Texas Housing: Demand High, Construction Slow, and Inventory Low

A December report by the Real Estate Center at Texas A&M University says that housing demand remains strong throughout the state of Texas but that new construction to meet that demand is being constrained by a shortage of both labor and lots.

New Construction and Inventory

Statewide, new building permits were flat, with recent declines in both Austin and Houston. None of the metro areas have reached permitting levels equal to or greater than those pre-recession. However, Research Economist Dr. Luis Torres, who co-authored the report, said, “The Texas residential business cycle (coincident) index that measures current construction activity continues its positive 2015 trend although at a slower pace.”

Housing inventory in Texas is at a 3.4 months’ supply after modest upticks in 2015. A 6.5 months’ supply is considered balanced between buyers and sellers.

Home Sales

Home sales in Texas recently passed pre-recession, January 2007 levels, said Dr. James Gaines, chief economist for the Real Estate Center and co-author of Texas Housing Insight. “The growth rate of Texas sales remains ahead of the nation. Four of the five major metros posted solid home sale increases with Houston remaining flat.”

Home Prices

Torres said that average and median home sales prices both have “risen dramatically since 2011 and continue to climb. The constrained supply in conjunction with strong demand accelerated price gains. Austin and Houston have been the housing-price-appreciation leaders followed by Dallas and San Antonio.” He noted that with recent trends in the energy sector, Houston may begin to see some softening in price growth. Employment growth and a strong services sector led to strong price appreciation in Dallas, he said.

Existing Homes vs. New Homes

New homes in Texas have higher sticker prices than existing homes, although both have been rising. Since 2011, the median price for new homes has been 48 percent higher than the median existing home price. Average sales price for new homes has been 37 percent higher than the median price for existing homes. The higher price point for new construction is due to increasing home sizes and to increased construction and land costs. Price per square foot is 20 percent higher for new construction homes, the report states.

Gaines concluded, “The Texas economy continues to grow but at a more modest pace in the face of a weakening global economy, lower energy prices and a strong dollar. Total employment continues to expand but is weighed down by the manufacturing and oil-and-gas extraction sectors, especially in Houston.”