Pressing Needs in Texas

More Housing Inventory, Diversity in Housing Options, and Funding for Infrastructure

Economic uncertainty amid continued population growth in Texas presents a complex scenario.

In 2022, 1.4 million homes were constructed across the U.S.—the most homes built annually since 2007. And roughly 1.45 million homes were completed in 2023, reports Pro Builder.  But despite this, the U.S. housing shortage has only gotten worse, say the analysts. 

According to research from housing market platform Zillow, the U.S. was still short 4.5 million homes in 2022, up from 4.3 million the prior year. “A large pre-existing deficit suggests that even if the nation were to see no population growth, that increase is still far below what would have been needed to close the deficit,” say the Zillow analysts.

News and Data Can be Conflicting and Confusing

Economists say a 5-to 6-months’ supply of homes on the market is the equilibrium.  More than that suggests declining home price growth and home building activity.  Less than that means the opposite—price growth and increased home building activity. 

NAHB recently posted a clarification about sales data showing a supply of inventory at 9.3 months for newly built homes.  “This narrow reading of the industry misses the mark,” NAHB said.  The number reflects all homes under construction, including those that are ready for occupancy and also those under construction or not even started yet, NAHB says. 

It also says an otherwise elevated level of new home months’ supply is justified, given National Association of Realtors data showing the current months’ supply of resale single-family homes at 3.6 months.  New construction home sales currently account for more than 30% of the single-family home market, compared with about 10% to 12% in years prior.

NAHB economists estimate the combined new and single-family home inventory ready for move-in is at a 4.4 months’ supply, which still qualifies as low.

High Interest Rates Reverse the Progress

NAHB reported that U.S. housing starts fell 5.5% as of May 2024. It blames high construction loan interest rates for the decline. Even after the average contract interest rate for 30-year fixed-rate mortgages decreased to 6.94% from 7.02%, mortgage demand remained flat. 

High interest rates caused a reverse effect on housing prices, notes the Wall Street Journal.   “Instead of triggering a fall in home prices, as happened with commercial real estate, costlier mortgages have pushed residential values higher,” it reports.   The value of the median existing home rose to a record $419,300 in May, according to the National Association of Realtors. Before the pandemic, it was $270,000. 

In Texas, The Sales Pace Has Barely Slowed

The Texas A&M University Texas Real Estate Research Center has estimated that between 2020 and 2023, the annual median price for a house in Texas rose from $259,990 to $335,100, a 28.9% increase.

Then there’s the average annual cost of owning and maintaining a single-family home to consider.  Property taxes, insurance, maintenance and other related expenses average more than $18,000 a year — 26 percent higher now compared to four years ago, according to a new national study by Bankrate.  Texas property taxes are among the highest in the nation.  And skyrocketing insurance premiums from violent weather costs and other factors continue to drive up the costs of homeownership.  A Texas Lyceum poll reveals 48% of Texans feel their economic situation worsened this year, with 63% spending too much on housing. 

Even so, housing premiums in metropolitan areas measured in Texas are some of the lowest among the Sun Belt states. Though Texas’ housing inventory at the highest level in more than a decade and some metros beginning to see price declines, buyers are still snatching up homes at the same pace they were last year. And days on market is only slighter higher than last year.  Land developers, home builders and remodelers alike continue to see a boon in business.

Texas Benefits from Equity-Rich Homebuyers

Texas land developers and builders have been busy trying to deliver new housing product to support more than 9 million new residents— 43% increase in population since 2000. As a result, the Lone Star State showed the only boost in housing supply in the country, while the rest of the country reports drops compared to pre-pandemic levels, reported Newsweek.  But Texas’ increase in housing inventory by 2 percent (as of May 2022 compared to May 2019) is far from enough to make any significant dent.

Investor confidence and backing is one of the reasons for the uptick in Texas housing inventory. It’s no surprise that investors and lenders prefer an equity-rich buyer’s market because it brings financial stability, higher property values and reduced transaction risks.  Equity-rich homebuyers who cashed in and moved to Texas are generally less impacted by high interest rates due to their financial stability, ability to make larger down payments and potential to pay in cash.

Change Needed for More To Enjoy The American/Texas Dream

On the flip side, the influx of new residents, particularly from higher-cost states like California, makes it challenging for local residents, workforce families, and younger buyers to afford homes. Axios Local reports that the Gen Z generation (aged 12-27) are deeply pessimistic about the world around them with homeownership seeming far out of reach anytime soon for them. 

Nationally, an average down payment is $127,743, reports the New York Times.  And that means saving for a home down payment now takes 12 years for those earning the national median income. High rents and inflation aren’t helping the saving strategies either.  At least one lender aims to help by offering zero-down mortgages open to first-time homebuyers and those making no more than 80% of the area’s median income. But this has some concerned about another subprime crisis scenario.

Austin’s Land Use Policy Changes Mount Pressure for Other Cities To Follow

The Austin City Council approved a zoning change last December to allow property owners to build more homes on their single-family lots. And now Home Phase 2 allows property owners to build homes on as little as 1,800 square feet of land. This is a far cry from Austin’s long-held minimum lot size, which required at least 5,750 square feet of land per single-family house.

Austin’s actions mount more pressure for others to reform land use policies. Lawmakers say they expect bills presented again during the 2025 Texas legislative session that are aimed at forcing large cities to adopt flexible land use and zoning policies.

Besides More Housing, Texas Needs More Infrastructure!

Infrastructure is a Pressing Need

With the population growth, 100-degree temperatures, and new tech companies the Texas’ power grid is already struggling. ERCOT warns of a chance of rotating outages in August. And energy demand could double by 2030, says ERCOT.   The governor’s office has announced that the state will look to boost the Texas Energy Fund from $5 billion to $10 billion.

Infrastructure is a Pressing Need

Besides funding needed for beefing up the grid, Texas needs money for water control.  The Texas Water Development Board (TWDB) calls for state lawmakers to allocate additional funding for flood mitigation and prevention projects. One quarter of the state’s land, and one in six people in Texas live or work in an area susceptible to flooding, it says.  And some 1.3 million homes are located in flood-prone areas. 

TWDB is finalizing the state’s first ever flood plan which could cost more than $49 billion.  More than half of the money would be allocated to the “Ike Dike” project, a coastal barrier intended to protect the Houston region from storm surge during hurricanes.

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