Saturday, March 11, 2023

How the 2023 Texas real estate market is taking shape

From the Texas Association of REALTORS(R)

How can you prepare for the rest of 2023 when the last few years have been so unpredictable?

The Texas Real Estate Research Center released the 2023 Texas Economic Forecast in December. Researchers made educated guesses by using their understanding of economic and market conditions and past market trends, the report says.

Lead Data Analyst Joshua Roberson recently shared what he’s watching this year and how it could impact buyers, sellers, and renters.

Inflation will continue

Inflation will be the metric to watch in 2023. Inflation rose rapidly last year, and the Federal Reserve responded by raising interest rates. Making it more expensive to borrow money cools off inflation but also decreases buying power.

The Research Center predicts inflation will likely stay elevated this year. Even if the Federal Reserve does rein in inflation, we probably won’t feel the effects immediately or completely.

Global events also affect inflation. “What happens in one country spills over to the U.S. market,” he says. “If China shuts down because of COVID-19 or the oil markets are in flux because of the war in Ukraine, there’s only so much the Federal Reserve can do.”

Inflation impacts Texas real estate because higher interest rates push buyers out of the market. Qualified buyers may delay purchases until rates come down. Texas is somewhat protected from these consequences because of the steady stream of new residents, Roberson says. As a result, Texas is in a better position to bounce back compared with other states.

Expect moderate price growth

Texas home prices and rents could not keep growing like they did during the pandemic, the Research Center says. “The way I look at it, back in 2019 we were having conversations about declining housing affordability. Then COVID-19 threw everything into a whole other gear,” according to Roberson.

Prices partly rose because of low mortgage interest rates in 2019-2021. Buyers lost 40% of their purchasing power when rates leapt from 2.65% in January 2021 to around 7% last fall. The 30-year mortgage rate in February 2023 was 6.12%. That feels high compared to recent years but 6%-7% is closer to historical norms, Roberson says.

“COVID-19 was a special period of time with interest rates being as low as they were,” Roberson says. “People had a lot of money they couldn’t spend on anything else but their homes. We thought we’d be in our homes a lot more than we were. We couldn’t sustain those numbers. For Austin to experience 30% to 40% year-over-year price growth, that was unique. Things are leveling off.”

The Research Center predicts moderate home price and rent growth in 2023. The median home price in November 2019 was around $250,000. Last June it was $349,000. It’s down to $333,000 now but Roberson doesn’t see a return to the $250,000 range. Any fall in prices definitely won’t come close to the nosediving levels of the 2007-2009 Great Recession. Texas has a tight supply of homes and still-strong demand.

Sales will slow down

Higher mortgage rates and higher asking prices will slow sales even as price growth moderates, the Research Center predicts. “2022 had fewer sales than the previous year, but sales still exceeded 2019,” Roberson says. “Even if there was a decline, sales were still good. It’s just that everything will look disappointing compared to 2021.”

Roberson watches days on market and months of inventory, which are both slowly increasing. Texas continues to have limited inventory at the lower price points, even with new homes being built. The housing market in general remains undersupplied. He also watches list-to-sale price comparisons.

Are we headed to recession?

One of the biggest questions for the Research Center was whether the economy is headed into recession, Roberson says.

If there is a mild recession, job and housing growth will flatten. “More than likely, that’s the best-case scenario for this year,” he says. If the recession is more significant or persistent, there will be a loss of real wages and buying power. The economy will tighten and housing sales will continue to fall.

How consumers feel about the economy can be as important as the actual numbers themselves, Roberson says. Pessimistic attitudes influence purchasing decisions, like houses, which end up in the data. “Inflation is the big pain point,” he says. “That eclipses everything else. Even though it’s improved, it’s still elevated. And people feel it, especially when buying food.”

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