Houston Housing Market

Now that we are in the middle of the peak selling season, I believe it to be reasonable to judge the trend in Houston housing inventory. We have returned to an aggressive expansion in inventory in the $700,000 and above market. As the number of sales continue to decline and new listings continue to come onto the market, this takes us to 20.4 months of inventory. Recently, I have been conducting more detailed market valuation numbers for a couple of the higher end neighborhoods and using my preferred home value indicator (Median home sale value per square foot), I have noticed significant price drops so far for 2009. One neighborhood I valued, River Oaks (zip code 77019), is off by almost 5% so far this year. This drop in value should not be a surprise when you have almost two years of inventory.

All but two of the price categories that we have been following showed increases in inventory with the first being the $80,000 and below price range which held stable at 3.3 months of inventory. The other I found to be a surprise, the $500,000 to $700,000 price range saw a drop in inventory from 12.8 months to 12.5 months. Even with this drop in inventory, levels are still too high to expect value to hold. These items are all I would consider worth discussing in relation to the price ranges we have been following, as the stratification of the Houston housing market continues. As a result, I have decided to post tables with the data for each of the price ranges we have been covering at the end of this post for those that would like to follow the numbers. The more detailed analysis will be of a separate set of price ranges which are showing a much more interesting story. I feel they say that almost all the housing market troubles here in Houston can be explained by the current credit market’s turmoil.

After looking at this month’s inventory numbers, I decided to see how the market was performing based on the FHA loan limit and the conventional loan maximum. The Houston metro areas FHA (an FHA loan is a federally insured loan overseen by HUD) loan maximum is $271,050. I ran inventory numbers for $271,050 and below to give us an idea of how the market is performing within this safer, more secure loan type in the eyes of the lender (FHA loans insure the lender against loss up to 96.5% of the loan amount). You can find the inventory statistics within this price range directly below.

July 8^th 2009

Within the FHA max loan amount, the Houston area market has just 5.4 months of inventory which places it in what is known as a neutral market by most economists. You will commonly hear one of two ranges referred to as a neutral market, the first being 5-6 months of inventory and the second being 5-7 months. Since our inventory range falls within both ranges, it is safe to call the $271,050 and below market a neutral market (defined to be where neither the seller nor the buyer have an advantage in negotiations). 5.4 months of inventory is below the historical market average for the Houston area and happens to be about the same inventory level seen during the 2005-06 boom years here in Houston. In the end, this says that the Houston housing market is very stable within the FHA loan limits and that this price range is outperforming the historical norm for the area. With the average inventory levels for the country being in excess of 10 months and having all lending standards tighter than has been the case for some time, this could be considered a major bright spot in an otherwise gloomy national housing market.
When analyzing the affects of the credit markets on the Houston housing market, the next interesting price segment of the market is the $271,050 to $417,000. This price segment is significant to the credit markets because it is in excess of the FHA loan limit (loans that fall under this value have the lowest risk to principal for lenders), but still within the conventional loan limits. Mortgage loans in excess of $417,000 are nonconforming loans and are referred to as Jumbo loans. Directly below you will find the inventory statistics for the $271,050 and $417,000 price range.

July 8^th 2009

With 8.5 months of inventory, I believe it safe to say that all economists would consider the price range to be in a strong buyer’s market (a buyer’s market is a market place where buyers have an upper hand in negotiations), but still shy of the 9 months of inventory where historically most markets have started seeing inventory related declines in value. I believe this higher inventory level to be due to the stricter lending guidelines seen today in the conventional loan market than in previous years. These stricter lending standards are a direct response from lending institutions to credit troubles and the limited amount of funds available for mortgage lending. These stricter lending standards prevent many potential homebuyers from being able to act on their desires to make a purchase. In a normal situation, 8.5 months of inventory would be nothing to brag about, but in today’s credit climate, it allows the Houston housing market to be significantly below the national inventory average.

Loans in excess of $417,000 are called Jumbo loans and are becoming very difficult to obtain. A major reason why these loans are hard to come by is there really isn’t a secondary market to speak of for them. This prevents banks who originate these loans to turn them over so that they can make new loans. As a result, lenders that do originate these loans must keep them in their own portfolios. The difficulty in obtaining loans in this price range shows with having almost triple the inventory level seen for homes within the FHA loan limit and having 168% greater level of inventory than those homes that exceed the FHA loan limits but still fit within the conventional loan market as seen below.

July 8^th 2009

The stratification of the Houston housing market fits perfectly to the difficulty of obtaining a loan in the current credit climate. The price ranges we had been following show this same inventory buildup as the price expands, but breaking it down according to the loan limits in the banking industry shows that anyone who is trying to say that the credit markets have not affected the Houston area are foolish at best if not dishonest. After reviewing the inventory levels according to the national banking system loan limits, I feel one can build an argument based on the premise that all of the troubles being seen in the Houston housing market are caused by our country’s macroeconomic conditions.

Total Breakdown of Activity For The Houston Housing Market

May 8^th 2009

July 8^th 2009

Houston Homes Market Breakdown For 80,000 And Below

May 8^th 2009

July 8^th 2009 

Houston Homes Market Breakdown For 80,000-150,000 Price Range

May 8^th 2009

July 8^th 2009

Houston Homes Market Breakdown For 150,000-300,000 Price Range

May 8^th 2009

July 8^th 2009

Houston Homes Market Breakdown For 300,000-500,000 Price Range

May 8^th 2009

July 8^th 2009

Houston Homes Market Breakdown For 500,000-700,000 Price Range

May 8^th 2009

July 8^th 2009

Houston Homes Market Breakdown For 700,000 And Above

May 8^th 2009

July 8^th 2009

The computerized Multiple Listing Service of the Houston Association of Realtors® includes residential properties and new homes listed by 26,000 Realtors throughout Harris, Fort Bend and Montgomery counties, as well as parts of Brazoria, Galveston, Waller and Wharton counties. Residential home sales statistics as well as listing information for more than 53,000 properties may be found on the Internet at http://www.har.com.

The information published and disseminated to the HAR Multiple Listing Services is communicated verbatim, without change by Multiple Listing Services, as filed by MLS participants.

The MLS does not verify the information provided and disclaims any responsibility for its accuracy. All data is preliminary and subject to change. Monthly sales figures reported since November 1998 includes a statistical estimation to account for late entries. Twelve-month totals may vary from actual end-of-year figures. (Single-family detached homes were broken out separately in monthly figures beginning February 1988.)

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This entry was posted on Tuesday, July 14th, 2009 at 8:21 pm and is filed under Houston Housing Market. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.