In a surprising shift, the Greater Houston housing market is experiencing a decline in home prices after years of steady growth. However, this downturn offers little comfort to potential homebuyers who are now grappling with increased interest rates, insurance costs, and property taxes.
As a result, the region's housing affordability has hit its lowest point in over a decade. According to the latest quarterly Housing Affordability Index report from the Houston Association of Realtors (HAR), only 39% of households in the Houston area could afford a median-priced home during the second quarter.
This figure marks a drop from the 42% reported in the first quarter and matches the same percentage from the second quarter of the previous year. It's noteworthy that even though the median home price was approximately $9,000 higher than last year, the quarterly interest rate was 1.23 percentage points lower.
In the period spanning from 2012 to 2020, the affordability percentage never dipped below 54%. As a point of comparison, in the second quarter of 2019, just before the onset of the Covid-19 pandemic, 58% of Houston-area households could comfortably afford a median-priced home.
During the second quarter of this year, the median home price in Houston was recorded at $348,300. When combined with an average mortgage interest rate of 6.5%, as well as property taxes and home insurance, this resulted in a monthly mortgage payment of $2,400 for a 30-year fixed-rate loan, as per HAR's data.
To afford such a home, a household needed an annual income of at least $96,000. This is a stark contrast to the second quarter of 2019 when the median home price was $249,400, and the interest rate was at 4%, requiring an annual income of $56,400.
Although home prices have decreased by 2.5% year over year in the second quarter of 2023, this reduction isn't enough to counteract the impact of rising interest rates.
While increasing interest rates are a primary factor contributing to the decline in affordability, it's not the sole culprit. Cathy Treviño, the 2023 HAR chair, pointed out that inflation, rising taxes, and insurance costs have also played a role in driving up total housing expenses.
With affordability on the decline, it's no surprise that Greater Houston's home sales have continued to drop for the 16th consecutive month, as seen in the data for July.
However, when compared to many other cities in Texas and across the country, Houston can still be considered relatively affordable. In Austin, buyers needed an annual income of at least $136,400 to afford a median-priced home, while Dallas-Fort Worth required a minimum annual income of $102,000. This meant that only 30% and 36% of households, respectively, could afford such homes in those cities. Statewide, the figure was 37%, and nationwide, it was 35%.
It's also worth considering that some communities within Greater Houston have a significantly higher affordability rate than the region as a whole. Locations such as Willis, with an affordability rate of 74% (up from 64% the previous year), Angleton and Stafford at 63% each, and Conroe at 53%, outshine the overall average. These percentages are based on the median income of their respective counties.
Furthermore, affordability has actually increased in Brazoria, Chambers, Galveston, and Montgomery counties, demonstrating the diverse landscape of the housing market in the Greater Houston area.
As Cathy Treviño aptly puts it, “Real estate has always been about location, location, location.” We are witnessing certain areas of town where housing is becoming more affordable.
On the flip side, some areas remain less affordable than the region as a whole. In Katy, for instance, only 19% of households could afford a median-priced home during the second quarter. The numbers were slightly better at 27% in The Woodlands and 28% within the city of Houston itself.
For Treviño, the gradual decline in home prices and the increase in housing inventory represent silver linings for the local housing market. She notes that, “During the pandemic, when the market was extremely hot, it favored sellers, and buyers had limited negotiation power. We're now moving towards a more balanced market, where buyers have more room to negotiate, and prices are beginning to stabilize.”
Thank you for taking the time to read this blog post, and we hope you find the information provided here valuable in understanding the current state of Houston's housing market. If there is anything else we can do for you, including helping you sell (or buy) a home, I would be honored to assist. I hope you have a great day/evening. Cheers, E + J.
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