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Real estate expert discusses rising cost of renting
Record high apartment rents in the DFW area show no signs of easing. Professor Julie Lynch, an associate director of the Weitzman Institute for Real Estate at UT Dallas talks to Good Day about the shocking figure. Average rental rates are up 16 percent from last November to this November.
After years of sharp rises in home prices and stiff competition to buy a home amid the COVID-19 pandemic, the Texas housing market is starting to cool off.
Until recently, buyers competing for a limited supply of homes routinely had to pay more than the asking price and make offers on the spot. Now there are more homes for sale in Texas than at any time since fall 2020 — when the state’s pandemic housing crunch kicked off in earnest.
Home sales in Texas declined by more than 5% in the three months from April to June compared with the same period last year, data from the Texas Real Estate Research Center at Texas A&M University show. The Dallas-Fort Worth, Houston and San Antonio metropolitan areas saw similar drop-offs. In Austin, home sales have fallen more sharply — by 12%.
And after two years of a red-hot market, many sellers have cut prices to try to lure buyers who are facing higher mortgage rates, bloated home prices and inflation. That’s a sign that buyers are starting to gain an edge, real estate experts told The Texas Tribune.
"It’s still a seller’s market," said Elizabeth McCoy, a Fort Worth real estate agent. "But certainly we’re seeing buyers be able to have a little bit more choice. And that’s such a good thing."
That’s a marked shift from the height of the pandemic when historically low mortgage rates and a shift to working from home drove buyers — including Millennials who had postponed becoming homeowners — to snatch up houses so fast that the state’s supply plummeted and home prices rose an average of 28% between the start of the pandemic and the end of 2021.
Since the Federal Reserve began raising interest rates in the spring to try to slow rampant inflation, pushing mortgage rates higher too, the trend has begun to reverse across the state. Last July, 55,668 homes were listed for sale in Texas, according to the TRERC. A year later, that number had grown more than 50% to 83,513.
San Antonio, El Paso, Houston and the Dallas-Fort Worth metroplex all saw double-digit growth in home listings last month — and a corresponding dip in the number of homes sold. Each metro area saw fewer home sales in the first seven months this year compared with the same period last year.
The drop-off has been particularly acute in Austin — where an already-hot housing market was super-charged during the pandemic, peaking in May when the median price for a home hit $550,000, compared with $305,000 in January 2020, just before the pandemic began.
Now, demand for housing in the capital city has tapered off. The number or houses for sale reached 8,709 in July — a 168% jump from the 3,251 listed in July 2021.
Ashley Jackson, the Austin Board of Realtors president, said a home she has listed for sale in the suburb of Pflugerville might have immediately received multiple offers if it had been on the market earlier in the year. But now it’s surrounded by others for sale, and though it’s had a steady number of showings, she said, no one has made an offer.
Jackson said buyers are "not competing as hard for a home as in the past few years where we saw perhaps a buyer had to go 10% or 20% over asking [price]. Maybe now they can get a house at asking price or perhaps even under asking price."
The median selling price of a Texas home has flattened over the past three months, hovering around $350,000 to $360,000, an all-time high for the state. Barring a recession, real estate experts don’t expect home prices to come down anytime soon because Texas is still gaining thousands of residents and its job market is still growing — but they do expect prices to grow more slowly than they did over the past two years.
"People are continuing to move here," said Adam Perdue, a research economist at Texas A&M University’s TRERC. "So, there’s no reason to not think that all of our major metros in Texas as a whole still have that same underlying upward trend."
And there’s still a mismatch between the number of homes for sale and the number of people seeking them. Experts in residential real estate consider six months’ worth of housing supply — meaning that it would take homebuyers six months to buy every home on the market — a healthy balance between buyers and sellers. Texas had 2.5 months of supply as of July, according to the Texas Real Estate Research Center.
Meanwhile, builders in some parts of the state pulled back on construction of new single-family homes after two years when construction surged. Building permits for new single-family homes across Texas fell by double digits in July compared with July 2021.
Mike Dishberger, a Houston townhome developer and incoming president of the Greater Houston Builders Association, said that’s because there weren’t as many buyers looking for homes.
But Dishberger said his firm has seen a recent uptick in potential buyers motivated to escape the state’s ballooning rents.
The state’s red-hot housing market pushed more would-be buyers into renting during the pandemic, driving rents up 12.4% over the past year and more than 21% since January 2020, according to Apartment List.
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"What’s driving some of the foot traffic," Dishberger said, "is that, ‘Hey, my rent used to be $1,500, now it’s $2,000.’"
Builders in Austin, San Antonio and the Dallas-Fort Worth metroplex filed for fewer permits in the first seven months of this year than in the same period last year. The cost of building a home — labor, building materials and land among other factors — has gone up this year, driving down the number of permits, said Lawrence Dean, senior vice president at real estate research firm Zonda.
But there are "more new homes under construction right now than we’ve ever observed," Dean said. More than 88,000 homes were under construction across Austin, San Antonio, Houston and Dallas-Fort Worth at the end of June, Dean said. And the state’s projected growth in population and jobs is expected to keep demand for homes up — though less so than during the height of the pandemic.
"Yes, there will be a meaningful decline versus what we saw even just a handful of years ago," Dean said. "In most of the markets, we’re still expecting a higher volume than we would have a few years ago."
As the housing market cools off, that should give some relief to renters too, said Laila Assanie, a senior business economist at the Federal Reserve Bank of Dallas. Assanie expects average rent increases to drop from the crushing double-digit growth that defined the first two years of the pandemic — but remain higher than the typical increases seen before COVID-19 hit.
Developers of multifamily apartment complexes haven’t slowed down in the way that single-family homebuilders have, Assanie said, which could ease the pressure on renters when those complexes open — though it could take at least a year. More than 55,000 apartment units are under construction in Austin, Houston, San Antonio and the Dallas-Fort Worth area, according to tallies by ApartmentData.com.
"That will bring down rents eventually because we’ll have more supply," Assanie said.
Even with the slowdown, renters who want to become homeowners will pay more than they would have before the pandemic. Typical entry-level homes for first-time buyers — priced at around $200,000 — are now much more difficult to find. The share of new homes in that price range is growing smaller each year as the cost to build a home increases, said Dean.
That all makes homeownership much more difficult for a first-time buyer, said McCoy, the Fort Worth real estate agent.
"The American dream is to own a home," McCoy said. "But it’s just been a lot more difficult for first-time homebuyers."
Disclosure: Texas A&M University has been a financial supporter of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune's journalism. Find a complete list of them here.
This article first appeared on the Texas Tribune. Read more here https://www.texastribune.org/2022/09/01/texas-housing-market-cooling/