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December 2018
Texas real estate outlook 2019 ‘Reverting to the norm’
n a recent Center Red Zone podcast, Chief Economist Dr. Jim Gaines summarized his view of the 2018 Texas housing market and
his outlook for 2019. Here are his thoughts. Economic fundamentals. Texas real estate fared “pretty well” in 2018. The fundamentals are good. Texas continues to attract both jobs and people, which is always good news for real estate.
There was a discernable slowdown about midyear. The rate of activity, gains in sales volume, and price increases began to moderate. The slower rate will continue in 2019. The Texas real estate market has been so good for the last six or seven years—leading the country in sales volume increases, price
increases, and so forth. It’s moving back to where it normally is. Economists call it a “reversion to norm.” In North Texas, around the Metroxplex for example, the rate of increase in home prices remains
positive. Rather than going up 8 to 10 percent, prices are going up 3 to 5 percent and sales are flattening. Moderation is being reported in several Texas markets. Energy. Thanks to the resurgence in oil, West Texas, especially around the Midland-Odessa area, has a housing shortage. Prices are up, and sales volume remains low because there are not enough homes for sale to meet demand. Oil prices declined near year-end, creating some uncertainty for 2019. New homes. Construction is generally up statewide, and that should continue. Some new housing construction will offer “somewhat lower” price points. This will help the entry-level market. The trade-offs are that these new homes are farther from downtown where the land is less expensive, the lots are smaller, or both. Like sales, new construction may slow somewhat in 2019 but still be solid. “When all the numbers are in, they will show 2018 was a record-setting year for real estate,” said Gaines. “There will be new records for home sales, average price, median price, price per square foot, and most other measures we watch traditionally.” Sales volume and prices. Home sales will only be up about 3 percent for the year rather than 6 or 7 percent. Home prices are reverting to our long-term norm, which is 4 to 4.5 percent, rather than 6 or 7 percent. Inventory. Gaines says month’s inventory is going up, and that’s good. Six to 6.5 months of inventory is a balanced market, but right now, it’s around 3.8. It’s still a tight market—a seller’s market.
O
Real Estate Center at Texas A&M University
CHIEF ECONOMIST
DR. JAMES GAINES
What’s coming in 2019? “The beginning of 2019 is going to be interesting,” said Gaines. Interest rates have been increasing for six months. Expect the Fed to raise rates early in the year. That is likely to boost the 30-year, fixed-rate mortgage. “Price increases have given buyers a slight case of sticker-shock,” said Gaines. “Would-be homebuyers in 2019 need to realize interest rates will continue to increase. The house you like in January won’t cost less in December. You might be able to find another house for less, but not the same one.
aines expects the fundamentals of a stable market to continue in 2019. The job market looks strong. Unemployment is very low.
Personal incomes, household incomes, and median family income are on the rise. Wages and salaries are increasing. The trade agreements with Mexico and Canada, and perhaps China, are good news for Texas. “Oil is iffy right now,” said Gaines. “Just when we were thinking prices were going to stabilize at $60 to $70 per barrel, it slipped into the low 50s at year’s end. The energy market is definitely going to have to be watched in 2019. New pipelines are under construction in West Texas to facilitate the flow of oil from ground to refineries, and those will have impact on the state’s economy.
“Expect changes in 2019, but don’t expect them all to be positive,” said Gaines. “The Real Estate Center staff expects 2019 to be a better year than 2018 for the real estate market, but we see a significantly slower rate of increase than we’ve seen the last five to seven years.” Gaines sees three things to watch for in 2019: recession, oil prices, and interest rates. “Most economists think a national recession is unlikely. Things are pretty much under control. Manufacturing is up. Gross domestic product (GDP) is positive. Third quarter GDP was 3.5 percent. Texas is more susceptible to global economics, particularly as it relates to the energy sector. If global economies slow, the demand for oil drops, and so does the price. “Although we are in a time of rising interest rates, by historical standards we are in pretty good shape,” he said. “The housing market can function well at a 5 or 5.5 percent interest rate, which I expect is coming in 2019. It may be a problem for would-be homebuyers when half a percent more interest means they cannot qualify for the loan they want. “The risks on the horizon are not overwhelming. Barring unforeseen developments, Texas should be just fine in 2019.”
From the Center’s research library
New arrivals
“Mi Casa Es Su Casa? Restrictive Covenants and
Short-Term Rentals” 12-10-18. Did the Texas
Supreme Court rule in favor of private property rights
in a 2018 case involving an HOA covenant
restriction? Not exactly.
“Oh Give Me a (Single-Family Rental) Home” 12-
10-18. One side effect of the Great Recession has
been growth in the national single-family rental home
market. Unfortunately, rental homes are becoming a
less viable option for lower-income families in Texas.
