July Newsletter

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June Residential Market Review: Courtesy of Har.com. Please click on the logo to learn more.

HOUSTON — (July 13, 2022) —

As summer temperatures soared to record highs in June, Houston’s sizzling housing market began a long-anticipated cooldown. Home sales experienced their first significant decline of 2022, reflecting a perfect storm that had been brewing for months: the combination of diminished inventory, record-high prices and, more recently, rising interest rates on top of a climate of growing inflation. However, the sales slowdown and a steady supply of new listings helped boost inventory to a 2.0-months supply – the most plentiful supply of homes since November 2020. According to the Houston Association of Realtors’ (HAR) June 2022 Market Update, single-family home sales fell 8.6 percent, marking the third consecutive monthly year-over-year decline with 9,728 units sold compared to 10,649 in June of 2021. On a year-to-date basis, however, the market is still running 1.7 percent ahead of 2021’s record-setting volume. Once again, the $500,000 to $1 million housing segment drew the highest sales volume of the month, registering a 22.0 percent year-over-year sales volume gain. That was followed by homes priced from $250,000 to $500,000, which rose 2.4 percent. The luxury segment – consisting of homes priced at $1 million and above – saw its first decline in two years, slipping 2.3 percent. A continued lack of homes priced below $250,000 left consumers no choice but to weigh more expensive property options, shift their focus to rental homes or postpone any plans to buy or rent. [HAR’s Monthly Rental Home Update for June will be released next Wednesday, July 20]. Some relief came after the June home sales numbers were tallied. During the first week of July, mortgage rates finally reversed course, with Freddie Mac reporting that the average interest rate on a 30-year fixed-rate loan fell from 5.7 to 5.3 percent – the biggest decline since 2008. 

However, an average rate of 5.3 percent is well above the average rate of 2.67% on 30-year fixed-rate loans that prevailed in December 2020. It is still higher than rates have been over the course of most of the past decade. The average price of a single-family home rose 11.0 percent in June to $436,425 – slightly below last month’s record high – while the median price jumped 13.2 percent to $355,000, which is the highest median of all time. The average price for a single-family home in Houston first broke the $400,000 mark in March of this year. The median price has been above $300,000 since May of 2021. “With strong economic headwinds facing consumers right now, it comes as no surprise that home sales fell in June and may remain below record levels for a while as the market normalizes,” said HAR Chair Jennifer Wauhob with Better Homes and Gardens Real Estate Gary Greene. “The decline in sales was inevitable given the limited supply of homes, record prices, rising interest rates and the pressures of inflation that we’re all feeling every day at the pump, in the supermarket and paying bills.” For the third consecutive month, the ‘Close to Original List Price Ratio’ for single-family homes surpassed the 100 percent mark, rising to 100.1 percent in June. That means that a majority of buyers paid above list price for homes on the market. The ratio first broke the 100 percent mark last summer, as high-dollar buying became prevalent throughout the market. The ratio was up 100.9 percent last month – the highest ever.

July Commercial Real Estate Highlights: Courtesy of BISNOW. Please click on the logo to learn more.

HoustonMultifamilyAn Expanded Freeway In EaDo Puts Houston’s Cars vs. Housing Debate Back In The Headlights

July 14, 2022 – When the contentious North Houston Highway Improvement Project comes to East Downtown, it will tear up dozens of commercial properties, from affordable housing developments to popular breweries, along a stretch of St. Emanuel Street next to Interstate 69. Part of the greater Texas Department of Transportation expansion of Interstate 45, the nearly $10B project is intended to improve transportation flow by expanding the congested intersection of interstates 69 and 45, along with adding new bike lanes and better flood control. But progress has ground to a near halt following a Federal Highway Administration investigation into the project and recent protests meant to stop the teardown of the vacant Lofts at the Ballpark apartment complex at 610 St. Emanuel St. — one of TxDOT’s first scheduled EaDo demolitions. And while advocates assert transportation upgrades are essential to accommodate growth, some activists and top Houston officials say the destruction of the living space is emblematic of TxDOT’s failure to properly examine the environmental impacts of the project or consider its potential to displace residents, some of whom are low-income or residing in affordable housing developments. “The fight to stop [this project] and make it better is about the priorities of this city,” said Stop TxDOT I-45 volunteer Michael Mortiz of the showdown between housing and transportation. “When I-10 and west Houston was expanded in the early 2000s, people touted that as a congestion mitigator, and great for commuting, and great for safety. But now we see travel times from Katy to downtown are significantly longer than they were before that project was even done. If you build more lanes, they’ll build more car-only development, far away from jobs. … The city has to, at some point, start prioritizing [public] transit and housing.” 

