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Texas Housing InsightTexas Housing InsightJames P. Gaines, Luis B. Torres, and Wesley Miller2017-05-04T05:00:00Ztechnical-report
Texas Economy

March 2017 Summary

The Texas housing market advanced in March, as overall economic conditions remained favorable. Texas employment continued to rise, particularly in the goods-producing sector where energy production and housing activity increased. Weak housing sales in February relieved some of the market pressure and allowed the housing supply its largest expansion since 2011. The supply of homes under $200,000 continued to lag the rest of the market and, combined with rising prices, presents increased affordability concerns.

Supply*

The Texas Residential Business Cycle (Coincident) Index, which measures current construction activity, increased marginally due to rising wages in the construction industry. The Texas Residential Construction Leading Index (RCLI), which signals future directional changes in the residential construction business cycle, reached a decade high as housing starts and weighted building permits accelerated.

The number of vacant developed lots increased throughout the Texas major metros, indicating future supply growth. Dallas and Houston led the state with over 48,690 and 46,567 vacant developed lots, respectively. Moreover, the number of vacant developed lots continued to recover in Austin (21,222) and San Antonio (19,263), increasing 2.9 percent and 1.7 percent, respectively.

The number of statewide monthly single-family housing construction permits jumped 11.5 percent to a ten-year high 10,481, following this year's anemic start. Texas led the country in total permits issued and was ranked fifth in permits per capita. Construction permits ramped up across the Texas Urban Triangle. Houston and Dallas remained the national leaders, issuing 3,543 permits and 2,405 permits, respectively. Fort Worth issued 863—a 45.4 percent increase since January. Permits in Austin and San Antonio increased after lagging in February. Austin issued a decade high 1,547 permits, while San Antonio (705) exhibited a 27.2 percent increase.

Texas housing starts, which generally lag construction permits, increased 26.7 percent quarter-over-quarter—the strongest first quarter in over a decade. Quarterly starts1 were up in Dallas, Houston, and San Antonio, increasing by 4.6 percent, 5.3 percent, and 5.8 percent, respectively. Starts dropped 10.1 percent in Austin but should gain momentum following this month's positive permit numbers.

Single-family new construction values in Texas ticked down 1.3 percent. In the short run, residential construction should shift towards medium priced homes ($200,000 - $400,000) to alleviate current market imbalances. San Antonio construction values slid for the second month and were down 24.1 percent from January. Conversely, construction values increased in Austin and Houston by 6.7 percent and 5.5 percent, respectively.

The months of inventory (MOI) in the U.S. settled at 4.3 months; around six months of inventory is considered a balanced housing market. Inventory levels in Texas rose to 3.7 months, marking the largest monthly percentage change since January 2011. However, most of this expansion occurred for new homes and in the medium price range, providing little relief to the affordable housing problem; the MOI rose just 0.4 percent for homes under $200,000. This bottom price cohort remained the most constricted at 3.1 months of inventory, illustrating homebuilders' prioritization of the higher-end market to combat increasing input costs (labor and land). 

Housing supply remains particularly constrained in the major metropolitan areas. The MOI for existing homes in Dallas and Fort Worth remained under two months, and inventories in Austin (2.2 months) and San Antonio (2.8 months) settled well below the state average (3.4 months). However, existing home inventories jumped 5.1 percent in Houston, pushing the MOI above 3.5 months.

Recent supply increases in Texas drove the new home MOI above 5.1 months. Significant inventory growth occurred in Austin (10.7 percent), Dallas (13.6 percent), and San Antonio (9.2 percent). The MOI rose 5.9 percent in Fort Worth, raising inventory levels above four months for the first time since October. Despite these positive trends, the new home MOI remained less than the Texas average of five months for every major metro except Houston (5.0 months).

