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Is the Texas housing frenzy over?

COLLEGE STATION (Texas Real Estate Research Center) – Housing market indicators are signaling the Texas housing frenzy is over, says a research economist for the Texas Real Estate Research Center at Texas A&M University.

"Both housing sales growth and housing price growth have peaked and are slowing," said Dr. Luis Torres. "In addition, months of inventory, listings, and days on market have reached a trough and are beginning to rise."

Torres added, "Texas housing sales accelerated after the pandemic shut down the economy in March and April of 2020. This caused the already depleted inventory of homes for sale to reach historic low levels and led to exuberant home price growth."

Torres attributes the surprisingly strong housing market performance to depressed mortgage rates, an increase in home-purchasing preferences, homebuyers not being affected by the pandemic, and by the federal governments transfer payments and suspension of student loan payments.

"Texas’ single-family sales peaked at the start of 2021," he said. "That’s when San Antonio home sales were highest. Austin, Dallas-Fort Worth, and Houston recorded their highest number of housing sales in the last quarter of 2020."

Torres noted housing sales numbers were hindered by the lack of homes available for sale; therefore, sales are possibly not the best sole indicator of when the housing market started to slow.

"Housing prices are determined by the demand and supply of homes," he said. "Year-over-year price growth peaked in August in Texas, Dallas, and Houston. Fort Worth and San Antonio posted highs in July; Austin’s came in June."

"Some of the price pressures caused by strong demand and weak supply in the housing market have subsided," said Torres.

Months of inventory for the state and its major Metropolitan Statistical Areas (MSAs) hit bottom in May. The same is true for active listings, with the exception of San Antonio, which recorded its low in April.

"New and pending listings reached a trough in February thanks to Winter Storm Uri shutting down the Texas economy," said Torres. "The overall trend for both new and pending listings signals the supply of homes for sale continues to grow."

Days on market, a demand indicator, is another variable that reached a trough statewide and in the four major MSAs in August. Other indicators, such as mortgage home-purchase applications, are slowing statewide.

Torres isn’t surprised that the pandemic frenzy is being replaced by more long-run, sustainable rates of growth. Texas Real Estate Research Center forecasts for 2021 and 2022 included expectations for strong demand, improving inventories, moderate price growth, and slowly rising mortgage rates.

What's ahead for Texas real estate in 2021-22?

COLLEGE STATION, Tex. (Texas Real Estate Research Center) – Researchers at the Texas Real Estate Research Center see a more stable Texas housing market ahead, as soon as pandemic-induced home shortages dissipate.

The Center's 2021 Mid-Year Texas Housing & Economic Outlook was released today. Here are the takeaways.

Supply chain bottlenecks continue

The strong recovery has created supply chain bottlenecks that put upward pressure on prices and raise inflation concerns. Researchers hope the inflation pressures are transitory, but there is some uncertainty surrounding their assessment.

Mortgage rates go higher

Mortgage rates are expected to rise slightly by the end of 2021.
o The period of historically low mortgage rates that existed during the pandemic will probably be over in 2022.
o Mortgage rates could be somewhat higher in 2022 compared to 2021 as a result of changes in the Federal Reserve’s policy and inflation pressures.

Housing demand continues strong

The housing market will continue to be characterized by strong demand with low inventories, accompanied by strong price growth for the remainder of 2021.

Home inventory improves

The inventory of homes available for sale should improve in the coming months as listings seem to have reached a trough and are rising. This will ease some of the price pressures.

Even with homebuilders facing supply shortages of lumber, labor, appliances, and other construction materials, which have driven up prices and costs, new home construction should register strong positive growth in 2021.

Home construction growth slows in 2022

In 2022, new home construction is projected to grow but at a slower rate than the previous two years as the housing market stabilizes. The housing market will move toward a more sustainable long-run path as the pandemic housing market frenzy dissipates.

Demographics fuel Texas housing demand

Economic growth and demographic trends, such as aging millennials and migration from out of state, will help drive Texas housing demand for the remainder of 2021 and 2022.

A more balanced market in 2022

For 2022, researchers expect the supply of home for sale to increase and housing demand to remain relatively strong. This will move the housing market back into balance and cause home price growth to slow.

Foreclosures absorbed

Once forbearance ends in the fall of 2021, even with an increase in delinquencies and foreclosures, the housing market could absorb the foreclosed homes. Researchers say it’s possible homes could be sold with a gain even before they enter foreclosure.

Texas existing-home sales, prices increase as inventory shrinks faster than ever

COLLEGE STATION, Tex. (Texas Real Estate Research Center) – Texas’ existing-home sales increased 2.5 percent month over month (MOM) to 29,000 transactions in May but remained more than 2,000 sales below peak levels reached at the start of the year.

The average home stayed on the market for just one month, a record-low duration since the series started in 1997.

“Mortgage rates are still hovering around 3 percent, and ongoing demographic trends continue to support housing demand,” said Dr. Luis Torres, research economist for the Texas Real Estate Research Center at Texas A&M University.

According to the National Association of Realtors (NAR), national existing-home sales fell for the fourth straight month in April. Despite the 1.2 percent MOM decline, activity exceeded pre-pandemic levels and increased 46.2 percent from the pandemic’s trough last May.

