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Texas Housing InsightTexas Housing InsightJames P. Gaines, Luis B. Torres, and Wesley Miller2017-06-02T05:00:00Ztechnical-report
Texas Economy

April 2​​​017 Summary

Texas' housing market stalled in April as the slow supply expansion failed to satisfy demand growth. A lack of housing dragged down sales, despite strong demand. The months of inventory for Texas homes inched upward, but sluggish residential housing construction could impede further progress. Market imbalances were pronounced for homes under $200,000, which had the largest declines in both sales and inventory levels. The housing shortage continued to push up prices and further strain housing affordability.

Su​pply*

The Texas Residential Business Cycle (Coincident) Index, which measures current construction activity, was flat as employment and wage increases in the construction industry offset falling construction values. The Texas Residential Construction Leading Index (RCLI), which signals future directional changes in the residential construction business cycle, continued to approach full recovery from the Great Recession as the ten-year treasury yield declined in both nominal and real terms.

After reaching a record high the previous month, the number of monthly single-family housing construction permits in Texas retracted 15.8 percent but maintained 9.1 percent year-over-year growth. Texas led the country in total permits issued but fell to sixth when ranked by permits per capita. Permits fell by double-digit percentages across the Texas Urban Triangle, but only Austin and San Antonio were down year-over-year. Houston and Dallas remained the national leaders, issuing 3,432 and 2,949 permits (nonseasonally adjusted), respectively. After two months of substantial increases, permits in Fort Worth posted the sharpest decline at 27.3 percent but maintained 10.3 percent year-over-year growth.

Texas housing starts, which generally lag construction permits, also corrected significantly, falling 10.8 percent after its strongest first quarter in over a decade. Despite this month's decline, starts remained 8.8 percent higher than last year. Sluggish residential construction pulled down single-family new private construction values in Texas by 14.9 percent. Construction values fell across the major metros, but the steepest declines occurred in Austin (24.3 percent) and San Antonio (28.6 percent). However, this monthly decline does not reflect a change in the overall upward trend.

In the U.S., the months of inventory (MOI) fell below 4.2 months for the first time since 2005; around six months of inventory is considered a balanced housing market. Texas inventory levels rose to 3.8 months—the second straight monthly expansion—and appear to have reached a trough. However, most of this expansion occurred for homes more than $400,000, providing little relief to the lower-priced housing market. The housing supply increased in every price cohort except for homes under $200,000, where the MOI fell to 3.0 months. The bottom two price cohorts ($0-$199,999 and $200,000-$299,999) remained the most constricted, illustrating homebuilders' prioritization of the higher-end market to combat increasing input costs. 

Housing supply remained particularly tight in the major metropolitan areas but showed signs of turning. While still constricted, the MOI for existing homes in Austin (2.2 months) and Dallas (2.0 months) have increased 13.6 and 10.6 percent this year, respectively. This trend was even stronger in Houston, where the MOI surpassed 3.7 months—a 17.7 percent increase since January. However, the 2017 expansion did not occur in Fort Worth (1.9 months) and San Antonio (3.1 months), where the MOI fell 8.7 percent and 8.1 percent year-over-year, respectively.

First quarter supply increases drove the Texas new home MOI above 5.1 months. Inventories gravitated toward the state average in Austin and Houston and expanded 6.2 percent to 4.8 months in San Antonio. After a double digit increase last month, the MOI in Dallas declined 3.1 percent to 4.5 months but still trended upward. As with the existing home market, Fort Worth maintained the lowest MOI at 4.1 months, but year-over-year growth at 12.6 percent indicates an upswing.

De​​mand

After a steady first quarter, Texas housing demand accelerated as the average number of days on market (DOM) fell to a series low 55 days (the series started in January 2011). Demand increased in every price cohort, particularly in the $200,000 to $299,999 range, where the average home sold after just 51 days. Tight inventories dragged total housing sales down 5.9 percent. Sales fell 9.6 percent for homes less than $200,000 and accounted for nearly 60 percent of the total sales decline.

All of the major metros except Austin reported similar declines in housing sales: sales fell 4.8 percent in San Antonio, 5.8 percent in Dallas, and 6.4 percent in Houston. These declines shifted Dallas, Fort Worth, and San Antonio back in line with last year's numbers, but Austin and Houston maintained 4.5 percent and 3.7 percent year-over-year growth, respectively.

