October Housing Report

Updates on the Houston Housing market in September 2022.

By: Peyton Poynter

October 21, 2022

Home Sales Slow, However, Prices Stabilize in September

In a reversal of the current trend of price decreases, September showed a surprise increase in average prices month over month of 0.7% from $411,671 to $414,776. While it may seem abnormal, the likely cause is due to a dip in mortgage rates in August which allowed buyers breathing room to lock in a lower rate and buy. While this increase may come as a surprise to would-be buyers, it does not detract from the sentiment and trend of extraordinary downward pressure on prices.

Overall sales, an indicator of the overall demand and market strength, continued the march downward on a monthly and yearly basis. Home sales sat at 7,664 units, which was a 17% annual drop and 7% monthly drop from August.

On a relative basis, it is important to note that sales remain higher than pre-pandemic levels in 2019, even with significantly higher interest rates, signaling further room to drop.

Inventory Increase Slows as Seasonality Kicks In

One of the most important metrics, Total Listings & Inventory, is signaling future downward pressure going forward. During a typical seasonal cycle, inventories rise during the early spring & summer months and decrease in the fall & winter months. This seasonal trend is because more homes are put for sale during summer break as families move during the least disruptive time period.

The overall September listings/inventory continued to rise following the large increase during this Summer signaling a movement against typical seasonal norms. This trend has continued to slowly push higher which should further produce price pressures to the downside and provide buyers more options and create more competition among sellers.

Mortgage Rates Increase in September (precursor to future sales drops)

While interest rates on mortgage rates and other interest rate products eased in August, it was certainly short-lived. Mortgage rates Increased dramatically in September and risen even further in August.

As of today’s writing, (October 20^th, 2022), the average 30-year interest rate sits at 6.94%, which is higher than most rates between 2002 – 2008 and such levels haven’t been seen since 2009. Rates of 7% or higher haven’t been seen since the early 2000s.

If rates continue to rise at this pace, mortgage rates could top out at 9-10% in very short order, which would cause an affordability crisis unless home (and other property values) drop. For perspective, the increase of a mortgage from 7% to 8% increases the monthly cost of a mortgage by approximately 15 -16%.

Rents drop with seasonality

In line with seasonal trends, rents have dropped month over month, but remain stable year over year. Rents changed from $2,313 to $2,180 from August to September, a 5.8% drop. While this may seem like an overnight drop, it is typical of seasonal effects in demand. It is also partially caused because the prime properties – those that command higher rents – typically lease during the summer months and are no longer available in the Fall/Winter. The brief reduction in mortgage rates in August may have also created more demand from buyers to purchase instead of rent causing a reduction in the lease rate of rental properties.

Affordability – Compare the Numbers

As mentioned earlier, affordability continues to be a problem for buyers and is creating a start imbalance in demand and supply. With the pace of rate increases, the total monthly payment for properties has far exceeded the wage gains of the average home buyer (by a factor of nearly 12x). The median and average total payment of a single home (inclusive of taxes, insurance, mortgage) has increased by nearly 30%, while wages have increased only 2.5%.

While it may seem like an unfortunate situation for buyers needing to buy today, the current mix may prove fruitful for the patient buyer. Mortgage rates, as mentioned earlier, are likely to increase further by quite a large amount. Because of this trend, current level of prices will likely be unsustainable until that trend reverses and are ripe for further decreases in the short to medium term.

Sources:

Third-party image sources: shutterstock.com, adobe.com

Freddie Mac, “Mortgage Rates.” Freddiemac.com, 13 Oct 2022, https://www.freddiemac.com/pmms

Houston Association of Realtors, “High-End Homes Are The Bright Spot For Houston Real Estate In September”
Har.com, 12 Oct 2022, https://www.har.com/content/department/mls?y=2022&m=10

Houston Association of Realtors, “Houston Rental Properties Remain Hot In September” Har.com,
19 Oct 2022, https://www.har.com/content/department/newsroom?pid=1881

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