected to keep increasing.
The Texas Residential Construction Leading Index (RCLI), which signals future directional changes in the residential construction business cycle of single- and multifamily housing, declined in December. The RCLI was negatively affected by a monthly decline in housing starts. The Texas Residential Business Cycle (Coincident) Index, the measure of current construction activity, also declined as inflation-adjusted residential construction values continued a slide begun in May 2016. The RCLI indicates slower growth in future residential construction while the coincident index registered a slowdown in current activity already underway. Housing starts decreased 13.2 percent seasonally adjusted year-over-year in December continuing a negative trend that started in late-summer 2016.
Housing starts are positively related with construction permits and lag their movements by some months. Single-family housing construction permits statewide increased during December both on an annual and monthly basis. Austin continued to grow at an accelerated rate after reaching a trough in mid-2015. Dallas maintained an upward trend and grew 10.5 percent seasonally adjusted year-over-year. Fort Worth and San Antonio ended 2016 with a consistent climb in housing construction permits that occurred throughout the year. Houston continued its slow recovery, closing the year with slightly fewer housing construction permits relative to 2015. Despite slow growth, Houston still led the nation in the number of single-family permits issued monthly at 2,568; Dallas-Fort Worth (2,327) and Austin (1,144) ranked second and sixth nationally. In the fourth quarter, the supply of vacant developed lots increased in Dallas, Houston, and San Antonio for homes with a sales price over $200,000. The overall supply of lots continued to lag behind the demand for new housing.
Months of Inventory of Texas houses for sale settled at 3.6 months (seasonally adjusted), indicating continued strong housing demand and tight supply. The nation rested at 4.3 months, suggesting constrained supply may persist nationally (around 6.5 months of inventory is considered a balanced housing market). Overall, supply has been restricted due to limited lot inventory and construction labor shortages.
In December, total housing sales in Texas returned to more muted levels after a strong November. Sales grew just 0.6 percent year-over-year (seasonally adjusted). Nationally, total housing sales contracted marginally at 0.1 percent year-over-year. The major metros in Texas trended back to modest sales levels. Year-over-year growth rates were 3.9 percent for Austin, negative 4.7 percent for Dallas, negative 1.4 percent for Fort Worth, 3 percent for Houston, and 8.4 percent for San Antonio. In November, homebuyers may have expedited purchases prior to interest rate increases; therefore, sales normally occurring in December could have been pulled into the prior month. Employment and income growth, as well as consumer confidence, contributed to increased Texas housing sales. Consumer confidence favored the economy's sustained post-election surge and tax relief expectations.
Interest rates rose in December as inflation and inflation expectations increased due to possible future federal government policy changes. The Federal Home Loan Mortgage Corporation increased 43 basis points to a 4.20 percent average rate on a 30-year fixed-rate mortgage, reaching a peak not seen since April 2014. The ten-year U.S. Treasury bond yield also moved to its highest point since 2014, rising from 2.14 in November to 2.49 percent in December.
The number of days that existing and new homes were on the market during December remained low at 53 and 92 days (seasonally adjusted), respectively, reflecting constrained supply and continued strong demand. This stability was reflected in the existing home markets for the Texas Triangle metros, while the new home markets exhibited slightly more volatility. The number of days on the market for new homes increased year-over-year by 15.8 percent in Fort Worth (85) and 3.1 percent in Houston (99), and decreased by 7.3 percent in San Antonio (83). The markets in Austin (105) and Dallas (79) were relatively constant in year-over-year calculations.
Overall, sales prices have risen steadily in Texas since late 2011. Existing home prices increased through December in the state and major metros. The average and median sales price of an existing home in Fort Worth increased by 10 percent and 13 percent seasonally adjusted year-over-year, respectively. The average sales price in Austin, Dallas, and Houston grew more than 5 percent over the same period. San Antonio lagged with year-over-year growth settling just above 0.5 percent. Similarly, new home sales performed better in Austin, Dallas, and Fort Worth than San Antonio and Houston. Average sales prices on new homes in Fort Worth surged 21 percent year-over-year, while Dallas' gains were more modest at 8 percent. Austin was the house price appreciation leader through December 2016 with existing home prices remaining well above the other major metros. Austin clearly leads the major metros in terms of price per square foot for both new and existing homes. The average new and existing homes in Austin are $50 and $30 more per square foot, respectively, than houses in other major Texas metros. Nonenergy employment growth and a strong services sector caused Dallas-Fort Worth to register strong price appreciation in December. Existing home prices in Houston continued to recover following the energy sector decline while new home prices are still lagging.
The difference between the initial listing price to the actual sales price for new homes fell at the start of 2014 and flattened out as the demand for new homes eased. The gap between new and existing home sales-to-price ratio has converged at 0.96.
Since 2011, new home prices have exceeded existing home prices by 47 percent and 37 percent based on median and average sales prices, respectively. This price differential results primarily because of increases in home size for newer homes and the significant increases in construction and land costs for new homes. The average price per square foot for a new home in Texas was approximately 19 percent more than for an existing home.
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