|Texas Housing Insight||Texas Housing Insight||James P. Gaines, Luis B. Torres, Wesley Miller, and Paige Woodson||2019-01-09T06:00:00Z||technical-report||Texas Economy|
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Note: Due to the ongoing Federal government shutdown, the release of multiple data series has been delayed, and they are not included in this report. The following analysis represents an overview of the Texas housing market based on the available data.
November 2018 Summary
Texas housing sales ticked down 1.1 percent in November and remained on a flat trajectory. The shortage of homes priced below $300,000 and rising interest rates continued to weigh on overall activity. Listing inventories inched forward but still remained tight relative to demand. Housing demand showed signs of normalizing, particularly in North Texas, after a multiyear period of unsustainable growth. Steady population and job growth, however, suggest healthy demand for the duration of the current economic expansion. The recent pause in sales activity calmed home-price appreciation, but rising interest rates hindered affordability across the state.
Residential Construction Cycle (Coincident) Index, which measures
current construction activity, reached its highest level since 2008 as construction employment and wages continued to elevate. Momentum, however, could moderate as indicated by recent declines in the Texas
Residential Construction Leading Index (RCLI). Rising interest rates and sluggish residential construction activity over the past few months weighed on the housing market, but robust economic growth upheld a strong foundation.
Third quarter private bank loan data indicated a slowdown in residential construction investment, led by a decline in large multifamily loan values (buildings consisting of five or more units). Funds poured into this sector starting in 2013 but peaked earlier this year. Loans for one-to-four unit projects inched forward to a cycle-high but remained below 2007 levels. Despite the steady increase in loan volumes for small-unit structures, single-family
private construction values flattened through most of the state (although October numbers were revised upward).
Sluggish sales provided some breathing room for the supply of active listings, but the Texas
months of inventory (MOI) remained below four months. Around six months of inventory is considered a balanced housing market. A spike of new listings in the beginning of 2018 also supported inventory increases. Listing inventories of single-family homes priced at more than $400,000 exhibited the largest uptick this year, reaching 6.6 MOI after bottoming below 5.8 MOI in February. In the $200,000-$300,000 range, the MOI reached a four-year high of 3.3 months. The market for homes priced less than $200,000 remained exceptionally constrained below three MOI.
The MOI reached YTD highs in all the major metros but remained well below equilibrium levels. A steady stream of new MLS listings lifted the MOI up to 3.9 and 3.5 months in Houston and San Antonio, respectively. More homes hitting the market combined with a sales slowdown pushed the Austin and Dallas MOI up to 2.8 and 3.2 months, respectively. Fort Worth also noted an increase to 2.5 MOI, but new listings paused as sellers opted to wait out the market correction in North Texas.
Total housing sales ticked down 1.1 percent after double-digit growth in October, remaining on a flat trajectory. Most of the decline occurred for homes priced above $400,000. Single-family homes priced between $200,000 and $300,000 accounted for 32 percent of closed listings through an MLS, remaining the most active price cohort with a record-high 8,746 monthly sales. The bottom cohort (consisting of homes priced below $200,000) accounted for 37 percent of MLS sales, down from 69 percent in 2011. Nearly half of these transactions occurred outside the major metros.
Year-over-year sales decreased in all of the major metros following the October rebound. Dallas' correction continued, with sales down 12.8 percent relative to November 2017. Fort Worth's decline was more modest at 4.3 percent YOY. The North Texas slowdown marks an adjustment after multiple years of explosive growth, where home-price appreciation significantly outpaced earnings. A steady decline in the list-to-sale-price ratio over the past two years corroborates the transition away from hyper activity. This metric, however, stabilized above 0.96 in recent months, corroborating the solid foundation of the DFW housing market. The ratio also balanced in Austin and Houston despite a 0.2 and 2.8 percent decline YOY. San Antonio was the exception, where sales increased 5.2 percent YOY to a record-high 2,920.
Robust economic growth and the healthy labor market held Texas'
average days on market (DOM) below two months as homes continued to sell at a rapid clip. The DOM trended similarly at 60 days in Austin while averaging 57 and 58 days in Houston and San Antonio, respectively. The rate of sales growth continued to calm in North Texas, providing homebuyers some much-needed breathing room. The Dallas DOM elevated to 48 days, nearly two weeks longer than the record-low in September 2015. Fort Worth maintained the lowest DOM at 42 days but trended upward to more sustainable levels.
Interest rates held near a seven-year high due to the strong national economy, but the flattening yield curve drew investors' attention. The two- and ten-year U.S. Treasury bond yields settled at 2.86 and 3.12 percent, respectively—hovering around their lowest spread since the Great Recession. The
Federal Home Loan Mortgage Corporation's 30-year fixed-rate rose for the fourth consecutive month to 4.87 percent, weighing on the housing affordability conditions. Higher interest rates disproportionately affected Texas refinance mortgage applications, which slid 38.5 percent since January. Purchase applications, which are less sensitive to mortgage rate fluctuations, rebounded with 5.7 percent YOY growth.
Lagging sales and upticks in inventory moderated home-price gains after substantial post-recession appreciation. The
Repeat Sales Indices for the major metros continued to converge following the North Texas boom and Houston's slowdown after the 2014 oil bust. In Dallas and Fort Worth, the repeat sales indices stabilized at 3.6 and 4.5 percent YOY growth, respectively. Annual price growth decelerated to 3 percent in Austin but picked up 4 percent in San Antonio. Healthy housing activity in Houston pushed the index above 3.4 percent for the second time in two years.
Despite the moderation, the
Texas median home price hit a record high at $235,727. The Dallas median increased to $288,468, and San Antonio surpassed $227,750. On the other hand, Fort Worth's and Houston's medians ticked down to $233,258 and $237,144, respectively, while the Austin median dropped $9,000 to $304,700. Consumer preferences shifted toward smaller homes to combat affordability constraints, pushing the
median price per square foot up across the major metros relative to last year. Until wage growth catches up to home-price appreciation, the market will shift toward higher-density housing in the form of reduced lot and home sizes or toward multifamily units.
*All monthly measurements are calculated using seasonally adjusted data, and percentage changes are calculated month over month, unless stated otherwise.
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