Rising Prices Are Making Houston Homebuyers Lower Their Expectations

Houston homes remain relatively affordable compared to the rest of the country, but rising prices are making the search for the dream house harder.

By Florian MartinMay 4, 2021 9:35 am, , ,

From Houston Public Media:

Tarence Rice moved to Houston from Tennessee about two years ago. He’s working on his Ph.D. in electrical and computer engineering at Rice University and plans to settle down in Houston.

He said he started looking into homeownership in early January. But with the modest stipend he’s paid by Rice, he soon realized he wouldn’t be able to find a place close to the university.

“I’m a person that really loves to stay close to work, but just given the housing market, that makes it tough,” Rice said.

He said he would ideally like a three-bedroom house for $200,00 to $250,000 — and he’s adjusted his range to stay within a 30-minute commute.

Four months later, he’s still looking. And he’s not the only potential Houston homebuyer feeling challenged.

Houston homes are still much more affordable than in some other parts of the country. The median home price in Greater Houston is about $40,000 lower than the national median.

But prices have grown so fast recently it’s becoming harder for Houstonians to afford their dream house. From March 2020 to March 2021, Houston home prices went up by 16% — from just under $250,000 to $290,000. A normal, year-over-year growth rate is 4% to 6%.

“That affordability is really, really coming into play,” said Jim Gaines, who has just retired as the chief economist at Texas A&M University’s Real Estate Research Center. “And that affects low-income people far more than, of course, it does the higher-income people, because they’re more on the margins of being able to afford a house in the first place.”

So far at least, it hasn’t affected the pace of home-buying. In fact, part of the reason why prices are so high is that Houstonians are buying more homes than ever. That, coupled with fewer people selling, has led to an extremely low supply.

Currently, the Houston area single-family home inventory stands at a record-low 1.4 months, meaning it would take 1.4 months to sell all houses that are currently on the market.

Six months’ worth of inventory is considered a balanced market.

Ed Wolff, president of Beth Wolff Realtors, said the pandemic discouraged many homeowners from selling.

“Unless you had to sell your house, you didn’t put your house on the market last year, which caused a crush on the inventory that we wouldn’t normally expect,” he said. “And we didn’t see any loss of desire to purchase, for a large reason because interest rates stayed low.”

The cost of building a home has also increased, which has pushed up prices of new homes.

Gaines said the pandemic has caused shortages in building materials, like lumber, whose cost has more than tripled in the past few months.

Add to that a labor shortage, in part due to strict immigration policies, higher labor costs as well as higher land costs, he said.

The good news for homebuyers is that mortgage interest rates have been historically low. Because of that, affordability hasn’t actually declined yet.

Housing data firm Zonda looked at how many households can afford the monthly payments for a median-priced new home in Houston. In January 2020, it was 61%.

“Fast forward to January of 2021 and it actually went the opposite direction you would expect,” Lawrence Dean, Zonda’s Houston office director, said. “It was actually about 66% of households could afford that median-priced new home.”

But that trend may be changing. Interest rates have already gone back up above 3% and Dean said even if home prices rose by just 5% over the next year, 40,000 more Houstonians would be priced out. That number doubles if prices keep rising at the current rate.

Wolff is also concerned about this trend, especially that fewer working-class people affected by the pandemic would be able to afford homes.

At the same time, he said, if you really want to buy a home in Houston, you will find one in your price range.

“If I’m looking for a $150,000 house in Houston, Texas, today, I can find one,” he said. “It may not be the vision of what I thought I was going to get five years ago for $150,000.”

As for Rice, he’s not giving up his dream of homeownership. He is hoping for a scholarship and financial assistance through Avenue Community Development Corporation, where he’s taking first-time homebuyer classes.

“I’m still somewhat trying to make the impossible possible, as always,” he said. “And just trying to stay motivated and hoping that something will pop up on the market.”

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