Texas Housing Insight
Here is a great post from Texas A&M Real Estate Center regarding home sales for October.
October 2018 Summary
Texas housing sales rebounded 11.8 percent in October but remained on a flat trajectory. The shortage of homes priced below $300,000 and rising interest rates continued to weigh on overall activity. Inventories inched forward but at an insufficient rate relative to demand, and housing starts fell for the fifth time in six months. Despite stability in lot development and single-family building permits, new construction appears incapable of relieving the prolonged shortage of lower-priced homes. Housing demand showed signs of normalization, 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.
The Texas Residential Construction Cycle (Coincident) Index, which measures current construction activity, reached its highest level since 2007 as construction employment and wages continued to elevate. This momentum, however, may moderate in the fourth quarter as the Texas Residential Construction Leading Index (RCLI) declined for the second straight month. Rising interest rates, a dip in housing starts, and fewer multifamily permits weighed on the residential construction outlook, but robust economic growth upheld a strong foundation.
Single-family housing construction permits hovered near a cycle-high as builders scrambled to meet demand. Texas remained the leader in permits issued with 9,418 (nonseasonally adjusted), accounting for 15 percent of the national total. Dallas overtook Houston's top ranking with more than 3,000 permits issued, led by growth in Collin and Tarrant Counties. Houston permits fell below 3,000 for the first time this year as the summer building season came to a close. Austin fell to seventh in the national rankings with 1,275, while San Antonio issued 707 permits, a YTD-high after seasonal adjustment.
Despite increased lot development and building permits, total housing starts fell for the fifth time in six months, erasing most of the first-quarter gains. Growth in earlier stages of the construction-cycle should pressure starts upward, but the current pace is insufficiently matching population growth and deepening housing affordability problems. Single-family private construction values declined across the Texas Urban Triangle and exhibited an overall flat trend. In the multifamily sector, starts recovered most of last quarter's losses despite flattening rent growth.
A recent sales slowdown provided some breathing room for the supply of active listings, but the Texas months of inventory (MOI) remained suppressed below four months. Around six months of inventory is considered a balanced housing market. A spike of new listings to start the year also provided upward pressure, but the impact is dissipating. Listing inventories of single-family homes priced more than $400,000 exhibited the largest uptick this year, reaching 6.4 MOI after bottoming out below 5.9 MOI in February. In the $200,000-$300,000 range, the MOI reached an annual high of more than 3.2 months. The market for homes priced less than $200,000 remained the exception, where the MOI held at 2.8 months with constant pressure downward.
The MOI reached YTD highs in all the major metros except Fort Worth but remained well below equilibrium levels. A steady stream of new MLS listings lifted the MOI up to 3.8 and 3.4 months in Houston and San Antonio, respectively. On the other hand, Austin and Dallas MOI reached 2.7 and 3.0 months, respectively, amid a recent sales dip. The Fort Worth MOI fell below 2.4 months after six straight monthly increases.
Total housing sales rebounded 11.8 percent but remained on a flat trajectory. Rising interest rates, declining affordability, and supply shortages continued to hinder activity on homes priced less than $300,000, which accounts for nearly 70 percent of sales through an MLS. Despite the housing market's moderation, closed listings above the bottom price cohort ($200,000) hovered around record highs.
Sales in North Texas rebounded in October but remained negative YOY as the market adjusted after multiple years of explosive growth. Decreased housing affordability weakened demand at the lower end of the market. In Austin and San Antonio, YOY growth inched into positive territory after slipping in September. Houston surpassed 7,500 monthly sales for the first time this year, led by gains in the $200,000-$300,000 range.
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 59 days in Austin, while averaging 57 and 56 days in Houston and San Antonio, respectively. Dallas demand methodically softened over the past year, particularly in the lower end of the market, pushing the DOM closer toward 50 days. Fort Worth demand showed slight signs of easing but maintained a DOM at 40 days.
Statewide, the demand for homes priced under $200,000 remained robust as the DOM balanced at a record-low 57 days. This cohort accounted for the largest proportion of sales through an MLS at 38 percent but was remarkably lower than its 72 percent share in 2011. Demand was strongest in the $200,000-$300,000 range (54 DOM), which encompasses more activity in the major metros. Demand for homes priced above $500,000, however, inched above 86 days after sinking below 80 days in June.
Interest rates jumped to a seven-year high amid a booming national economy and rising inflation-expectations. The ten-year U.S. Treasury bond yield reached 3.15 percent for the first time since 2011, while the Federal Home Loan Mortgage Corporation's 30-year fixed-rate elevated to more than 4.8 percent. Higher interest rates disproportionately affected Texas refinance mortgage applications, which slid 38 percent since January. Rising rates also pulled down mortgage applications for new-home purchases, but YOY growth remained positive.
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 4.0 and 5.2 percent YOY growth, respectively. Annual price growth decelerated in Austin and San Antonio to 3.3 and 3.2 percent, respectively, while dipping below 2.6 percent in Houston.
Despite the moderation, the Texas median home price increased to $235,200. Every major metro except Dallas broke record levels, led by Austin at $314,900. The San Antonio median price jumped $5,300 from September to October to a total of $227,400, while Houston's median reached $237,400. The Dallas median price dipped below $281,600 after breaking record levels in September. In Fort Worth, the median home price inched closer to $236,700 amid major supply shortages. The median price per square foot elevated across the metros as consumer preferences shifted toward smaller homes to combat declining affordability.
*All monthly measurements are calculated using seasonally adjusted data, and percentage changes are calculated month over month, unless stated otherwise.
Click here for the full report.
Source - James P. Gaines, Luis B. Torres, Wesley Miller, and Paige Woodson (Nov. 4, 2018) https://www.recenter.tamu.edu/articles/technical-report/Texas-Housing-In...
DFW Real Estate, Housing Market, Title Insurance, Title Company