Texas Housing Insight
Summary for January 2016
The Texas economy continued to grow in January but at a tepid pace in the face of a weakening global economy, lower energy prices, and a strong dollar. Total employment expanded but was weighed down by the manufacturing and oil and gas extraction sectors, especially in Houston.
The Texas Residential Construction Leading Index (RCLI), which signals future directional changes in the residential construction business cycle of single- and multifamily housing, decreased in January. The RCLI was negatively affected by decreases in weighted building permits and housing starts. The Texas Residential Business Cycle (Coincident) Index,which measures current construction showed only modest growth in January after a slowdown in activity during prior months. Single-family housing construction permits statewide increased 3.6 percent seasonally adjusted in January with declines in year-over-year growth in Austin and Houston. Dallas-Fort Worth recorded growth though it showed trends of slowing. No major MSA has reached its prior peak permitting levels. During January, Houston and Dallas-Fort Worth led the nation in the number of single-family permits issued, followed by Atlanta and Phoenix.Housing starts in Texas experienced positive growth in January 2016.
Months of inventory for existing homes across Texas remained low but registered modest upticks the past couple of months to settle near 3.8 months of inventory in January (around 6.5 months of inventory is considered balanced). It is still too soon to tell if a trough has been reached and an upward trend will continue going forward.
In January, total Texas housing sales increased 1.9 percent year-over-year seasonally adjusted (positive 5.7 percent on a not seasonally adjusted basis). Dallas-Fort Worth and San Antonio- posted solid home sales increases. In January, both Houston and Austin experienced a negative percent year-over-year seasonally adjusted change of 4.4 and 1.4, respectively (negative 0.8 percent and 0.3 not seasonally adjusted, respectively). During 2015 and into January 2016, Texas home sales registered positive growth, but the rate of change lagged behind the nation. Mortgage interest rates have remained below 4 percent. In January, the Federal Home Loan Mortgage Corporation reported a 3.87 percent average rate on a 30-year fixed-rate mortgage, while the 10-year U.S. Treasury bond yield equaled 2.09 percent.
The number of days an existing home was on the market in January remained low relative to prior periods, reflecting the tight supply. During the same month new homes registered longer sales periods than existing homes, while Austin and Houston new home sales when compared with Dallas-Fort Worth and San Antonio registered greater sales periods. The average statewide difference to sell a new home versus an existing home was 38 days in January.
Average and median sales prices have risen dramatically in Texas since 2011 and continued to climb in January. The constrained supply in conjunction with strong demand accelerated price gains. Austin has been the house price appreciation leader through January 2016. Non-energy employment growth and a strong services sector caused Dallas-Fort Worth to also register strong price appreciation. Due to recent declines in the energy sector and the resulting economic slowdown, Houston has begun to exhibit a softening in price growth.
Texas’ existing and new home sales prices have steadily climbed in the major metros. Since 2011, new median home prices exceed existing home prices by 48 percent and by 37 percent based on average sales prices. This price differential is primarily because of increases in home size for newer homes and the significant increases in construction and land costs for new homes. The price per square foot for a new home in Texas is almost 20 percent more than for an existing home.
Even with rapid price appreciation, purchasing a home in Texas continued to be relatively affordable compared with the rest of the United States, but the gap appears to be closing. The rate of increase in personal and household income greatly lags the increase in home prices.
Reference: Texas Housing Insight by James P. Gaines, Luis B. Torres and Wayne Day (Mar 16, 2016)