Homeownership is an integral part of the American dream. It is probably the largest investment many people make and provides myriad tangible and intangible benefits.
About two-thirds of Texas families own their homes. This percentage is slightly less than the national rate. Minority homeownership in the US, which hovers around 50%, is experiencing moderate growth, due in part to various housing initiatives as well as improving economic conditions.
Rising prices for homes clearly impact the ability to buy, and data recently released by the Office of Federal Housing Enterprise Oversight indicate that average US home prices jumped 13.4% for the second quarter of this year, compared with the same time period in 2004. Home price appreciation was the fastest in the Pacific region and slowest in Texas, Oklahoma, Arkansas, and Louisiana.
Although Texas is the second most populous US state, it ranks 45th in homeownership. Reasons vary, but property taxes, ethnic population composition, and home prices play influential roles in families’ capabilities to purchase. The percentage of homes affordable to households with median income varied from 62.1% in El Paso to 75.0% in Fort Worth. Affordability percentages in the other cities were 64.3% in Houston, 65.7% in Dallas, 66.5% in Austin, and 71.4% in San Antonio.
From August 2004 through July 2005, the average cost of a new house in Texas increased from around $139,270 to almost $148,450, a 6.59% climb. The percentage growth of the average price of existing homes over the same 12-month period was 9.17%, reflecting an increase of $15,200 above the $165,800 average home cost in August 2004.
During this timeframe, 148,455 new homes were constructed across the state and an additional 251,409 existing residences were marketed. The amount of time required to sell these structures averaged approximately 5.5 months.
The rising cost of homes over the past year in Texas is evident in some of the state’s major cities. The median cost of a single-family residence in Austin grew 2.5%; homes in Dallas rose 5.4%. Houston home costs climbed 5.7% while the increase was 8.6% in San Antonio. Fort Worth home prices experienced a 13.3% hike while El Paso topped out at 15.0%. For the most part, price appreciation in Texas reflects underlying supply and demand conditions, rather than speculative buying.
Rising home prices over the past several years have uniquely benefited the improving economy. Buyers have been willing to spend more because of low mortgage loan rates and also because psychologically they assumed they were adding to the overall wealth of their estates. Many people have taken equity out of their homes and spent it for a variety of purposes, and numerous others have been assuming larger mortgages to move into bigger or better quarters.
The impact, if any, on the housing market of the Fed’s decision last week to raise rates is not yet evident. Neither are the potential effects of Hurricanes Katrina or Rita on the overall economy or on the demand and prices of new homes.
Notwithstanding, it has been my experience through more than a quarter century of forecasting that residential construction and purchases of existing homes usually runs in a cyclical pattern. Last month new home construction dipped slightly for the second consecutive month, an indication that the red-hot market is beginning to cool a bit. However, given that we have experienced more modest price appreciation over the past few years, Texas is less subject to a major market correction.
During the next five years, the number of housing permits expected to be issued annually in the Lone Star State is forecast to drop from about 177,200 in 2005 to 166,650 in 2010. This decline in new construction is anticipated to continue on a similar path for several more years, with the annual decrease ranging from 0.5% to 2.9%.
As a result, the frenzied building and buying of homes that we have witnessed over the past few years will level off and reflect a more balanced supply and demand market which, in turn, may help ease price pressures and enable additional people to eventually experience the American dream of homeownership.