“Livin’ Large: Texas’ Robust Luxury Home
Market” 12-3-18. Texas boasts one of the largest luxury home markets in the country. High-end home sales
have seen especially strong growth in the Lone Star State since early 2017.
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Latest on the Texas economy
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NewsTalk Texas A sampler of Texas real estate news compiled each workday by the NTT team. Click here for today’s news.
“Houston's labor market slows”
“TxDOT invests $50M in the road more traveled”
“Inflation in check heading into December”
“Over the Hill Country and far away”
“Hotel developer head over heels in Love Field”
“164-unit apartment complex changes hands”
“Law firm expands downtown lease”
“Baker flying into Fort Worth airport”
Monthly data updates Latest building permit data. Building permit data for single-, two-to-four, and five-or-more family units for
states, metropolitan statistical areas, and Texas counties.
Housing reports. Housing statistics based on listing data from more than 50 Texas MLSs. Statistics for each
geography based on listings of properties physically located within the mapped area presented with the
statistics.
Read previous issues. See why 21,953 subscribe to our free, twice-weekly newsletter.
12-18-18. TXDOT invests $50M in the road more traveled . . . Texas in the lap of luxury . . . Houston’s labor
market slows . . . DFW home sales slide nearly 8 percent in November . . . HCC approves 24-acre purchase
. . . North Dallas tower sells to New York investor . . . Stonegate community takes homes sales personally . . .
Over the Hill Country and far away . . . Industrial is imminent off I-10 . . . MIMCO acquires 277K-sf Five Points
Shopping Center . . . Driftwood on par for course . . . What’s the (Palmetto) Pointe?
12-14-18. Natural gas top electricity source produced in Texas . . . Way out West: Midland, Odessa among top
U.S. home markets . . . Houston housing ready for another record year . . . Austin’s the new Big Apple . . .
Logistics hub lands new owner . . . Multifamily metrics for Texas metros . . . Renovations planned for River
Walk’s first hotel . . . Out-of-state retailer plans huge DFW distribution center . . . A walk in the 189-acre
Lakeline Park . . . Midtown project from the land down under tops out . . . $40M, 40-acre business park to Kyle
. . . Developer bringing more multifamily to North Texas.
12-11-18. Frisco lands it on the green . . . USACE, GLO seek input on $32B coastal protection project . . .
SAHA to add affordable apartments downtown . . . The Logistics (Property Co.) behind 97-acre center . . . It’s
built on sand but will produce 100K tons per week . . . Industrial developer plans ahead with Dallas permits . . .
East Texas home sales rising . . . Expand to Texas? It’s only logistical . . . PROS upgrades to 118K sf at Kirby
Collection . . . Yippee-ki-yi redevelopment . . . DFW home price growth slowing . . . Index: Some real estate
markets seeing a bubble.
12-7-18. USGS strikes oil with largest O&G assessment ever . . . Midland home inventory rises above 400 . . . I
see a 289K-sf IKEA . . . $60M children’s museum looks out of this world . . . Airport industrial development
continues . . . $15B factory up and running . . . Lakeshore apartments to rise in Las Colinas . . . Class A
industrial spec building to El Paso . . . Olympus acquires 341-unit Broadstone Sierra Pines.
12-4-18. Texas metros bouncing back . . . Lakehouse livin’ . . . Commercial, residential construction hit the
brakes in DFW . . . Private hangar hub breaks ground at SA airport . . . Lakewood at Brookhollow Prospering
. . . Greybook, Marlin Spring acquire $68M multifamily portfolio . . . Addison office building changes hands . . .
Active, aged, and amenitized—the Trinity of senior living . . . Small town expands parks, greenspaces with land
buy . . . Work starts on $50M sports medicine center . . . Resale, rebrand, ReNew at TPC . . . Finial Group
developing 145K-sf industrial park . . . New Irving multifamily property sold.
GENTRIFICATION was the topic of Real Estate Center speakers Director Gary Maler, left, Research Intern Clare Losey,
and Research Data Scientist Gerald Klassen at a Corpus Christi housing affordability town hall in December.
Red Zone podcasts Listen here.
“That’s a wrap!” 12-19-18. On the last podcast of the year, we look at the economy along the Texas-Mexico border. We also share some Christmas facts and a special message from Center Director Gary Maler. And, we tell which Texas cities have the fastest internet download speeds. Join us as we bid 2018 adieu.
“Rent!” 12-12-18. On this Red Zone podcast, we talk about the best places to work and rent in the country, according to a study. We also look at two new Center articles—one about short-term rentals and another about single-family renters. There’s all this plus a rundown of the Texas economy. “A year in review” 12-5-18. Center Chief Economist Dr. Jim Gaines looks back on Texas' housing market so far this year. He also tells us what may be in store for 2019. Tune in for his commentary plus more real estate news.