“Due to the fact that much of the pandemic’s worst impacts registered in April and May 2020, standard year-over-year (YOY) calculations should be taken with a grain of salt,” cautioned Torres. “For example, Texas resale transactions skyrocketed more than 50 percent YOY in May but rose 14.7 percent relative to May 2019 levels.”

Compared with two years ago, existing-home sales elevated just 8.1 percent nationally.

Along with a monthly pickup in sales, a 3.1 percent decrease in new listings during May pulled Texas’ months of inventory to 1.1 months in the state’s existing-home market.

“The extremely low level of supply available is holding back sales,” said Torres. “The limited inventory for homes priced less than $300,000 is particularly distressing and is stressing home affordability.”

Texas’ median existing home sales price accelerated 27.8 percent YOY to $289,900. NAR reported an annual increase of 21.5 percent to $306,000 in the national metric.

Torres, however, said that a shift in the composition of sales toward higher-priced homes due to limited inventory at the bottom price cohorts explains some of the increase in the median sales price.

“Our Texas Repeat Sales Home Price Index accounts for this compositional bias and indicates annual home-price appreciation was closer to 15 percent in May. Although less extreme than the median price metric suggests, the rise in real home prices is still impairing housing affordability within Texas.”

Constrained inventories, rising mortgage rates, declining affordability slow Texas housing

COLLEGE STATION, Tex. (Texas Real Estate Research Center) – Texas’ housing boom lost momentum in April as existing homes sold through Texas Multiple Listing Services (MLS) ticked down 0.8 percent month over month.

“While Texas housing sales may recover to January peak levels, we do not expect activity to maintain its double-digit annual rate of increase in the long term,” said Dr. Luis Torres, research economist for the Texas Real Estate Research Center at Texas A&M University.

One restriction of the Texas housing market is the severe lack of inventory for sale.

“The number of new MLS listings rose for the second straight month in April, but Texas’ months of inventory remained less than 1.3 months,” according to Torres. “For homes priced less than $300,000, which constitutes three-quarters of total sales, only one month of inventory was available. In the major metros, inventory was even more constrained.”

Torres noted that the median credit profiles of Texas borrowers improved during March, reflecting the fact that only the most qualified housing applicants are able to outbid their competition for their desired homes in a period of exceptionally tight inventories and strong housing demand.

In addition to depleted inventory, national mortgage-interest rates have crept up in the past few months from a series trough of 2.68 percent in December 2020 to 3.06 percent in April.

Torres notes that mortgage rate fluctuations within Texas reflected the trend in national data. Combined with double-digit home-price appreciation, income growth cannot keep up, threatening housing affordability.

“Our Texas Repeat Sales Home Price Index, which accounts for the fact that the sales composition is shifting toward higher-priced homes due to lack of inventory at the bottom price cohorts, corroborated substantial and unsustainable home-price appreciation of 10.4 percent annual growth during 1Q2020,” said Torres. “Meanwhile, the Center’s Home Affordability Index revealed housing affordability declined in Austin, Fort Worth, and Houston over the past three months relative to 4Q2020.”

According to the National Association of Realtors, existing-home sales fell for the third straight month in April, decreasing 2.4 percent. Potential homebuyers across the country are experiencing many of the same challenges Texas buyers face – diminished inventory, rapid median-price growth, and tough competition for what homes are available for sale.

Texas existing home sales rebound in March, but supply-side constraints persist

COLLEGE STATION (Texas Real Estate Research Center) – The Texas housing market rebounded in March after Winter Storm Uri shocked activity during the previous month. Existing homes sold through Texas Multiple Listing Services increased 9.8 percent on a month-over-month (MOM) basis.

"Texas housing sales continued to trend upward amid historically low mortgage-interest rates and waning effects of the pandemic," according to Dr. Luis Torres, research economist for the Texas Real Estate Research Center at Texas A&M University.

According to the National Association of Realtors (NAR), existing home sales fell 3.7 percent MOM but increased 12.3 percent over March 2020. Annual metrics, however, should be interpreted with caution.

"We have reached the one-year mark of when COVID-19 prompted a nationwide economic halt, which is distorting standard year-over-year measures," said Torres. "It may be more useful to look at higher-frequency data or to make comparisons with 2019 for the next few months."

Existing home sales in Texas were 16 percent higher than in March 2019.

Supply-side activity also rebounded from the February weather shock, with a 16 percent MOM increase in the number of new listings on the market. New listings, however, have failed to keep pace with sales, leading to diminished inventories across the state.

"Texas’ months of inventory sank below 1.3 months for the first time in series history, highlighting the shortage of homes on the market," said Torres. "The lack of supply, particularly for homes priced under $300,000, is one of the greatest challenges to the housing market and, more broadly, the Texas economy."

NAR announced similar constraints at the national level pushed the median existing home sale price up 17.2 percent YOY.

Existing homes in Texas had a similar YOY price increase, reaching a record $279,740.

Torres notes how these explosive growth numbers may be deceptive.

"While the median price is more robust to outliers than the average price, compositional changes in home sales can still cloud real growth in prices," he said. "Our Texas Repeat Sales Index avoids this composition bias, showing annual growth in real housing prices closer to 12 percent. This rate of home-price appreciation, however, is still taxing housing affordability across the state."

See more on the February 2021 Texas real estate summary at https://www.recenter.tamu.edu/articles/technical-report/Texas-Housing-Insight