Texas Economic Forecast: Housing Still Strong Despite Headwinds

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By Marcus McCue
Executive Vice President and Chief Business Development Officer
Guardian Mortgage Company

The national housing market remains strong, and Texas, in many respects, is leading the way with record existing-home sales in Dallas and robust price growth.

Some housing experts were surprised at just how vigorous the Texas housing market was last year. Sales and prices set records in Dallas, and new home construction in the state was the most robust it’s been in several years.

The global oil price slump presents some headwinds, however, and will challenge housing markets in some Texas regions this year. Houston, South Texas and Midland-Odessa already have felt the pinch from low oil prices, and layoffs in the energy sector have begun to ripple through other business sectors.

James Gaines, chief economist for the Real Estate Center at Texas A&M University, noted in a recent report that job losses in the energy industry haven’t stopped and likely will pick up this year. But growth in other industries such as healthcare, technology, business services, construction, and hospitality should help buoy the state’s economy.

The Federal Reserve Bank of Dallas estimates the state will add 161,200 jobs if oil prices remain near current levels, a slight increase over the 150,500 added last year. If oil prices jump to $60 and hold, Texas likely will return to job growth above the national average, the Fed said.

Diversified metros, such as Dallas, Austin, and San Antonio will enjoy moderate to robust job growth this year that could pinch housing supply and drive up prices. It hasn’t been unusual to hear stories of multiple bids above the asking price and lightning-quick sales in the northern Dallas suburbs where Toyota is building its new corporate headquarters.

We see several reasons to still feel positive about the state’s housing market this year:

Low mortgage rates. Even though the Federal Reserve raised a key interest rate in December, which caused mortgage rates to rise briefly above 4 percent, rates — historically — remain very low. Many housing experts still believe rates will remain at or below 4.5 percent this year.

Timing. With fast-rising rental rates — up nearly 5 percent nationally last year — housing is looking more and more attractive and will encourage more renters to become buyers. They may be surprised to learn that they can get into a home with a mortgage payment that is less than what they pay in monthly rent. Annual rent growth in D-FW, where occupancy is tight, reached a 20-year high of 6.8 percent in the third quarter over the year-ago period, according to MPF Research. In Austin, rents were up by 5.2 percent over the same period.

Home values will moderate. Home values in many locales are expected to moderate this year over last year, an important factor for affordability. Prices, nationally, rose 6.3 percent in December over the year-ago period, according to real estate analytics firm CoreLogic. Experts have forecast home prices to rise between 4 and 5 percent this year.

Homebuilding to intensify in hot Texas markets. To deal with the shortages in supply, North Texas homebuilders will construct more homes this year than last year, giving homebuyers more options. In 2015, builders started 28,000 homes in North Texas, according to The Dallas Morning News. Residential Strategies predicts 30,000 homes will be built in the Dallas-Fort Worth region this year. In Austin, which has benefited from low unemployment and a strong job growth, housing starts are expected to rise 3 percent, according to the Home Builders Association of Greater Austin.

We believe the old adage is true — all real estate is local — and so with that caveat, our economic forecast shows a strong and healthy housing market for most of Texas in 2016.


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