In notoriously car-dependent Houston, where the desire for dense, walkable accessible housing has rubbed uncomfortably against the desire for robust car transit for years, Stop TxDOT I-45, one of the largest groups against the project, sums up its feelings on the project with the slogan “Housing, not highways.” Houston-area lawmakers, such as Mayor Sylvester Turner and Harris County Judge Lina Hidalgo, have also expressed doubts the project will ease traffic enough to make up for displacing residents. “You can’t take more [units] than what’s needed at a time when affordability is a critical question and the housing stock is in short supply,” Turner said at a June Houston City Council meeting, reported by the Houston Chronicle. “Even if the green light was given on this particular project, I just don’t know what TxDOT was thinking. It doesn’t do anything to generate goodwill.” The project is not facing universal disdain by any means. After years of acquisition negotiations with area businesses, TxDOT now owns a small handful of properties along the street. Those still in negotiations, such as the East Village mixed-use project and several nonprofits targeting homeless individuals, are on the chopping block for acquisition and demolition through eminent domain. Yet several businesses and organizations along St. Emanuel Street, including those that provide housing, commended TxDOT’s efforts to Bisnow, speaking favorably on how the expansion will help the greater EaDo neighborhood and could lead to an even greater number of units than before. TxDOT, for its part, said the aging infrastructure it’s replacing will help with long-term issues like flooding, despite the people it will displace in the process.  “The Houston area continues to grow at a rapid pace,” TxDOT Public Information Officer Danny Perez said in an emailed statement. “The area has seven million people with a projected population growth of more than 80 percent by 2050. The I-45 corridor in Houston is home to nine of the top 25 most congested roadways in Texas. With the North Houston Highway Improvement Project (NHHIP), the Houston region will receive more than $43 billion in economic development, reduced travel times, environmental benefits, and much more.” As of the beginning of 2022, TxDOT owned about 20 properties in 77003, the EaDo ZIP code that encompasses St. Emanuel and surrounding streets. Though many of those are vacant lots without an address, the state of Texas now owns just over 750K SF of built real estate that is expected to be torn down. Most of that is multifamily units, though it also includes a warehouse and a tourist attraction, The Graffiti Building, according to Harris County Appraisal District records.  Final environmental reports from TxDOT in 2020 estimated the project would displace about 1,079 housing units, 919 of them multifamily. Click the BISNOW logo to read the entire article.

Contact Lane Gillespie at lane.gillespie@bisnow.com

July Mortgage News & Education: Courtesy of Housing Wire. Please click on the logo to learn more.

Home price growth slows but affordability pressures remain: Black Knight

Home price growth slowed in May, showing signs of a cooling housing market. But housing is the least affordable it has been since the mid-1980s as mortgage rates rise and home values soar, driven by low housing inventory, a new Black Knight report suggests. The annual home price growth index, measured by Black Knight, grew 19.3% in May from a revised 20.4% in April marking the largest single-month deceleration since 2006. Prices, however, are still up 1.5% month over month, which is nearly twice the historical average for May, according to Black Knight’s monthly mortgage monitor report. “While any talk of home values and 2006 might set off alarm bells for some, the truth is that price gains would need to see deceleration at this rate for more than 12 months just to get us back to a ‘normal’ 3-5% annual growth rate,” said Ben Graboske, data and analytics president at Black Knight. “That said, the pace of deceleration could very well increase in the coming months, as we’ve already begun to see in select markets such as Austin, Boise and Phoenix.” The strongest deceleration was in Austin, Texas where home price growth rate dropped 12.2 percentage points followed by Boise, Idaho (-12.1 percentage points) and Spokane, Washington (-7.1 percentage points), all of which saw significant home price growth in recent years, according to Black Knight. While 97 of the nation’s 100 largest markets saw home price growth slowing, affordability is at its worst point since the mid-1980s, when sharp hikes by the Federal Reserve led to double-digit mortgage rates, which often resulted in greater than 50% payment-to-income ratio. Back then, affordability pressures were almost entirely rate-driven and incomes largely kept up with home price growth, the report said. Today’s falling affordability is due to rising rates and soaring home values largely driven by low inventory levels. The average home price is now more than six times the median household income. As of mid-June, it takes about 36% of the median household income to make the mortgage payment on average-priced home purchase, which is well above the 34% post-1980s peak in July 2006. That payment is higher than $2,100 for the first time on record, up nearly $750 so far this year and almost double the $1,089 required at the beginning of the pandemic. However, the largest jump in housing inventory in the past five years also was in May, as pending listings began to normalize and existing listings sat longer on the market. Despite more than 107,000 homes listed for sale in May, inventory remains at a 60% deficit. That equates to about 770,000 fewer properties on the market than there would typically be at this time of the year, according to Black Knight. “All major markets are still facing inventory deficits, but some have seen their shortages shrink much faster than others,” Graboske said. Among them are some of the hottest housing markets, including San Francisco and San Jose, California, and Seattle, Graboske added. “Unsurprisingly, these are also among the markets seeing the strongest levels of cooling so far this year, with annual home price growth rates in each down more than three percentage points in recent months.” Regarding mortgage rates, rising 30-year rates have now “all but eliminated traditional rate-term refinance incentives in the market,” Black Knight’s report said. In an 18-month span from late 2020 to the present, the market saw the population of high-quality refi candidates soar to an all-time high, near 20 million, and plunge to the lowest level since the beginning of the century. In early 2022, some 11 million refinance candidates remained but that population fell by 95% year to date with less than 500,000 remaining as of June. According to Black Knight, most of the remaining candidates held their mortgages since 2003 or prior, suggesting a reluctance to either refinance or restart a 30-year commitment. Rate/term locks are down 90% from the same time last year and accounted for less than 5% of rate locks on the Optimal Blue platform in May. Cash-out locks were down 42% year over year and data through mid-June suggests they’re now down even more, to 50% from the same time last year.

July 6, 2022, 1:24 pm By Connie Kim

Additional Resources: Here are a few references that we have found helpful in understanding our markets and economy… 

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