|Texas Housing Insight||Texas Housing Insight||James P. Gaines, Luis B. Torres, Wesley Miller, and Paige Silva||2019-11-01T05:00:00Z||technical-report||Texas Economy|
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Seasonally adjusted Texas housing sales decreased 2 percent in September from August after hovering around record levels the previous two months. Low mortgage rates and steady employment growth, however, supported ongoing housing demand, as exemplified by increased mortgage applications and a rise in the state's homeownership rate. The average home continued to sell after just two months on the market. On the supply side, increased single-family permits, housing starts, and lot development indicate positive momentum for future construction. Presently, however, available inventories remain constrained, putting upward pressure on home prices, which have persistently outpaced wages. Affordability remains a primary challenge to the Texas home market, but the extended national and state economic expansion supports a favorable outlook.
The Texas Residential Construction Cycle (Coincident) Index, which measures current construction activity, ticked up with industry labor market improvements. The Residential Construction Leading Index rose to its highest level since the Great Recession amid falling interest rates and upward-trending building permits and housing starts. This suggests higher levels of construction in the coming months.
Supply-side activity accelerated at the earliest stage of the construction cycle with a 29.7 percent quarterly increase in the number of new vacant developed lots (VDLs) in the four major Metropolitan Statistical Areas. DFW's VDLs accounted for much of the surge, rebounding after a year-long decline. The correction occurred primarily in the $200,000-$500,000 range. Improvements in North Texas and San Antonio boosted their VDLs to post-recession record levels. Lot development in San Antonio and Houston picked up for homes selling for less than $300,000; activity targeted for higher-priced homes in Houston, however, pulled back. New VDLs reached an all-time high in Austin following three straight quarterly increases.
As VDLs surged upward, single-family construction permits hovered at a post-recession record high, increasing 9.9 percent quarter over quarter (QOQ). Permit activity through September, however, remained 2 percent below levels in the first nine months of 2018. Texas' 10,193 monthly permits (nonseasonally adjusted) accounted for 17 percent of the national total. The Lone Star State led the nation in total permits but ranked sixth in per capita issuance. On the metropolitan level, Houston topped the list with 3,371 permits, followed by DFW with 3,058. Central Texas extended a steep upward trend, issuing 1,440 and 737 permits in Austin and San Antonio, respectively.
Total Texas housing starts rose 6.3 percent QOQ as momentum shifted from the multifamily to single-family sector based on Metrostudy data. Approximately 24,000 single-family homes broke ground in the Texas Urban Triangle, rebounding to solid first-quarter levels. Half of the increase occurred in the constrained $200,000-$400,000 price range. Trending similar to VDLs, Austin single-family starts maintained a solid pace upward, while Houston held steady at its year-long average. San Antonio activity showed moderate improvement. DFW was the exception, with starts decreasing slightly following a year-long period of downward VDL and permit adjustments. Corroborating improved residential construction, single-family private construction values increased 3 percent during the third quarter. The trend, however, remained flat except in San Antonio.
Despite increased housing starts, Texas' months of inventory (MOI) held steady at 3.6 months. A total MOI around six months is considered a balanced housing market. The MOI for homes priced less than $300,000, which comprised two-thirds of sales, balanced below 2.8 months. Inventory for luxury homes (those priced more than $500,000), however, increased for the fifth consecutive month to 8.4 months. These divergent trends exemplify the shortage of affordable housing and the current mismatch between demand and supply.
Inventory in the major metros were even more constrained than the statewide average. The MOI fell to year to date (YTD) lows of 2.3 and 3.1 months in Austin and Dallas, respectively. Fort Worth's and San Antonio's metrics eased slightly after a three-month slide in both locales but hovered at 2.5 and 3.5 months, respectively. The exception was Houston, where the MOI remained at 3.9 months.
Total housing sales fell 2 percent in September but maintained an upward trajectory amid lower mortgage rates and solid job market conditions. Meanwhile, existing-home sales, which make up 80 percent of total sales, decreased 2.6 percent. Nonseasonally adjusted total sales increased 8.6 percent from September 2018; after accounting for the number of business days, however, sales increased only 4.5 percent over the same period.
According to Metrostudy data, third quarter new home sales approached 25,000 in the Texas Urban Triangle for the first time since 2007, corroborating the overall strength of the state's housing market. An increase in new-home transactions priced $300,000-$400,000 comprised over half of the quarterly improvement. Austin sold a record level 4,783 new homes during the third quarter, surpassing 20 percent year-over-year (YOY) growth. San Antonio maintained sales pace of 15 percent YOY, accounting for 3,200 new-home transactions. Dallas and Houston constituted more than two-thirds of the new home purchases, selling 9,015 and 7,712, respectively.
Texas' average days on market (DOM) held steady at 60 days. The metrics in Dallas and Houston, where over 40 percent of statewide sales take place, remained unchanged at 56 and 59 days, respectively. Fort Worth's DOM paused after reaching a four-year high in August of 45 days. On the other hand, Central Texas reached YTD lows of 52 and 56 days in Austin and San Antonio, respectively.
In an environment of extended economic expansion and steady job growth, Texas' homeownership rate increased to 63 percent in 3Q2019. The national rate held firmly higher at 64.8 percent. Homeownership is persistently lower in the major metros but trended upwards. DFW ranked first among the metropolitan areas with 62.1 percent of occupied housing units being owner-occupied. Austin and Houston each posted 61.6 percent homeownership. San Antonio's homeownership rate was 60.4 percent amid a decrease in apartment vacancy rates. The contrasting trends may indicate a recent inclination of households to rent rather than buy.
Better than expected U.S. economic data and a slightly optimistic outlook on U.S.-China trade talks slowed the downward slide in interest rates. Although long-term rates remained lower than those for short-term instruments, current economic fundamentals at the state and national level are healthy and stable. Short-term interest rates could fall further following the Federal Reserve's third rate cut of the year in October. The ten-year U.S. Treasury bond yield inched up to 1.7 percent after falling to a three-year low of 1.6 percent in August. The Federal Home Loan Mortgage Corporation's 30-year fixed-rate flattened at 3.6 percent. Texans capitalized on lower rates, pushing mortgage applications for home purchases up 28.3 percent YTD. Refinance mortgage applications, which are more sensitive to interest rate fluctuations, have more than doubled since year end.
The Texas median home price increased for the fourth consecutive month, reaching $243,800 for an annual growth rate of 5.1 percent. Although home-price appreciation accelerated, growth was below the double-digit levels YOY reached as recently as 2017. Austin led the metros in terms of median home price at $327,300. North Texas followed with a median price of $297,000 and $247,300 in Dallas and Fort Worth, respectively. Houston's metric balanced at $246,800. The San Antonio median price increased to $236,000 but remained the lowest among the major MSAs.
The Texas Repeat Sales Home Price Index increased 3.8 percent YOY, decelerating from 3Q2018's annual growth rate of 4.1 percent. The index's growth, however, continued to outpace wage improvement, exacerbating affordability struggles. Similar to home-price appreciation, Austin's index posted the greatest YOY increase of 4.6 percent. Fort Worth's and San Antonio's metrics decelerated from year-ago levels, registering 4.2 and 4.1 percent growth, respectively. The Dallas index increased 2.9 percent YOY while Houston's rose 2.4 percent.
*All monthly measurements are calculated using seasonally adjusted data, and percentage changes are calculated month over month, unless stated otherwise.
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