Historically Low Inventory Drives Q2 Housing Market in Texas, Economists Say

Despite the COVID-19 crisis, real estate is one of the few industries that kept churning, though the number of home sales across the state have trended downward in the second quarter of 2020 according to the Quarterly Housing Report from Texas Realtors.

However, economists at the Real Estate Center say that though the market has had a relatively strong second quarter considering the overall economic environment, surging COVID-19 cases may put that at risk.

“Even though Texans entered Q2 in the jaws of COVID-19, the housing market held its own,” said Cindi Bulla, chairman of Texas Realtors. “The second quarter of 2020 fared amazingly well by comparison to the same period of 2019, which was arguably one of our best years ever. Gov. Abbott’s early declaration of real estate as an essential service allowed Texas Realtors to transition to virtual platforms and carefully choreographed safety protocols for the few necessary in-person contacts, virtually eliminating disruption to the real estate sector.”

Q2 Performed Better Than Expected

In all, home sales retreated by 9.9 percent with 91,970 homes sold in Q2. Statewide median sales prices increased by 2.9 percent to $252,000, which is indicative of the crazy-low inventory of less than three months (six months of inventory is considered balanced). Active listings decreased by 22 percent to just 88,337, and DOM is holding at 57 days — just five days more than Q2 of last year. Not too shabby.

Part of this performance has to do with some safety measures in place and low interest rates, which have proved to create more competition for the limited housing stock — especially affordable housing, which is flying off MLS fast. And the ‘burbs are seeing a huge bulk of this activity, as buyers head for less-dense areas as commutes become irrelevant as some companies move toward permanent work-from-home staff.

“Unless a buyer is looking for a luxury home, there are fewer to choose from,” says Dr. Jim Gaines, chief economist for the Real Estate Center at Texas A&M University.

COVID-19 Could Complicated Housing Market

But all of this positive momentum could be put in jeopardy.

“Texas’ housing market rebounded after two and a half months of sluggish activity amid the economic shutdown and social distancing measures,” said Gaines. “June housing activity recovered substantial pent-up demand from the economic shutdown.”

After accounting for seasonal factors, the state’s MLS homes sales increased 34 percent relative to May but remained below first-quarter levels the

“This positive momentum, however, may be temporary as new coronavirus cases have accelerated in recent weeks,” he added.

Dr. Luis Torres, research economist at the Real Estate Center, said there are fundamental challenges facing the housing market in addition to the COVID-19 pandemic.

“The months of inventory for existing homes plummeted to a record low of 2.7 months, exacerbating shortages, particularly for homes priced less than $300,000,” said Torres. “The number of new listings hitting the market stabilized but lagged year-ago levels by nearly 9 percent. This imbalance has housing affordability implications, as evidenced by a 4 percent year-over-year increase in the Texas Repeat Sales Index.”