Statewide, the demand for existing homes was increasingly strong, as the existing home DOM fell to a six-year low of 50 days. The DOM dropped 13.0 percent to 30 days in Fort Worth and 31 days in Dallas. Austin and Houston had slight declines in the DOM and approached an average of 45 days. San Antonio was the only major metro where demand for existing homes softened, correcting 6.5 percent up to 50 days after a five-month decline.

The demand for new homes was stable as the new home DOM balanced around its three-year trend of 90 days. The DOM was lowest in Dallas (77 days) and Fort Worth (78 days) but fell the furthest in Houston from 100 days to 88 days. Furthermore, the DOM was flat in San Antonio at 90 days and declined for the second straight month in Austin to 94 days.

In April, interest rates reversed and fell to their lowest point this year amid geopolitical tensions and soft national economic data. The ten-year U.S. Treasury bond yield dropped to 2.2 percent as investors rushed to secure safer assets. The Federal Home Loan Mortgage Corporation 30-year fixed-rate fell below 4.1 percent, providing some relief to affordability pressures. However, low interest rates could ignite stronger demand and simultaneously stimulate residential construction.

Pri​​ces

A combination of lagging wages and housing price appreciation have strained home affordability across the country. These problems were amplified in Texas, where wages remained below the national average, and housing prices increased at a significantly faster rate than the U.S. The FHFA Housing Price Index indicated Texas homes were 43.1 percent more expensive than in 2007, while nationally prices were up only 7.4 percent. The major metros experienced even greater increases: home prices rose 65.7 percent in Austin, 55.4 percent in Dallas, 44.1 percent in Fort Worth, and 55.7 percent in Houston. The San Antonio index indicated more modest home price appreciation but increased 37.6 percent from 2007.

The National Association of Home Builders Housing Affordability Index showed only 58.4 percent of homes across the U.S. were affordable to those making the median income. Residents fared even worse in Dallas and Austin, where that number was 50.8 and 56.2 percent, respectively. Affordability declined in Houston (59.0 percent) and San Antonio (61.8 percent) but remained above the national average. Fort Worth experienced the sharpest decline in affordability, dropping from 67.9 percent last year to 61.3 percent.

April's Texas median home price jumped 9.5 percent year-over-year, despite as the sales slowdown. The statewide median price for an existing home ($213,594) rose 2.5 percent—its largest monthly increase since February 2014—and posted 10.2 percent year-over-year growth. Of the Texas metropolitan areas, Austin and Dallas maintained the highest median price at $286,228 and $264,098, respectively. Prices for existing homes were flat in Fort Worth ($207,663) and Houston ($215,461) but rose 6.9 percent in San Antonio to a seven-year series record of $204,620.

The statewide median price for new homes1 ($297,691) increased slightly at 0.7 percent, while the national median fell 2.4 percent to $308,479. Changes in the median price for new homes varied across the major metros. Dallas maintained the highest price tag for new homes, with a median price of $356,353. Despite April's demand increase, the median price fell 1.4 percent to $308,349 in Houston, and it was flat in Austin and Fort Worth at $323,879 and $302,986, respectively. Moreover, the median price fell in San Antonio to $258,712, slightly below its two-year trend of $263,000.

In the past six years, Texas' median price for a new home exceeded that of an existing home by an average of 47.0 percent. This price differential resulted from increases in home sizes and land costs for new housing. Since 2011, the median square feet for new homes has increased by 7.3 percent to 2,440 square feet. Additionally, the median price per square foot for a new home in Texas was approximately 14.9 percent higher than for an existing home. Austin led the state in median price per square foot, for both existing and new homes, at $144 and $140 per square foot, respectively. However, the price per square foot in Dallas and Fort Worth accelerated over the past year and reduced the gap between Austin and the rest of Texas, especially for existing homes.

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 eased; a lower ratio indicates a buyer's market. Conversely, this ratio has increased steadily since 2011 for existing homes. In the past two years, the sale-price-to-list-price ratio has converged in the new and existing markets around 0.96. As expected, this metric heated up in Dallas and Fort Worth, where demand has been persistently strong. The ratio approached 0.98 for both new and existing homes in Fort Worth and surpassed that mark for existing homes in Dallas.

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*All monthly measurements are calculated using seasonally adjusted data, and percentage changes are calculated month-over-month, unless stated otherwise.

1​New home median price data was obtained from the Multiple Listing Service.

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Texas Housing InsightTexas Housing InsightTexas Economy
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