Are we confused? I think we are confused
There is some conflicting information circulating about the Houston housing market and the economy, so I’m going to take you through some of the popular ideas I have heard and share my own thoughts because I feel like there is some back and forth on what is actually happening.
We all know, just like many real estate markets in the country, Houston smashed it between 2019- 2022. There was record sales volume, historically low interest rates and a record price increase over 10% in a short few years.
This frenzy started to subside around mid 2022 mainly because the price of housing became so high coupled with big interest rate hikes.
This caused the numbers to come down slightly compared to 2021 housing stats-which caused a lot of people to have a fear and theory about a pending housing crash- which never actually happened.
But thanks to these extraordinary pandemic circumstances it has left little to no clues as to what will happen next since this has never actually happened before .
1 – Sales volume is dropping in Houston
The biggest thing it seems people are focusing on is that sales have dropped 30% in the last couple of months here in the Houston market.
The thing is most of these reports are comparing exactly 1 year over date market data- I just want to emphasize that a 30% drop in sales isn’t so scary when one considers the abnormal circumstances of 2021 and 2022 transactions.
If we look at stats prior to the pandemic this makes the number just barely off from 2018. In Feb 2018 we had 4,469 units sold, 2023 we had 6,000+ units sold.
So weaker sales volume does not necessarily indicate market distress. I think what it is really indicating is the market is trying to resume normal cycles of real estate – meaning the winter
months have historically have had a consistent drop in sales. I think we will continue to see an uptick in home buying and selling in Spring and Summer as we continue leveling out.
2- New Construction Inventory is an indicator of a crash:
I have also heard speculation about the new home markets having an enormous amount of inventory that they are not listing for sale or that they are offering massive discounts. This would presumably cause a huge crash as they will have to decrease pricing significantly.
New construction currently makes up about 41% of our current available inventory on the MLS here in Houston which is still sitting at just under 3 months of available inventory in the entire metro area. In a balanced market 6 months worth of inventory is considered a stable market. So even if these builders did have hidden inventory they are not listing- it still wouldn’t put the market in a balanced market situation.
Our average days on market currently has been anywhere from 37-48 days on market. Pre pandemic levels our average days on market was 67+ days and even longer for new construction.
The new construction sector especially here in Houston is still getting building permits at a steady rate and have made quote on quote price adjustments just like sellers in the last several months.
Many of the suburbs here in Houston are still accelerating in appreciation and are fairly competitive markets still receiving multiple offers in some situations. These suburbs are also where some of our New home inventory is located and is priced on average 15% higher than the resale home in the same areas.
What I am getting at is that the demand for new construction is still there and strong. Builders and communities are still making sales and releasing inventory and lots. Despite the economic uncertainty Houston still has permits and plans for 5+ major master planned communities to start development in the next couple of years.
New construction sales are not at the rate of pandemic levels but still at a higher and faster rate than pre pandemic.
3 – Prices are dropping in Houston
Correction: Home prices are increasing at a slower rate than the previous two years- not dropping.
Home Prices are still 1% higher than they were at our peak of 2021. We are currently one of the few housing markets in Texas that hasn’t seen a negative decrease in home pricing as of yet.
So will this last? Who knows. I think personally, instead of seeing significant price drops we will continue to see that there is not going to be rapid appreciation over the next couple of years because of the higher interest rates and lack of buyer affordability.
4- Affordability is the biggest dilemma right now
Despite market conditions, affordability is what is slowing (not crashing) the market. Its not looking so great these days especially for people local to Houston who have lived here and owned a home for several years now. Currently our affordability index is at about 42%. ??Meaning 42% of homes sold in quarter 4 of 2022 were only affordable to a family making more than $92,000 per a year in the entire Houston metro area. Then the normal affordability index is ideally wanting to be around the 60-75% range. ????
So that with the high affordability index rate, sellers currently locked into historically low interest rates and home pricing still historically higher than it was a few years ago this is what is causing the housing market to slow- not crash. ??
5- Despite affordability
Houston was still surveyed as the 8th most stable real estate market for 2023 and we still have people relocating here from more expensive markets which is why our prices are still increasing and long term investing is still a good idea.
Besides looking at what the real estate market is doing on a monthly basis we have economic advantages of houston that will make houston continue to be a stable real estate market
#1- we are the fourth largest city in the country and compared to the other three largest: we are the only large metro city that is not an immediate threat to a crash or significant downward numbers, we have the lowest unemployment rate, cost of living goes further than the other metro cities
#2 Houston is currently the number #1 city in the nation for job creation and Home to more fortune 500 companies other than NYC
#3: We have strong employment segments in oil and gas, medical and science.
So the overall consensus:
- Seasonal fluctuations
- High buyer interest in the suburbs
- Steadily decreasing prices
- Increasing investment opportunities