Housing Market in Texas Poised for Growth

The steady influx of out-of-state transplants, along with stronger than average employment growth, should keep the housing and apartment sectors in Texas strong, a report from the Dallas Federal Reserve concluded.

Using data from the Census Bureau, the report authors D'Ann Petersen and Christina Daly pointed out that Texas is the No. 1 state for domestic in-migration. From July 2011 to July 2012, the Long Star state saw a net 140,888 new arrivals when excluding births or international migration.

Dallas, Austin, and Houston attracted nearly 38,000 new transplants in 2012, putting them among the top five for new arrivals.

With the added newcomers into the state, apartment demand strengthened, with occupancy rates above 90 percent in major Texas markets, according to the report. The newly created demand also led to more rental construction, with multifamily buildings rebounding above prerecession levels, the report noted.

Though, the recovery for the single-family market is not moving forward as strongly as the apartment sector due to factors such as the impact of the housing crisis, tight credit conditions, elevated unemployment rates, as well as uncertainty about the overall economic recovery, the report stated.

After assessing data from Multiple Listing Services and the National Association of Realtors, the report found existing-home sales in Texas and in major metro areas rose by more than 33 percent since early 2011.

In addition, anecdotal evidence from the Dallas Fed's industry contacts revealed homes are receiving multiple offers, which in turn is driving up prices.

In fact, Texas is one of 10 states where prices have topped their prerecession high, falling just behind North Dakota's lead.

As of the end of the first quarter of 2013, home prices in the state are now 7 percent above the prerecession peak recorded in the last quarter of 2007, while on a national level, prices remain 13.8 percent below their 2007 peak, the report stated. On the other hand, a hard-hit state such as Nevada is still 50 percent below its previous high.

Texas home prices also face less of a threat from shadow inventory and underwater homes, according to the report. Citing data from the Mortgage Bankers Association, the report found 1.5 percent of Texas homes are in foreclosures compared to the national average of 3.6 percent in the first quarter of this year. The share of seriously delinquent mortgages, or loans past 90 days or more, is also below the national average at 3.8 percent compared to 6.6 percent nationwide.

Meanwhile, 11.4 percent of mortgages are in foreclosure in Florida and more than 15 percent are seriously delinquent.

At the same time, inventory in the state is low. If inventory drops below a supply of 6.5 months, historically, prices tend to rise, the report stated. In April 2013, supply in Austin fell to 2.6 months and was down to 2.7 months in Dallas, while national inventory stood at 5.1 months, according to the report.

Although Texas, with its abundance of land and fewer building restrictions, is generally able to build more quickly to meet demand. As new supply gets added to the market, price increases are expected to ease.

While the Texas market is forecast to expand, the Dallas Fed report warned housing demand in the state could be negatively impacted by broader national issues such as the budget debate and potential tax reform.

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