Houston, Tx
Houston is a unique city with quite a lot to offer – a diverse demographic, a unique culinary scene, an an energy and world health capital with the sheer size to engulf most other large metropolitans. Unfortunately, the bayou city is no different to other cities when it comes to the general macro trends happening in today’s real estate market.
Home Sales
Buyer demand for Houston homes has yet continued its advance to new highs on a yearly basis with the first quarter notching a 9.4% increase from the 2021 numbers. This is partially because of the February 2021 freeze that took place last year which dampened sales slightly in 2021, but still shows the annual growth is on pace to break records. Currently, the demand is still there to continue this strong pace, however, the pace of sales will likely begin to slow through the year, and we forecast that the inventory levels will begin to climb back towards normal levels, albeit slower than you’d probably expect.
Why so little homes for sale?
Currently, the Houston housing average price stands at $410,923, which is a staggering 41.2% higher than the January 2020 average price of a home. This trend of continued higher prices hasn’t seen any sign of slowing yet as supply has maintained its low listing levels of 20,620 Active listings and 1.3 Months of Inventory supply. The supply glut was only exacerbated through the year with record low mortgage rates in the low to mid 2% for 15-year and 30-year fixed mortgages.
Home prices were also pushed higher by the lack of consumer options as rental rates were increasing at nearly the same clip throughout the past year. Quite the dilemma – either take pricey rental rates or buy at a high cost where you can get some appreciation from your investment.
Changing Tide
While the market does remain white hot, there are signs that trends will continue to push towards a balanced market sooner rather than expected. Days on market have risen from the 26-day low during the middle of 2021 to close to 40 days on market in March, signaling that more product is remaining idle on the market for longer. Mortgage rates, which are directly correlated with fed policy, have seen a sharp increase over the past three months as the fed seeks to implement a change to macro-economic policy and tackle inflation by raising rates through the year. The most recent mortgage rates posted have shown in the 5% range for 30-year fixed mortgages, nearly double what they were in December/January. As a result, the cost of ownership has begun to diverge from rental rates in recent days due to the fast clip of mortgage rate increases and continued price increases.
What does this mean going forward?
The economy continues to be in a strong position with many buyers still flush with cash to buy properties. Given that Houston, and more broadly Texas, is still a significantly cheaper option than other states around the country, offers a strong economy, and has a lower tax environment, you can expect the demand to continue throughout the year, but begin to decelerate. Prices will likely continue to rise modestly however, but over time should also begin to slowly normalize as the effect of higher borrowing and ownership costs diverge from current rental rates [see other contributing factors]. Because of the expected price increases, however, there will likely still be a pool of buyers due to keep a steady amount of demand even with these borrowing costs. Depending on the outcome of how a lack of steel may also affect new construction, you can expect inventory and listing to remain relatively low, but slowly begin return to normal levels by the end of the year. We are about to go through the summer season and will most likely see more homes come on the market this year which, in combination with the current price level, the current days on market, and higher ownership costs, should keep prices muted at current levels for the next couple of months.
Other Contributing Factors
Because we are a global economy, the war in Ukraine will also have an effect on the housing market in Houston. Russia has announced recently that it has captured the remaining parts of the city of Mariupol, which is a largely industrial city also known for it’s huge amount of steel production. According to Metinvest, the owner of the plant, the Azovstol plant in Mariupol was “producing 5.7 million tons of iron per year, 6.2 million tons of steel and 4.7 million tons of finished rolled products per year.” That was approximately 1/3 of all Ukraine still and ironworks production according to sources online. This lack of production and huge amount of demand to build at these higher prices, will likely pass through as increased building costs, which will slow down the increase of housing supply in the market and should act as a buoy to prices.
The information and details contained herein have been obtained from third-party sources believed to be reliable, however, Parceto Real Estate has not independently verified its accuracy. Parceto Real Estate, it’s owners, stakeholders, and employees make no representations, guarantees, or express or implied warranties of any kind regarding the accuracy or completeness of information and details provided herein, including, but not limited to, the implied warranty of suitability and fitness for a particular purpose. Interested parties should perform their own due diligence regarding the accuracy of the information.
Any information provided herein, is being provided subject to errors, omissions, changes of price or conditions, and withdrawal without notice. Third-party data sources used in this article include: The Houston Association of Realtors and Freddie Mac. All content is provided on an “as is” basis, with no warranties of any kind whatsoever.
You should always consult with the assistance of an appropriate professional before making any decision. Opinions, estimates, forecasts, or other views contained in this document are those of Parceto Real Estate, and no information referenced in the article should be considered investment advice.
© 2022 Parceto LLC, d.b.a. Parceto Real Estate, all rights reserved. Third-party image sources: shutterstock.com, adobe.com
Online Information Sources:
Freddie Mac, “Mortgage Rates.” Freddiemac.com, 22 Apr 2022, https://www.freddiemac.com/pmms
Houston Association of Realtors, “MLS Press Release: Houston Housing Market for March 2022.” Har.com, 13 Apr 2022, https://www.har.com/content/mls/?m=04&y=22
