U.S. Home Sales Hit Record High, But Texas Real Estate Market to Cool in Coming Year

The National Association of Realtors released a report showing strong growth for existing home sales in December despite economic worries and a pandemic.

Total existing-home sales increased 0.7 percent from November to a seasonally adjusted annual rate of 6.76 million in December, the report stated. Sales in total rose year-over-year, up 22.2 percent from 5.53 million in December 2019.

“Home sales rose in December, and for 2020 as a whole, we saw sales perform at their highest levels since 2006, despite the pandemic,” said Lawrence Yun, NAR’s chief economist. “What’s even better is that this momentum is likely to carry into the new year, with more buyers expected to enter the market.”

That may be true on a national scale, but in Texas, sales are expected to cool somewhat. That’s according to recent figures from the Texas Real Estate Research Center at Texas A&M University.

Texas Market Stabilizes

The state’s housing market stabilized in December, ending the fourth quarter with slower growth than the previous three months. Existing home sales in Texas inched up 0.9 percent from November, but ended the year up 7.7 percent compared with 2019 activity amid historically low mortgage rates. 

“Demographic trends, such as aging Millennials and migration from out of state, will help drive  Texas housing demand in 2021,” said Dr. Luis Torres, research economist for the Texas Real Estate Research Center at Texas A&M University. He said sales are expected to continue to increase in the new year, albeit at a slower rate. 

“The tight resale market has been good for the new home market, which like the resale market is also benefitting from demographic shifts and low mortgage interest rates,” said RCLCO Real Estate Advisors‘ Gregg Logan.

New Home Construction

Indeed, the mismatch between supply and demand has prompted a wave of new home construction in Texas. Single-family permits are predicted to rise around 15 percent in 2021, Torres said.

“Homebuilders are trying to satisfy demand in the lower price cohorts by building homes in the suburbs or outer city borders where land costs are lower,” Torres said. “This trend was prevalent before the pandemic but has become even more widely adopted over the past year.”  

Of course, the pandemic had wide-ranging implications for the real estate market in 2020. With so many people working from home and leaving the traditional office environment behind, more and more buyers chose to pull up stakes for greener pastures. Texas saw an influx of such buyers.

Strong population growth in Texas supported housing demand within the state during 2020, the Texas Real Estate Research Center at Texas A&M University’s report stated. Texas added 374,000 residents, more than any other state, and ranked fifth in percentage growth behind smaller states such as Nevada and Idaho.  

“For many home buyers the pandemic has created economic and lifestyle changes that have influenced people to make moves sooner than they otherwise may have, Logan said. “Working from home means commute times are a less significant factor, it’s been reported that people are looking further out from job centers for more space and greater affordability.”

Prices Seem Out of Reach

Affordability is a relative term, of course. According to NAR’s report, the median sales price for December 2020 was a whopping $309,800 — an increase of 12.9 percent from the previous year. However, first-time buyers made up more than a third of purchases in December 2020, and committed interest rates are hovering at around 3.11 percent.

“Although mortgage rates are projected to increase, they will continue to hover near record lows at around 3 percent,” Yun said. “Moreover, expect economic conditions to improve with additional stimulus forthcoming and vaccine distribution already underway.”

December’s national price increase marks 106 straight months of year-over-year gains, the NAR report stated.