TEXAS HOUSING INSIGHT

TEXAS HOUSING INSIGHT JAMES P. GAINES CHIEF ECONOMIST WESLEY MILLER RESEARCH ASSOCIATE PAIGE WOODSON RESEARCH INTERN LUIS B. TORRES RESEARCH ECONOMIST 2 1 2 0 REPORTING AUGUST 2018 DATA TECHNICAL REPORT

Contents August 2018 Summary... 4 Residential Construction Coincident and Leading Indicator... 7 Single-Family Housing Construction Permits... 7 Texas Housing Construction Permits... 8 Major Metros Single-Family Housing Construction Permits... 8 Total Housing Starts Per Capita... 9 Total New Private Single-Family Construction Value... 9 Total Months of Inventory... 10 Texas Months of Inventory by Price Cohort... 10 Texas Current Months of Inventory by Price Cohort... 11 Texas Existing and New Home Months of Inventory... 11 Major Metros Existing Home Months of Inventory... 12 Major Metros New Home Months of Inventory... 12 Demand... 13 Total Housing Sales... 13 Texas Total Housing Sales by Price Cohort... 13 Major Metros Total Housing Sales... 14 Texas Homes Days on Market... 14 Texas Home Days on Market by Price Cohort... 15 Major Metros Existing Homes Days on Market... 15 Major Metros New Homes Days on Market... 16 30-Year Mortgage Rate and 10-Year Treasury Yield... 16 Texas Mortgage Applications... 17 Prices... 17 United States Existing and New Home Median Sales Price... 17 Texas Existing and New Home Median Sales Price... 18 Major Metros Existing Home Median Sales Price... 18 Major Metros New Home Median Sales Price... 19 Texas Home Median Price Per Square Foot... 19 Major Metros Existing Home Median Price Per Square Foot... 20

Major Metros New Home Median Price Per Square Foot... 20 Texas Home Sale Price to List Price Ratio... 21 Major Metros Existing Home Sale Price to List Price Ratio... 21 Major Metros New Home Sale Price to List Price Ratio... 22 2

About this Report Real Estate Center economists continuously monitor many facets of the global, national, and Texas economies. Texas Housing Insight is a summary of important economic indicators that help discern trends in the Texas housing markets. All monthly measurements are calculated using seasonally adjusted data, and percentage changes are calculated month-over-month, unless stated otherwise. This monthly publication provides data and insights on the Texas housing markets. We hope you find them useful. Your feedback is always appreciated. Send comments and suggestions to info@recenter.tamu.edu. Dr. James Gaines, Dr. Luis Torres, Wesley Miller, and Paige Woodson Data current as of September 27, 2018 2018, Real Estate Center. All rights reserved. 3

August 2018 Summary Texas housing sales ticked down 0.4 percent in August after a record-breaking July but maintained an upward trend. Shortages of homes priced below $300,000 continued to weigh on overall activity. Homes flew off the market at a record pace, corroborating the continued strength of demand. On the supply side, inventories inched forward as developers rushed to satisfy the market. Home-price appreciation calmed as a large number of new listings hit the market, and construction shifted towards smaller homes and lot sizes. Prices continued to outpace wage growth, however, challenging affordability across the state. The prospect of rising interest rates could further hinder affordability, particularly at the lower end of the market. Supply* The Texas Residential Construction Cycle (Coincident) Index, which measures current construction activity, reached its highest level since 2008 as construction employment and wages elevated. This momentum should continue into fall as the Texas Residential Construction Leading Index (RCLI) extends its upward climb amid gains in single-family weighted building permits and housing starts. Single-family housing construction permits jumped 14.1 percent to a year-to-date (YTD) high of 10,730 after contracting in the second quarter. Texas remained the U.S. leader in permits issued, accounting for 16 percent of the national total. Houston and Dallas-Fort Worth (DFW) topped the metropolitan rankings, issuing 3,560 and 3,385 nonseasonally adjusted permits, respectively. Fort Worth alone issued 987 permits in August. Monthly permits surged to 788 in San Antonio, pushing YTD growth above 27 percent, while Austin sustained 18 percent YTD growth with 1,459 permits issued after reaching a decade-high in July. Total housing starts maintained an upward trend amid gains in multifamily development. Apartment investment continued to flow into DFW, Houston, and San Antonio to match the growing population and economy. In the single-family sector, private construction values contracted across the major metros but maintained a positive trajectory. The months of inventory (MOI) in Texas ticked up to 3.6 months but was slightly below year-ago levels. Around six months of inventory is considered a balanced housing market. New MLS listings hovered around record highs, slowly chipping away at the prolonged market shortage. Nearly half of the new listings in August occurred below the statewide median price, providing some relief to the most constrained segment of the market. Inventories expanded across the price spectrum, but the high-end market (defined as homes priced more than $500,000) recorded the largest increase at 10.8 percent YTD, reaching 9.2 MOI. The MOI inched closer to 3.5 months in the $200,000-$400,000 price range, rising 4.8 percent YTD. The * All monthly measurements are calculated using seasonally adjusted data, and percentage changes are calculated month over month, unless stated otherwise. 4

