Houston tends to appeal to a wide range of buyers. It’s one of the more affordable major cities in Texas, and it’s loaded with jobs and amenities. Evan Compean, founder and owner of Compean Group, has been in the Houston real estate business for 18 years, and he says it’s easy to see why the city draws so many people.
“You have a great work environment, a great cost of living and you can do so much more in Houston compared to other cities,” he explains.
If you’re thinking of buying a home in Houston, whether as an investment or a place to live yourself, it’s important to take a deep dive into the market. Here’s what you need to know about Houston real estate today and looking forward, based on key data from the U.S. News Housing Market Index.
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How the Houston Housing Market Changed in 2022
Single-family home construction slowed down in Houston in 2022. In January 2023, there were 2,692 housing permits issued for single-family detached homes, according to data from the U.S. Census Bureau. In January 2022, there were 4,469. All told, that’s about a 40% year-over-year decrease.
Construction for multifamily homes, on the other hand, picked up heavily in 2022. In January 2023, there were 2,757 housing permits issued for multifamily buildings of two or more housing units. That’s nearly a 74% increase from January 2022, when there were about 1,586 permits.
Total permits for Houston dropped 10% from 2022 to 2023, although multifamily permits accounted for an increased share in 2022.
Compean is beginning to see more home starts himself. “Permitting in the city of Houston is still running low, but builders are cranking,” he says. “We are starting to see new construction pick up.”
Houston Housing Supply and Demand
As is the case in many markets, buyer demand waned a bit in Houston in 2022. And Compean points to higher mortgage rates as a big reason why.
“Higher interest rates are keeping the market down,” he says. These days, Compean says, the average mortgage rate for a 30-year loan is closer to 7%.
“In January, it was dipping just below 6% and we actually noticed a spike in activity,” says Compean. “As soon as rates started going up again at the end of January and into February, activity started going down.”
As of January 2023, based on data from Redfin, Houston housing supply sat at 4.5 months of inventory, representing a year-over-year increase of 2.49%. For context, it can commonly take a full 6-month supply of real estate inventory to fully meet buyer demand and even out the market so that neither buyers nor sellers have a clear upper hand.
It’s also worth noting that on a national level, housing supply sat at 3.2 months of inventory in January, representing a year-over-year increase of 1.71%. So all told, Houston’s real estate market offers more opportunities for buyers. And thanks to that uptick in inventory, buyers in Houston may have more negotiating power than buyers on a national scale.
Meanwhile, the rental vacancy rate for Houston as of January 2023 was 10.5%, representing a year-over-year increase of 0.3%, based on data from the U.S. Census Bureau. The national rental vacancy rate that month was 5.8%, up 0.1% from a year prior. If you’re looking to buy an income property in Houston, do note that vacancies are trending higher than the national average.
Compean thinks buyer demand in Houston will increase once financing a home becomes more affordable. “There’s pent-up demand, which is good, but buyers are just waiting on the sidelines for rates to get better,” he says.
Meanwhile, for the week ending March 10, mortgage applications increased 6.5% from the week prior, according to the Mortgage Bankers Association’s Weekly Mortgage Applications Survey. On an unadjusted basis, the Market Composite Index, a measure of mortgage application volume, increased 7% compared to the previous week.
That same week, the average contract interest rate for a 30-year fixed, conforming mortgage fell to 6.71% from 6.79% a week prior. All told, it’s easy to see how higher borrowing costs are driving buyers to hold off on purchasing homes.
Meanwhile, in January 2023, consumer sentiment dropped 2.3% on a year-over-year basis to 64.9, according to the Survey of Consumers from the University of Michigan. In January of 2022, it was 67.2.
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Median Home Price in Houston
The median home price in Houston was $315,000 in January 2023, according to Redfin data. That’s a 1.6% increase from a year prior. On a national level, the median home price in January was $383,000, up 1.9% on a year-over-year basis.
“Fortunately, price have been fairly stable,” says Compean of the Houston market. “We’re seeing isolated areas where values are lower than where they were before.”
Compean also notes that investors seem to be backing away from Houston rental properties. That’s a good thing for regular buyers.
“Here in Houston, you were having a lot of competition from investors, and anything under $300,000, there was generally an investor interested in it,” he says. “Now, there’s not as much investor interest, so there’s less competition.”
Furthermore, while housing inventory levels might suggest that Houston is largely still a seller’s market, Compean says it’s become more of a buyer’s market in terms of concessions and ability to negotiate on homes.
“Now, sellers are more open to credits, lowering prices,” he says.
What’s interesting is that rent prices in Houston were up 10.8% on a year-over-year basis as of January 2023, when the typical rent was $1,675, according to the Zillow Observed Rent Index. On a national scale, the typical U.S. rent in January was $1,970, up 5.8% year over year.
“Rentals are sitting on the market a little longer,” says Compean. But he also seems to think rent prices have stabilized.
Data from Black Knight Inc. shows that 0.3% of homes with mortgages in Texas were subject to foreclosure activity in December 2022, up 0.1% from a year prior. Mortgage delinquencies — meaning loans 30 days or more past due — sat at 3.8% that month and were down 0.4% on a year-over-year basis.
Interest rates for 30-year mortgages sat at 6.27% as of January 2023, representing a 2.83% year-over-year increase, according to Freddie Mac’s Primary Mortgage Market Survey. As of March 16, 2023, the average 30-year fixed mortgage rate was 6.6%, up 2.44% from a year prior.
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Unemployment Trends in Houston
In December 2022, the unemployment rate in Houston was 3.9%, according to the Bureau of Labor Statistics. That’s a 0.9% decrease from a year prior. The national unemployment rate in December 2022 was 3.5%, down 0.4% year over year. Houston’s slightly higher unemployment rate could explain why rental vacancies in the city are higher than the national average.
In December 2022, there were also 54,900 construction jobs in Houston. That’s an increase of 2,600 construction jobs compared to one year prior.
Builder Confidence in Houston Is Low
In February 2023, builder sentiment in Houston was 45 out of 100, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index. That’s a notable drop from a year prior, when builder sentiment was 84. Builder sentiment is negative at values below 50, neutral at 50 and positive over 50.
The Architectural Billings Index, which is an economic indicator for nonresidential construction activity, was rated 46.9 in January, down 14.3% year over year. A score of 50 represents no change from the previous month, a score above 50 indicates an increase in firm billings from the previous month, and a score below 50 indicates a drop in firm billings from the previous month.
Houston Real Estate Market: Predictions
In the coming year, Compean expects more home price stability than appreciation. But, he says, “I don’t see anything too drastic in terms of home price depreciation.”
Compean firmly believes that higher mortgage rates are keeping Houston buyers out of the market. And until that changes, he expects homes to sit on the market longer.
“We’re probably, sadly, going to have to see some type of recession for interest rates to get into better shape,” he says.
All told, Compean thinks Houston will see its share of buyers in 2023, even if mortgage rates remain stubbornly high. “We’re still seeing people moving to Houston,” he says, and it’s the city’s more affordable price point that’s likely lending to that trend.
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Houston Housing Market Forecast originally appeared on usnews.com
