The housing market in Texas is facing a whirlwind of factors that are contributing to ensure the industry should be busy for a while. On one side, the available housing for inventory continues to remain below the optimal level. On the other hand, builder confidence recently hit a 10-year high. As these two trends continue to hold sway over the state's housing, homebuilders should find that the market for new homes will remain strong for the coming months and years.
Lingering low housing inventory
One of the main indicators of the strong housing market in Texas is the continued inability for homebuilders to gain any headway on the state's housing inventory. According to Texas A&M Today, the state's housing inventory remains well below the optimal level, and sat at 3.7 months in August. A balanced housing market should ideally hold about 6.5 months of housing inventory.
In addition, median home prices continue to rise, with last month's median home price reaching $203,300. While this was down from July's median home price of $204,700, it was still considerably higher than the $189,300 price tag from one year ago. Following the same pattern, the number of homes sold in August was 29,685, which was 1,500 fewer than the amount sold in July, but almost 1,900 more than the number of homes sold in August 2014.
"Generally speaking, the market's still going strong," explained Jim Gaines, Texas A&M University's Real Estate Center Chief Economist. "However, we are seeing some slowdown in demand in areas most affected by the decline in oil prices and weakness in the energy sector."
While the energy sector slowdown has caused some drag on the state's housing market, the overall diversification of industries in Texas has meant the softening oil and gas prices have not had as drastic of an impact as many economists originally feared.
As Housing Predictor pointed out, the gains for home prices in Texas are almost twice the national increases. However, in light of these price gains, construction levels in the state remain less than 40 percent below their 2006 levels. Much of this has to do with builders selling to the upper spectrum of the housing market. With more mansions for sale on the market, it will continue to push up prices without necessarily increase the number of actual homes sold.
"Nowhere is the need for additional housing starts more prevalent than in Texas."
Nowhere is the need for additional housing starts more prevalent than in Texas. As the state's 3.7 months of housing inventory sits well below the national average, homebuilders in the state will have to work overtime, since increasing the available housing inventory will require builders to maintain sustained efforts to not only keep up with the current demand, but ultimately overproduce enough units to play catch up with the current housing shortage.
Builder confidence hits decade high
While the housing inventory in Texas continues to barrel ahead, the national outlook for homebuilders is soaring. The National Association of Home Builders/ Wells Fargo Housing Market Index (HMI) reached a level of 64 in October, representing a 3-point increase over last month's reading. This is the highest level for the index since 2005, during the heyday of the previous housing boom.
All together, this level has remained in the 60s since June, and many in the industry, including NAHB Chairman Tom Woods, feel like this was indicative of lasting gains for the housing market. NAHB Chief Economist David Crowe was optimistic about the rate of homebuilding for the remainder of the year.
Of the three components the HMI tracks, two of them saw gains, with six-month sales expectations increasing seven points to a reading of 75 and current sales conditions rising three points to hit 70. While the buyer traffic index did not increase this month, it remained stable at a reading of 47. For the three-month moving averages, the South, which accounts for Texas, rose one point to reach 65.
"With October's three-point uptick, builder confidence has been holding steady or increasing for five straight months. This upward momentum shows that our industry is strengthening at a gradual but consistent pace," Crowe said. "With firm job creation, economic growth and the release of pent-up demand, we expect housing to keep moving forward as we start to close out 2015."
Labor shortages abound
As homebuilders' confidence continues to remain at a decade-high level moving into the fourth quarter of 2015, it should ensure a solid and stable housing market for Texas in the months to come. Unfortunately, Texas has a shortage of skilled workers compared to the national average. According to a survey from the Associated General Contractors of America, 93 percent of respondents plan on hiring new or replacement workers for their construction firms, yet 88 percent also cited they are having trouble filling salaried and/or hourly positions for the jobs. Meanwhile, only 86 percent of construction firms nationwide are having trouble filling worker shortages.
Among the positions that Texas contractors are having trouble filling, 78 percent of respondents cited roofers as the most-needed workers, with 69 percent indicating they are having trouble finding concrete workers and 68 percent stating they need more electricians. Even looking ahead to 12 months out, 60 percent of respondents believe they will still be facing a shortage of skilled workers and hourly craft professionals.
As the state faces both a shortage of construction-industry workers as well as a suboptimal level of housing inventory, homebuilders should remain busy in Texas as they continue to replenish the necessary homes the market is demanding.