Houston still presents a strong affordability proposition due to abundant supply, with 268 projects offering homes under $300,000, and likely further downward pressure from a large number of units under construction and slower demand.
New-home appreciation in Houston lagged behind other Texas markets since 2020, but an increasing share of builders are lowering prices and/or increasing incentives to move product today.
While pricing pressure will likely stay in place in the Houston market for some time, the metro, like the rest of Texas, will benefit over the long term from a friendly business climate and relatively low cost of living.
Strengths
Relatively easy regulations help to get more homes built. Other market strengths include no state income tax, a low overall cost of living, land availability, and cultural diversity. Houston’s typical mortgage payment is only $25 more expensive than renting.
Weaknesses
As 2023 began, Houston’s typical mortgage payment had increased 71% since the start of 2022. You also have to consider the tropical storm/climate risk, a heavy dependence on the oil and gas industry (though the local economy has diversified), and bad traffic with limited public transportation.
Supply
Quarterly housing starts decreased 37.2% from a year ago, while the number of available vacant developed lots sits at 53,854, up 42.3% over the same quarter last year. In terms of supply/demand balance, the market area is 3.22% oversupplied.
Sales
New-home sales in the Houston-The Woodlands-Sugar Land metro area decreased 21.7% year over year to an annualized rate of 26,999 in March. Over the past 12 months, 893 sales were attached units, and 26,106 were detached. Existing-home closings for the 12-month period ending in March posted a year-over-year decline of 29.9% to an annualized rate of 115,762 units. Of those, 5,288 were attached units and 82,994 detached.
Prices
The average list price for a new detached home in the metro area increased 1.6.% from 2022 to $403,412 in March, while the average list price for a new attached home decreased 19.6% over the same period to $441,596. Homes priced under $250,000 experienced the most closing activity over the past year. The new-home affordability ratio for a detached home reached 40.5% in March.
Economy
Total confirmed employment in the metro statistical area increased 4.7% from the same period last year to 3,330,900 payrolls in February. There were approximately 9,000 more jobs in February compared with the previous month. The local unemployment rate increased to 4.1% in February compared with 4% in the previous month. February’s jobless rate is lower than it was at this time last year when it stood at 5.1%. Zonda forecasts the unemployment rate will finish the year at 4.2%.
Community
The population for the metro area is approximately 7,488,830. Population in the area is projected to increase by 1.4% in 2023. There are approximately 2,707,530 households in the region, which is up 1.3% year over year. Forecasts show that current household formation is expected to increase by an annual growth rate of 3.1% by 2027. Median household income increased by 11.5% from the previous year to $83,632.
