This week it was announced that home resales slowed down nationally. Previously owned home sales fell unexpectedly in June as tight supply and increasing rates for mortgages imperiled the real-estate market recovery in the U.S.
The media and experts are somewhat surprised by this shift in sales. However, we knew that rising rates would slow sales.
In addition for every 1% rise in rates, consumers can buy 12% less than what they previously could afford. If that is true, then the numbers actually look better than I would have expected on resales.
This is the first sign of the valley after the first wave of sales with low rates. It will continue for a couple of months as the consumer comes to an understanding and retrenching of what they can afford with the new rates. The slight reduction in resales in June should be viewed as just a speed bump, nothing more.
All this said, we live in Texas, where inventory is the determining factor, rather than rates. Yes, we will see hesitation in the market, but I believe it will pick back up, once the consumer realizes the need to buy while rates are still affordable. In Houston, San Antonio, and Austin the market has seen little to no hesitation – just the opposite, in fact, as homebuyers scramble to buy real estate before prices rise too much.
Current national indicators of continued strength in the market
Lumber futures can be a good predictor of US housing starts. The large decline we saw in futures earlier this year translated into weaker than expected residential construction in June.
July is showing a steady increase in prices, potentially pointing to improving demand.
After a disappointing result in June, is construction picking up this month? Many economists think so. Other key data to look at is the National Association of Homebuilders survey, which is at the highest levels since 2006.
The index had certainly diverged from housing starts in the past, but the combination of this survey and higher lumber prices may be pointing to an improvement in residential construction for July nationally.
What does that have to do with our local markets? The main thing is that values should continue to improve here in our Texas metros. With rising values, more consumers will be forced to make a quick decision while rates and values are still affordable. One caution: even thought the big metros are strong in sales and values, in each market there are those challenged areas due to lack of desirability and too much inventory. So, yes it is a great time to buy, but be aware of your market and its trends by consulting with a realtor.
Continued job creation signals moderate growth
It’s all about jobs, and where else would you rather be than Texas?
Corporate profits remain at peak levels; their internal funds available for investment continue to increase, particularly in Texas, signaling strong capacity to expand. The manufacturing capacity utilization rate posted a robust 78.7 percent at the first of the year and has continued with modest growth. Most goods manufactured in Texas continue to do well, starting with strength in technology-related capital goods and energy, primarily in Austin, Houston and San Antonio. In addition, state industries saw unfilled orders rise 10.5 percent year over year, with notable strength in aircraft, vehicles, and parts, suggesting a full production pipeline.
The Texas regional economy has picked up, posting stronger employment growth in second quarter than the first. However, this year is starting out more slowly than 2012. In addition to last year’s soft spots, such as exports, new headwinds are slowing growth. These include federal government budget cuts (over $16 billion in Texas due to sequester forced cuts) and tax increases. State initial jobless claims and the Texas unemployment rate are higher now than they were at year-end. It’s likely that Texas job growth in 2013 won’t be on par with the robust growth in 2012. That being said, Texas will continue to grow faster than the nation, but the state’s growth premium growth vs. the nation has fallen slightly.
The Texas unemployment rate remained at 6.4 percent in June, two-tenths higher than the December low of 6.2 percent. A fast-growing Texas labor force and an uptick in jobless claims have propped up the unemployment rate in 2013.
The sequester and defense budget cuts have affected Texas job growth. The good news is that private job gains have offset the government job losses. The private sector has added jobs at a 2.9 percent rate year to date in Texas, while government jobs have fallen slightly. Big losses in federal government jobs, down an annualized 3.8 percent year to date, have dominated small gains in state and local government, up 0.2 percent.
The sequester and cuts in health care spending are hurting metropolitan areas that have large federal government, military and health care sectors. Employment in El Paso is flat year to date, while the rest of the border metros and San Antonio have lost jobs.
The good news is that over the past year, Texas added jobs in all of the eleven major industries, including professional and business services, trade, transportation and utilities, leisure and hospitality, construction, education and health services, government, mining and logging, financial activities, other services, manufacturing, and information. In addition most of these industries confirm plans of further expansion over the next 3-5 years barring any economic woes.
Is all of Texas seeing strong economic growth?
The vast majority of Texas jobs are being created in and around Houston, DFW, San Antonio, and Austin. Rural towns in Texas outside of the shale play continue to see slow to no growth. This is nothing unique – it is happening across America. If you look at Census maps, it is very obvious of the migration out of small towns toward centers of job growth.
Where is the growth, what areas, price points?
All four Texas metros continue to see growth. Houston leads the state with not only job growth but inmigration. Close to 125,000 people a year are moving to Houston. The other Texas metros are seeing the same type of surge but in smaller numbers. All price points currently are strong on resale and new. Entry level is becoming more challenged because of land values and rising mortgage rates. Home and real estate value growth are stronger this year than we have seen in the last seven years. Austin, San Antonio and Houston should experience between 6 to 10% value improvement this year on residential, due to lack of inventory. The same and better can be said for most channels of real estate due to the lack of inventory or new inventory planned.
As of mid-2013, median prices of new homes for sale in the Dallas-Fort Worth area are at an all-time high of $246,669. That’s up sharply from a new home median price of about $207,000 before the recession hit, according to data from Residential Strategies Inc.
In Houston, the median price of a single-family home—the figure at which half the homes sold for more and half for less—rose 12.9 percent to $192,000. The average price increased 13.8 percent year-over-year to $268,085. Both represent the highest prices ever recorded
The median price for Austin-area homes increased to $235,000, which is eight percent more than the same month in 2012. Year to date, median price is $224,000 or nine percent more than the first six months of 2012.
The median price of a home in San Antonio was $180,400 as of June 2013 — up from $170,300 a year ago. June’s average home price of $221,168 also marks a 6 percent increase from the average sales price of $209,214 back in June 2012.
To put this in perspective the national median existing-home price for all housing types was $214,200 in June, up 13.5 percent from June 2012. This marks 16 consecutive months of year-over-year price increases, which last occurred from February 2005 to May 2006.
Texas was 50th in home appreciation according to FHFA / OFHEO. We have since improved to 46th. This is a good thing, we have not had the harsh appreciation of the ‘bubble markets’, which in turn has kept Texas metros on a nice steady growth path.
So yes, Texas home values are improving and should continue for another 3-5+ years based on inventory availability in all price points.
As the need for finished inventory continues to force home values up, there is one main concern I have. Home value appreciation annually in the double digits with rising mortgage rates will force more and more consumers to buy quicker or not at all. Texas has long led the country in affordability for a number of years, which in turn makes it attractive to consumers and corporations looking to relocate from high-cost states. With values being aggressively forced up because of lack of supply and strong demand for the next 3 to 5+ years these rising values could challenge our cheaper cost of living in comparison to other states.
We still have one of the lowest tax burdens and cost of living in the country.. Appreciation and value still have a ways to run up before they start to concern me. A more concrete way of saying that is, we have a strong chance for a good 5+/- years of continued growth and appreciation.
If you have waited for rates or the market to come back to you, you will be waiting a long time…there truly isn’t a better time to buy than today.