There’s been no stopping Houston’s housing market throughout the recent months despite historically low inventory and deviation from seasonal trends. Several factors including the most recent winter storm that swept Texas, limited new construction starts, a new wave of Millennial purchasers, and disruptions by COVID-19 have all contributed to a lack of properties on the market. Each of these has had a different impact on Houston real estate and we explore them below.
All in all, if you have been considering putting your home on the market or selling an investment property, you should take advantage of these market conditions.
A Market Overview
As the supply of homes on the market throughout the greater Houston area continues to shrink, homebuyers have snapped up properties that were still on the market extending the positive momentum in which 2020 ended. The luxury homes segment displayed the strongest sales activity increase during January, with homebuyers also driving brisk sales among mid-range homes.
According to the latest Houston Association of Realtors (HAR) Market Update, 6,088 single-family homes sold in January compared to 4,769 a year earlier. This equates to a 27.7 percent increase and marks the eighth straight month of positive sales in the region.
Strong sales across the state, were accompanied by other assuring growth numbers, in particular, home price appreciation. The typical home sold much faster, and sellers made fewer price concessions. Overall, the market simply wasn’t able to keep pace with demand.
These sales conditions caused homes the number of homes priced at $750,000+ to increase 73.9 percent compared to January 2020. That was followed by the $500,000 to $750,000 housing segment, which jumped 70.4 percent. Homes between $250,000 and $500,000, the market’s biggest share, shot up 61.9 percent. The single-family home average price climbed 12.5 percent to a January high of $326,063 while the median price increased 12.1 percent to $263,500 – also a January high.
The Big Shortage… How Did We Get Here?
In knowing that we have all time low inventory, it is likely you are asking… How did we get here? There have been several influences, which we will look at individually below:
Housing inventory shortage was already an issue in Houston, and in fact all across Texas before 2020, but the COVID-19 pandemic pushed the shortage to a completely new level.
“Throughout all my years in the real estate industry in Houston, I have never seen a market elude supply forces or seasonality the way we are seeing during this pandemic,” said Beth Wolff, Chairman of Beth Wolff Realtors Real Living.
The general rule of thumb for a balanced market (not seller’s or buyer’s) would be roughly a six-month supply of homes. Most major Texas markets have operated below that for the better part of ten years. In this time-frame, purchasers who couldn’t find a home in denser areas could look to surrounding, less populated areas for more options including new construction. This is not exactly the case currently.
And this housing supply shortage isn’t just in Houston, it’s prevalent throughout the entire state of Texas!
The Millennial Wave
According to the National Association of Realtors’ most recent “Home Buyers and Sellers Generational Trends Report”, one of the age groups of most interest in the current real estate market is the “Older Millennials”, or those individuals born in the 1980s. This buyer pool had been noted as being “late bloomers” when it comes to home ownership. Millennials in general are highly educated and their income levels haven’t always matched their degrees. After several years in the workforce, “Older Millennials” now have above-average earnings, which, when combined with today’s mortgage rates, creates substantive buying power. These income levels coincide with other life milestones, such as marriage and children. Older millennials are now hitting marriage rates comparable to Gen Xers and boomers and have the most kids per household, creating a need for more space.
The other common stereotype is that millennials prefer to live in dense urban areas. This is not entirely false; many millennials still prefer the urban lifestyle, but a departure from this trend is clearly emerging. Whether it’s by want or need, older millennials are making the push to less populated areas like the suburbs.
The unbelievably low interest rates have ignited robust purchase demand activity throughout the nation. While interest rates have been considered low for a number of years now, the current rates have dropped even lower. These rates have added buyers to the purchasing pool as a buyers purchasing power is substantially increased as interest rates are lowered.
Sticks to Build With
Home construction levels never fully recovered from the Financial Crisis of the mid 2000s and from the recent rise in home renovations contributing another factor to the low inventory.
In the early stages of COVID-19 and the initial stay at home order, construction employment took a tremendous hit. Residential construction jobs did not rebound immediately after the shelter-in-place restrictions were lifted. Hiring in residential home-building, however, has generally been positive since the initial decline.
Single-family construction permits flattened around a record-high in November, 2020 after increasing for six months straight.
According the the Texas A&M University Texas Real Estate Center, “Although total Texas housing starts decreased 9.5 percent, activity was still on pace to surpass last year’s groundbreakings by about 10 percent. Moreover, the Department of Commerce lowered lumber tariffs from 20 to 9 percent in December, which should help reduce homebuilder costs moving forward.” Single-family private construction mirrored the metric mentioned above, but continued to trend upward from previous years.
Winter Housing Hibernation
Most recently the brutal temperatures, ice and snow that hit much of the Central United States, caused over one-million people in Houston to lose power. Harris county leaders stated that it is likely that tens of thousands of area residents suffered burst water pipes or other damage from the winter storm, with the resulting property damage likely costing tens of millions of dollars.
This damage undoubtedly has impacted homes that were actively on the market as well as those being prepared to be listed as well. Further reducing the supply of properties available in an already low inventory is something that active buyers and those looking in the near future may be impacted by.
And… Where Do We Go From Here
With favorable economic indicators (Texas Leading Economic Index and Consumer Confidence Index) and demand exceeding supply in the real estate market, there are several advantageous circumstances that you may find yourself in.
Do you have investment properties?
If you own investment or rental property, it is fiscally intelligent to regularly review the income potential as well as its highest and best use to determine your best move forward. We offer complimentary consultation for property investment planning to help take into account market analysis, cash flow, long term value goals, and much more.
Is your home working for you?
If you have considered making a move because your housing needs have changed, this may be the best time to make a move. It is best to discuss your goals with an agent who can provide you not only advice on marketing your current property, but also provide insight and strategy to finding a home that will meet your goals.
Is it too late to buy?
No! Especially in the current market conditions, having someone to represent your interests, assist in providing analysis to determine value, navigate complications, and negotiate to be your advocate throughout the purchase process is a must. If you have questions about the process, how a professional from Beth Wolff Realtors Real Living can assist, or to discuss your goals contact us!