market for homes priced below $200,000 remained the exception, where the MOI sank to an alltime low of 2.7 months. The MOI reached YTD highs across the Texas Urban Triangle but has a long road to reach equilibrium. Slower sales in Austin and Dallas lifted the MOI to 2.6 and 2.9 months, respectively, while the Fort Worth MOI surpassed 2.4 months for the first time since 2015. In Houston and San Antonio, the MOI balanced at 3.7 and 3.3 months as new listings offset strong sales volume. Demand Statewide, housing sales ticked down 0.4 percent but maintained an upward trend after a sluggish first half of the year. Transactions at the higher-end of the market remained healthy, but shortages of homes priced below $300,000 weighed on overall activity. Sales through an MLS soared above 2,900 for the first time in San Antonio, reaching 7.4 percent YTD growth. Houston sales increased steadily at 3 percent YTD. The cooling, however, continued in Austin and Dallas, where sales fell 6.6 and 7.2 percent YTD, respectively. Fort Worth fared slightly better but posted a 3.5 percent contraction in August, pulling YTD sales into negative territory. These data, however, contain less than half of new-home transactions, which trended upward through the second quarter per MetroStudy data. Economic growth bolstered the demand for Texas homes. The average days on market (DOM) settled below two months as homes continued to sell at a rapid clip. Austin and San Antonio recorded similar market conditions with DOM at 58 and 59 days, respectively, while homes sold on average after 55 days in Houston. Demand eased in Dallas and Fort Worth, pulling the DOM up to 46 and 41 days, respectively, their highest level in more than two years. The DOM relaxed primarily at the lower end of the market, where consumers are more sensitive to mortgage rate fluctuations. Demand for homes priced under $200,000 strengthened at the state level as the DOM sank below 58 days for the first time in series history. This cohort accounted for the largest proportion of sales through an MLS at 35 percent, down from 72 percent in 2011. Demand was strongest in the $200,000-$300,000 range (54 DOM), which encompasses more activity in the major metros. Healthy economic growth heightened demand in the high-end of the market, where the average home sold after 80 days, a full week faster than last year. Interest rates balanced as a flood of new government bonds offset currency concerns in emerging markets (e.g. Turkey). The ten-year U.S. Treasury bond yield settled at 2.89 percent for the second straight month after reaching a multiyear high in May. The Federal Home Loan Mortgage Corporation s 30-year fixed-rate remained elevated at 4.6 percent, nearly 70 basis points above last year s level. Despite higher interest rates, the number of mortgage applications for newpurchases in Texas rose for the third consecutive month. 5

Prices Upticks in inventory moderated home prices after massive appreciation since the Great Recession. The Texas median home price hovered above $230,000 for most of this year. Home-price appreciation calmed at the metro level after years of explosive growth. The median price balanced at $287,500 and $230,100 in Dallas and Fort Worth, respectively, as YOY growth settled in the single digits. Houston s median price rose 2.2 percent YOY to $231,700. In Central Texas, however, prices continued to rise at a rapid clip at 7.1 and 6.7 percent YOY in Austin ($312,300) and San Antonio ($224,500), respectively. Slower price growth outweighed reductions in home size, pulling Texas median price per square foot (ppsf) down for the first time this year. Since December 2017, however, the statewide median rose $1.94 to $115.62 as home sizes declined to combat rising input costs and affordability constraints. Fort Worth maintained the highest YOY growth at 8 percent, pushing the median ppsf closer to $120. Austin had the highest ppsf at $156.93, a product of its high urban density and rapid growth in the region, followed by Dallas at $132.05. The median ppsf increased for the fifth consecutive month in San Antonio to $114.01. Houston s median ppsf was the lowest of the major metros at $108.60 but maintained 4 percent YOY growth. Despite the cool down in prices, homeprice appreciation continues to outpace wage growth, further straining affordability across the state. 6