Demand

Texas housing demand grew steadily as the average number of days on market (DOM) settled at 57 days for the third consecutive month. The $200,000 to $300,000 price cohort drove this demand, with the average home selling after just 52 days. Total housing sales rose 3.3 percent after a weak February, increasing in every major metro and price cohort.

Dallas exhibited the largest percentage increase in total home sales at 5.5 percent and led Texas in first quarter new home sales at 7,722. Similarly, total sales in Houston increased by 4.8 percent, while quarterly new home sales rose 4.9 percent. Population and migration trends continued to drive the Houston and Dallas housing markets. Conversely, total sales were flat in Austin and San Antonio, and new home sales posted their second straight quarterly decline.

The Texas home ownership rate fell further below the national average in the first quarter, dropping to 61.5 percent as the national average remained above 63.5 percent. Home ownership declined in Dallas and San Antonio to 61.5 percent and 58.4 percent, respectively, following last quarter's increase. Austin's home ownership rate increased for the second straight month, rising to 58.4 percent, while Houston approached the state average at 60.0 percent.

Interest rates remained stable as the Federal Reserve raised the federal funds rate by a quarter point for the second time in three months. The ten-year U.S. Treasury bond ticked up to 2.5 percent, reflecting a weak national jobs report and turmoil in the Middle East. Furthermore, the Federal Home Loan Mortgage Corporation 30-year fixed rate balanced at 4.2 percent for the fourth consecutive month.

Statewide, the existing home DOM sustained its yearlong average of 52 days, indicating strong demand for cheaper housing. Dallas and Houston echoed this phenomenon, maintaining the lowest DOM at 31 and 35 days, respectively. The DOM in San Antonio fell below 47 days and has decreased 15.1 percent in six months. Demand for existing homes eased in Austin, as the DOM rose to 42 days—the highest since January 2015.

The demand for new homes in Texas settled at 93 days after a surprisingly strong February. Fort Worth and Dallas remained the hottest markets for new homes, with new home DOM at 77 and 78 days, respectively. The remaining major metros exhibited demand comparable to the statewide level. The DOM in Austin (96 days) and San Antonio (91 days) accelerated 9.4 percent and 15.8 percent, respectively, while Houston showed the weakest demand, selling the average home after 100 days.

Prices

The median home price in Texas decelerated by 0.8 percent as housing inventories expanded. The supply increase, which consisted primarily of new homes, was unable to relieve price pressures in the existing homes market. The statewide median price for an existing home ($210,847) rose for the third straight month, increasing 9.5 percent year-over-year. Of the Texas metropolitan areas, Austin and Dallas maintained the highest median prices, posting record highs at $289,014 and $265,524, respectively. Existing homes in Houston were above $216,000, while prices in Fort Worth ($207,272) declined for the first time since June. Moreover, the median price in San Antonio ticked down to $193,519, approximately $17,000 less than the Texas median.

The statewide median price for new homes ($296,771) fell, albeit mildly at 0.2 percent, and lagged the national median, which rose to $313,410. Median prices fell 3.1 percent and 4.5 percent in Austin ($322,375) and Dallas ($355,903), respectively but were flat in Houston at around $315,000. Demand outpaced inventory increases in Fort Worth ($302,140) and San Antonio ($274,465), pushing up median prices 2.5 percent and 8.0 percent, respectively.

In the past six years, Texas' median new home price exceeded the existing home price by an average of 47.1 percent. This price differential resulted from increases in home sizes and land costs for new housing. Since 2011, the median square footage for new homes has increased by 5.0 percent to 2,389 square feet. Additionally, the median price per square foot for a new home in Texas was approximately 16.0 percent higher than for an existing home. Austin led the state in median price per square foot, for both existing and new homes, at $145 and $143 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.

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 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. However, this convergence has not occurred in Dallas and Houston, where the existing ratio remains two points higher than the ratio for new homes.

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

1Housing starts for the major metropolitan areas are not available at the monthly frequency.

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Texas Housing InsightTexas Housing InsightTexas Economy
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