Blog posts
View RECenter’s blog posts here
“Helping Texans through relevant research” 12-13-18. I have been reading a lot lately about disruption of
companies and whole industries. One statistic stands out. About 90 percent
of Fortune 500 companies that existed in 1955 are gone. . . . Innovation
and future-proofing are the means to survive. The Center is adapting in this
environment as well.
“Looking ahead: The link between oil and land prices” 12-3-18.
Statistical evidence shows that oil prices have a significant effect on Texas
land prices. Specifically, although the impact is not immediate, higher
(lower) oil prices tend to boost (dampen) Texas rural land prices in the long
run. This impact suggests that changes in the direction of oil prices may
signal a long-run shift in land market trends.
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RECenter newsmakers
December media coverage
“November home sales dip was even worse in key Dallas, Collin, and Denton Counties” 12-19-19.
Dallas Morning News. Real estate agents have sold almost 97,000 preowned single-family homes in the area
through November, according to data from the Real Estate Center at Texas A&M University and North Texas
Real Estate Information Systems.
“New housing reports for North Texas are all over the map” 12-14-18. Dallas Morning News. “Things are
reverting to normal in Dallas-Fort Worth," said Dr. James Gaines, chief economist for the Real Estate Center at
Texas A&M University. "It's going to look so much different because you've had such boom times for the last
six or seven years and we have gotten used to it. But that couldn’t go on forever.”
“Lower-end home sales tumble amid limited inventory” 12-13-18. Houston Chronicle. “What used to be a
$150,000-$170,000 house is now a $220,000 house,” said Jim Gaines, chief economist for the Real Estate
Center at Texas A&M University. Also in Montgomery County Courier.
“Fort Worth home sales decrease 3.6 percent in November” 12-11-18. Fort Worth Business Press. Fort
Worth’s monthly housing inventory was 2.4 months in November 2018, .4 months more than the year prior.
The Real Estate Center at Texas A&M University cites that 6.5 months of inventory represents a market in
which supply and demand for homes is balanced.
“Houston single-family home sales up YTD by five percent” 12-11-18. Better Homes and Gardens Gary
Greene. Data provided by the Real Estate Center at Texas A&M University.
“North Texas home sales see biggest slide in seven years” 12-10-18. Dallas Morning News. Real estate
agents sold 7,502 preowned single-family homes in the area last month, according to preliminary data from the
Real Estate Center at Texas A&M University and North Texas Real Estate Information Systems. "The year-to-
date sales numbers are not nearly as bad," said Dr. James Gaines, chief economist with the Center. "Once we
get December numbers, the year might be down 1 or 2 percent from last year. Also in Mortgage Servicing
News and National Mortgage News.
“Survey: Housing affordability trends slightly toward buying” 12-10-18. Midland Reporter-Telegram. The
survey shows a “price-to-rent ratio” in Midland of 18.0, just 1 point higher than the state average of 17.0. From
EYEWITNESSES TO
HISTORY. The George
H.W. Bush Presidential
Library and Museum are
the Real Estate Center’s
neighbors. The staff had a
front row view of history in
the making when Special
Airlift Mission 41 flew over
carrying President Bush to
his Houston funeral.
Images by JP Beato III,
staff photographer.
October 2017 to October 2018, the average price of a home in Midland rose from $260,691 to $311,250,
according to the Texas A&M Real Estate Center. Also in San Antonio Express-News.
“Realtor.com: Midland is nation’s hottest housing market” 12-9-18. Midland Reporter-Telegram.
November figures from the Texas A&M Real Estate Center and Permian Basin Board of Realtors have not
been released. In October, the PBBOR reported the average days on the market was 22 and a median listing
price of $299,900. Nearly all PBBOR statistics for October showed Midland’s housing market favoring the
seller year-over-year. Also in San Antonio Express-News and Plainview Daily Herald.
“New report warns of Dallas home price bubble” 12-4-18. Dallas Morning News. James Gaines, chief
economist with the Real Estate Center at Texas A&M University, said the slowdown in the Dallas-area housing
market is no reason to panic. "A bubble is not likely but a significant slowdown in price increases is most
likely," Gaines said. "Things may slow down in Dallas, but it would take a major economic event to do that."
“Home inventory inside Midland County rises above 400 for first time in 13 months” 12-3-18. Midland
Reporter Telegram. There were more listings in Midland County at the end of October than there had been in
more than a year, according to the Texas A&M Real Estate Center.
“All’s Well When Oil’s Well” 12-2-18. Midland Reporter-Telegram. The party is back on in the Permian as oil continues to rebound after busting in mid-2014. While optimists may say, "this time is different," this oil cycle truly is in many ways. New technologies have boosted drilling efficiency in the oil patch providing American firms a competitive advantage in the global market even as oil prices gradually rise.
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