The Texas housing market experienced significant developments in March, with notable leaps in construction activity and a shift in market dynamics. While sales continued to rise, active listings declined, and days on the market (DOM) increased. These changes reflect a slowing demand, possibly influenced by rising interest rates and an uncertain economic future. Furthermore, insufficient listings of existing homes exacerbate the supply shortage. In this article, we delve into the key aspects of the Texas housing market, highlighting construction trends, demand indicators, price movements, and the impact of long-term rates.

Supply Recedes as Construction Skyrockets

In March, Texas witnessed a remarkable surge in single-family construction permits, continuing the positive momentum that began in February. A total of 12,431 permits were issued, marking a 23 percent month-over-month (MOM) improvement. This growth was spread across all four major metros, with Houston leading the way with a 21.5 percent increase, equivalent to 4,616 permits. San Antonio recorded the lowest growth rate among the metros, at 2.3 percent, representing 605 permits.

The construction activity was not limited to permits alone, as single-family construction starts reached a strong count of 11,478 in March. While these figures are not on par with the exceptional levels seen in 2021 and 2022, they are comparable to the levels recorded in 2019, which was a robust year. This positive sign indicates a promising outlook for the rest of 2023. It’s worth noting that construction typically experiences a seasonal low in December and peaks either in March or June.

In terms of value, the total single-family starts in Texas amounted to $7.1 billion in March, a decline from the $12 billion recorded in March 2022. Houston and Dallas-Fort Worth regions accounted for over half of the state’s construction values, holding a combined 55 percent share of the Texas market. Austin and San Antonio remained consistent with their respective market percentage shares from previous years.

Demand Trends Upward as Sales Remain Strong

Housing demand in Texas started the year on a strong note, exhibiting three consecutive months of seasonally adjusted sales growth. In March, total home sales increased by 2.2 percent, reaching a count of 30,610 (Table 1). Three of the four major metros experienced a rise in monthly home sales, with Dallas being the only exception, witnessing a decline of 97 homes compared to the previous month. Houston emerged as the metro with the largest monthly increase, showing a significant improvement of 9.6 percent. Austin and San Antonio followed behind with sales figures of 2,738 and 3,103, respectively.

Dallas, the metro with the highest sales in Texas, maintained consistent sales volumes across various price cohorts in line with 2022 figures. However, transactions for homes priced below $200K and above $750K experienced a significant contraction. The upper price segment, in particular, saw a decline of more than 15 percent year-over-year, with only 805 units sold in March.

The average DOM in Texas steadily advanced to 57 days. Compared to the five-year average of 59 days before 2020, the housing market is approaching historical norms. Houston stood out as the hottest market, reporting the lowest DOM level of 51.4 days. Conversely, Austin’s DOM increased, reaching 72.7 days in March, marking the longest market time since 2013. This shift represents a significant departure from the intense market conditions witnessed just a year ago.

Amid the general trend of growing house inventories, active listings experienced a major dip. The 8 percent drop brought the count of available homes in Texas down to 83,497 units. Although Austin saw a slight increase of 4.5 percent, Dallas experienced a marginal decrease. Houston and San Antonio faced challenges in replenishing their inventories due to robust sales volumes in March. As a result, these two metros had significant reductions of 8.5 percent and 11.3 percent, respectively. Despite the drop in housing inventories, months of inventory (MOI) resumed an upward trend, reaching three months. This trend was largely sustained by Austin’s increasing MOI.

Prices Make Minimal Gains as Long-Term Rates Rise

Regarding prices, Texas saw a modest 1 percent month-over-month (MOM) increase in the median home price, remaining relatively unchanged from the previous year (Table 2). Austin witnessed the most significant rebound, with a 6 percent increase since the price correction that began in May 2022. However, despite this recent improvement, Austin’s median price still fell $70,000 short of the market price in 2022, representing a decline of 15 percent. The remaining three major metros, Houston and San Antonio displayed greater stability in housing prices, with March prices remaining within a reasonable range compared to the local market peaks.

Regarding long-term rates, the ten-year U.S. Treasury bond yield dipped nine basis points month-over-month, reaching 3.6 percent. Conversely, the Federal Home Loan Mortgage Corporation’s 30-year fixed rate reversed its course and climbed to 6.5 percent, marking the first increase since October 2022. Despite the persistence of high mortgage rates, sales have continued to trend upward through March.

To better understand changes in single-family home values, the Texas Repeat Sales Home Price Index offers a comprehensive view, accounting for compositional price effects. In March, the index for Texas gained 1.9 percent month-over-month. Houston was the only metro where the index remained constant, while the other four major metros experienced modest increases over February. These modest rises indicate a trend toward price normalization in the market.