Supply 110 100 Residential Construction Coincident and Leading Indicator (Index Jan 2007 = 100) TX Coincident Index US Coincident Index TX Leading Index 90 80 70 60 50 40 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jul-18 Note: Trend-Cycle Component. Sources: Real Estate Center at Texas A&M University and Federal Reserve Bank of Dallas 110 100 Single-Family Housing Construction Permits (Index Jan 2007 = 100) United States Texas 90 80 70 60 50 40 30 20 Jan-07 Sep-07 May-08 Jan-09 Sep-09 May-10 Sep-11 May-12 Jan-13 Sep-13 May-14 Jan-15 May-16 Jan-17 Sep-17 May-18 Note: Trend-Cycle Component. Sources: U.S. Census Bureau and Real Estate Center at Texas A&M University 7

160 140 120 Single Family Units 5+ Family Units Texas Housing Construction Permits (Index Jan 2007 = 100) 2-4 Family Units 100 80 60 40 20 0 Jan-07 Sep-07 May-08 Jan-09 Sep-09 May-10 Sep-11 May-12 Jan-13 Sep-13 May-14 Jan-15 May-16 Jan-17 Sep-17 May-18 Note: Trend-Cycle Component. Sources: U.S. Census Bureau and Real Estate Center at Texas A&M University 150 140 130 120 110 100 90 80 70 60 50 40 30 20 Major Metros Single-Family Housing Construction Permits (Index Jan 2007 = 100) Dallas-Plano-Irving Fort Worth-Arlington Jan-07 Sep-07 May-08 Jan-09 Sep-09 May-10 Sep-11 May-12 Jan-13 Sep-13 May-14 Jan-15 May-16 Jan-17 Sep-17 May-18 Note: Trend-Cycle Component. Fort Worth is missing data for Somervell County. Sources: U.S. Census Bureau and Real Estate Center at Texas A&M University 8

110 100 90 Total Housing Starts Per Capita (Index Jan 2007 = 100) United States Texas 80 70 60 50 40 30 Jan-07 Sep-07 May-08 Jan-09 Sep-09 May-10 Sep-11 May-12 Jan-13 Sep-13 May-14 Jan-15 May-16 Jan-17 Sep-17 May-18 Note: Trend-Cycle Component. Sources: U.S. Census Bureau and Bank of Tokyo-Mitsubishi UFJ 325 300 275 250 225 200 Texas Total New Private Single-Family Construction Value (Index Jan 2011 = 100) Dallas-Fort Worth-Arlington 175 150 125 100 75 Jun-11 Nov-11 Apr-12 Sep-12 Feb-13 Jul-13 May-14 Oct-14 Mar-15 Aug-15 Jan-16 Jun-16 Apr-17 Sep-17 Feb-18 Jul-18 Note: Inflation adjusted. Trend-Cycle Component. Source: Dodge Analytics 9

10 9 8 7 Total Months of Inventory (Months) United States Texas 6 5 4 3 Jan-07 Sep-07 May-08 Jan-09 Sep-09 May-10 Sep-11 May-12 Jan-13 Sep-13 May-14 Jan-15 May-16 Jan-17 Sep-17 May-18 Note: Trend-Cycle Component. Months of inventory for the United States is estimated using weights for all existing homes and new single-family homes; new nonsingle-family homes are not included. Texas includes all existing and new homes. For more information, see Months of Inventory. Sources: U.S. Census Bureau, National Association of Realtors, and Real Estate Center at Texas A&M University 18 16 14 12 Texas Months of Inventory by Price Cohort (Months) $0-$199,999 $200,000-$299,999 $300,000-$399,999 $400,000-$499,999 $500,000+ 10 8 6 4 2 Note: Trend-Cycle Component. 10

10 9 8 7 Texas Current Months of Inventory by Price Cohort (August 2018) 9.2 6 5 4 3 2.7 3.1 4.3 5.1 2 1 0 $0 - $200K $200K - $300K $300K - $400K $400K - $500K $500K+ Note: Seasonally adjusted. Sources: Real Estate Center at Texas A&M University 9 8 Texas Existing and New Home Months of Inventory (Months) Existing Months of Inventory New Months of Inventory 7 6 5 4 3 2 1 0 Note: Trend-Cycle Component. 11

9 8 7 6 5 Major Metros Existing Home Months of Inventory (Months) Dallas-Plano-Irving Fort Worth-Arlington 4 3 2 1 Note: Trend-Cycle Component. 6.5 6.0 5.5 Major Metros New Home Months of Inventory (Months) Fort Worth-Arlington Dallas-Plano-Irving 5.0 4.5 4.0 3.5 3.0 Note: Trend-Cycle Component. 12

