|Texas Housing Insight||Texas Housing Insight||James P. Gaines, Luis B. Torres, Wesley Miller, and Paige Woodson||2018-10-01T05:00:00Z||technical-report||Texas Economy|
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August 2018 Summary
Texas housing sales ticked down 0.4 percent in August after a record-breaking July but maintained an upward trend. Shortages of homes priced below $300,000 continued to weigh on overall activity. Homes flew off the market at a record pace, corroborating the continued strength of demand. On the supply side, inventories inched forward as developers rushed to satisfy the market. Home-price appreciation calmed as a large number of new listings hit the market, and construction shifted towards smaller homes and lot sizes. Prices continued to outpace wage growth, however, challenging affordability across the state. The prospect of rising interest rates could further hinder affordability, particularly at the lower end of the market.
The Texas Residential Construction Cycle (Coincident) Index, which measures current construction activity, reached its highest level since 2008 as construction employment and wages elevated. This momentum should continue into fall as the Texas Residential Construction Leading Index (RCLI) extends its upward climb amid gains in single-family weighted building permits and housing starts.
Single-family housing construction permits jumped 14.1 percent to a year-to-date (YTD) high of 10,730 after contracting in the second quarter. Texas remained the U.S. leader in permits issued, accounting for 16 percent of the national total. Houston and Dallas-Fort Worth (DFW) topped the metropolitan rankings, issuing 3,560 and 3,385 nonseasonally adjusted permits, respectively. Fort Worth alone issued 987 permits in August. Monthly permits surged to 788 in San Antonio, pushing YTD growth above 27 percent, while Austin sustained 18 percent YTD growth with 1,459 permits issued after reaching a decade-high in July.
Total housing starts maintained an upward trend amid gains in multifamily development. Apartment investment continued to flow into DFW, Houston, and San Antonio to match the growing population and economy. In the single-family sector, private construction values contracted across the major metros but maintained a positive trajectory.
The months of inventory (MOI) in Texas ticked up to 3.6 months but was slightly below year-ago levels. Around six months of inventory is considered a balanced housing market. New MLS listings hovered around record highs, slowly chipping away at the prolonged market shortage. Nearly half of the new listings in August occurred below the statewide median price, providing some relief to the most constrained segment of the market.
Inventories expanded across the price spectrum, but the high-end market (defined as homes priced more than $500,000) recorded the largest increase at 10.8 percent YTD, reaching 9.2 MOI. The MOI inched closer to 3.5 months in the $200,000-$400,000 price range, rising 4.8 percent YTD. The market for homes priced below $200,000 remained the exception, where the MOI sank to an all-time low of 2.7 months.
The MOI reached YTD highs across the Texas Urban Triangle but has a long road to reach equilibrium. Slower sales in Austin and Dallas lifted the MOI to 2.6 and 2.9 months, respectively, while the Fort Worth MOI surpassed 2.4 months for the first time since 2015. In Houston and San Antonio, the MOI balanced at 3.7 and 3.3 months as new listings offset strong sales volume.
Statewide, housing sales ticked down 0.4 percent but maintained an upward trend after a sluggish first half of the year. Transactions at the higher-end of the market remained healthy, but shortages of homes priced below $300,000 weighed on overall activity. Sales through an MLS soared above 2,900 for the first time in San Antonio, reaching 7.4 percent YTD growth. Houston sales increased steadily at 3 percent YTD. The cooling, however, continued in Austin and Dallas, where sales fell 6.6 and 7.2 percent YTD, respectively. Fort Worth fared slightly better but posted a 3.5 percent contraction in August, pulling YTD sales into negative territory. These data, however, contain less than half of new-home transactions, which trended upward through the second quarter per MetroStudy data.
Economic growth bolstered the demand for Texas homes. The average days on market (DOM) settled below two months as homes continued to sell at a rapid clip. Austin and San Antonio recorded similar market conditions with DOM at 58 and 59 days, respectively, while homes sold on average after 55 days in Houston. Demand eased in Dallas and Fort Worth, pulling the DOM up to 46 and 41 days, respectively, their highest level in more than two years. The DOM relaxed primarily at the lower end of the market, where consumers are more sensitive to mortgage rate fluctuations.
Demand for homes priced under $200,000 strengthened at the state level as the DOM sank below 58 days for the first time in series history. This cohort accounted for the largest proportion of sales through an MLS at 35 percent, down from 72 percent in 2011. Demand was strongest in the $200,000-$300,000 range (54 DOM), which encompasses more activity in the major metros. Healthy economic growth heightened demand in the high-end of the market, where the average home sold after 80 days, a full week faster than last year.
Interest rates balanced as a flood of new government bonds offset currency concerns in emerging markets (e.g. Turkey). The ten-year U.S. Treasury bond yield settled at 2.89 percent for the second straight month after reaching a multiyear high in May. The Federal Home Loan Mortgage Corporation's 30-year fixed-rate remained elevated at 4.6 percent, nearly 70 basis points above last year's level. Despite higher interest rates, the number of mortgage applications for new-purchases in Texas rose for the third consecutive month.
Upticks in inventory moderated home prices after massive appreciation since the Great Recession. The Texas median home price hovered above $230,000 for most of this year. Home-price appreciation calmed at the metro level after years of explosive growth. The median price balanced at $287,500 and $230,100 in Dallas and Fort Worth, respectively, as YOY growth settled in the single digits. Houston's median price rose 2.2 percent YOY to $231,700. In Central Texas, however, prices continued to rise at a rapid clip at 7.1 and 6.7 percent YOY in Austin ($312,300) and San Antonio ($224,500), respectively.
Slower price growth outweighed reductions in home size, pulling Texas' median price per square foot (ppsf) down for the first time this year. Since December 2017, however, the statewide median rose $1.94 to $115.62 as home sizes declined to combat rising input costs and affordability constraints. Fort Worth maintained the highest YOY growth at 8 percent, pushing the median ppsf closer to $120. Austin had the highest ppsf at $156.93, a product of its high urban density and rapid growth in the region, followed by Dallas at $132.05. The median ppsf increased for the fifth consecutive month in San Antonio to $114.01. Houston's median ppsf was the lowest of the major metros at $108.60 but maintained 4 percent YOY growth. Despite the cool down in prices, home-price appreciation continues to outpace wage growth, further straining affordability across the state.
*All monthly measurements are calculated using seasonally adjusted data, and percentage changes are calculated month over month, unless stated otherwise.
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