Demand 115 110 Total Housing Sales (Index Jan 2007 = 100) United States Texas 105 100 95 90 85 80 75 70 65 60 55 Jan-07 Sep-07 May-08 Jan-09 Sep-09 May-10 Sep-11 May-12 Jan-13 Sep-13 May-14 Jan-15 May-16 Jan-17 Sep-17 May-18 Note: Trend-Cycle Component. Sales for the United States include all existing homes and new single-family homes sold through an MLS; new non-single-family homes are not included. Texas includes all existing and new homes. For more information see Housing Sales. Sources: U.S. Census Bureau, National Association of Realtors, and Real Estate Center at Texas A&M University 450 400 350 300 $0-$199,999 $200,000-$299,999 $300,000-$399,999 $400,000-$499,999 $500,000+ Texas Total Housing Sales by Price Cohort (Index Jan 2011 = 100) 250 200 150 100 50 Note: Trend-Cycle Component. 13

145 130 115 Dallas-Plano-Irving Fort Worth-Arlington Major Metros Total Housing Sales (Index Jan 2007 = 100) 100 85 70 55 Jan-07 Sep-07 May-08 Jan-09 Sep-09 May-10 Sep-11 May-12 Jan-13 Sep-13 May-14 Jan-15 May-16 Jan-17 Sep-17 May-18 Note: Trend-Cycle Component. 115 105 Texas Homes Days on Market (Days) Existing Home Days on Market New Home Days on Market 95 85 75 65 55 45 14

Texas Home Days on Market by Price Cohort (Days) 130 120 110 100 $0-$199,999 $200,000-$299,999 $300,000-$399,999 $400,000-$499,999 $500,000+ 90 80 70 60 50 40 105 95 85 75 Major Metros Existing Homes Days on Market (Days) Dallas-Plano-Irving Fort Worth-Arlington 65 55 45 35 25 15

Major Metros New Homes Days on Market (Days) 120 115 110 105 Fort Worth-Arlington Dallas-Plano-Irving 100 95 90 85 80 75 70 65 60 7.00 30-Year Mortgage Rate and 10-Year Treasury Yield (Percent) Mortgage Bond 6.00 5.00 4.00 3.00 2.00 1.00 Jan-07 Sep-07 May-08 Jan-09 Sep-09 May-10 Sep-11 May-12 Jan-13 Sep-13 May-14 Jan-15 May-16 Jan-17 Sep-17 May-18 Note: Seasonally adjusted. Sources: Federal Home Loan Mortgage Corporation and Federal Reserve Board 16

Texas Mortgage Applications (Year-over-Year Percentage Change) 1.0 0.8 0.6 0.4 0.2 0.0-0.2-0.4-0.6 Refinance Purchase -0.8 Source: Mortgage Bankers Association Prices 340,000 320,000 300,000 United States Existing and New Home Median Sales Price ($) Existing Home Median Sales Price New Home Median Sales Price 280,000 260,000 240,000 220,000 200,000 180,000 160,000 Source: Federal Reserve Bank of St. Louis 17

310,000 290,000 270,000 Texas Existing and New Home Median Sales Price ($) Existing Home Median Sale Price New Home Median Sale Price 250,000 230,000 210,000 190,000 170,000 150,000 130,000 330,000 300,000 270,000 Major Metros Existing Home Median Sales Price ($) Dallas-Plano-Irving Fort Worth-Arlington 240,000 210,000 180,000 150,000 120,000 18

380,000 350,000 320,000 Major Metros New Home Median Sales Price ($) Dallas-Plano-Irving Fort Worth-Arlington 290,000 260,000 230,000 200,000 170,000 135 125 115 Texas Home Median Price Per Square Foot ($) Existing Home Median Price PSF New Home Median Price PSF 105 95 85 75 65 19

160 150 140 130 120 110 Major Metros Existing Home Median Price Per Square Foot ($) Dallas-Plano-Irving Fort Worth-Arlington 100 90 80 70 60 155 145 135 Major Metros New Home Median Price Per Square Foot ($) Fort Worth-Arlington Dallas-Plano-Irving 125 115 105 95 85 75 Sources: Real Estate Center at Texas A&M University 20

0.98 Texas Home Sale Price to List Price Ratio (%) 0.97 0.96 0.95 0.94 0.93 0.92 0.91 Existing Home Sale-to-List Price Ratio New Home Sale-to-List Price Ratio 0.90 0.99 Major Metros Existing Home Sale Price to List Price Ratio (%) 0.98 0.97 0.96 0.95 0.94 0.93 0.92 0.91 0.90 Dallas-Plano-Irving Fort Worth-Arlington 21

0.99 Major Metros New Home Sale Price to List Price Ratio (%) 0.98 0.97 0.96 0.95 0.94 0.93 0.92 0.91 Dallas-Plano-Irving Fort Worth-Arlington 22

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