Monday, October 20, 2014

Top economists: Higher home prices and rising interest rates could hassle Texas homebuyers

Dallas home sales prices are an at all-time high. (Louis DeLuca/Dallas Morning News)
High job growth and population gains should keep demand strong for Texas housing.
But rising home prices and the potential for rising interest rates could make it harder for homebuyers to afford putting a roof over their heads, two of the country’s top housing economists said Friday.
“We have had double-digit price increases for the last couple of years and will probably have them this year,” Dr. James Gaines, an economist with the Real Estate Center at Texas A&M University, told members of the MetroTex Association of Realtors meeting in Richardson. “One of the major issues we are going to have to start thinking about coming into 2015 and several years after is affordability – that is going to be a key housing issue.
“Incomes have not been keeping pace,” Gaines said. “Real median household income has been almost flat, and that is going to be a concern.”
North Texas median home prices this year hit a record high of just under $200,000. That’s more than 25 percent ahead of where median preowned home sales prices were before the recession.
And preowned homes sold by real estate agents in North Texas are now about 50 percent higher in median cost than they were at the worst of the recession in early 2010, according to data from the Real Estate Center.
In September,  a mid-priced home in North Texas was 8 percent higher than in the same month last year.
“Those price increases are going to catch up with us in affordability,” Gaines said.
Lawrence Yun
The rising home costs and a lack of homes available for buyers have put a lid on Dallas-Fort Worth home sales this year.
Through the first nine months of the year, sales are down 1 percent from the same period in 2013.
“Home sales are not coming back up,” Gaines said. “Even the upper price ranges are starting to level out.”
Until builders start more houses or more sellers decide to list their properties for sale, inventory levels will be tight, Gaines said.
Even so, the housing market across the state is booming.
“Texas had the second best year ever last year for home sales,” he said. “Home prices have set a record two years in a row and it will continue.”
But forecasts of higher home finance costs in 2015 and beyond could impact residential sales.
“Mortgage rates will be rising – I’m actually quite surprised they have not yet risen,”
said Lawrence Yun, chief economist with the National Association of Realtors. “Next year the mortgage rate will probably be 5 percent, up from the current 4percent.
Yun warns that the cost of a fixed-rate 30-year home loan could be 6.5 percent by 2016.
That would at about $250 a month to the payments on a mid-priced North Texas home. And along with raising the monthly cost, it would make it harder for some buyers to qualify for financing.
“What is more important this time around is not mortgage rates but credit availability – opening up that box,” Yun said. “Mortgage rates should not impact buying power too much.
“The changes in mortgage rates I think will be easily handled as long as the credit box opens up.”
Yun said that Texas housing markets are better positioned to handle the anticipated higher mortgage rates.
“The job market in Dallas is very strong and homes are still relatively affordable,” he said. “There is a pent up demand for housing.”
He admits that recent home price increases in Dallas and other major Texas markets have been surprising to analysts.
“Prices in the state of Texas always seemed to be very steady,” Yun said. “Prices in Texas usually rise three, four or 5 percent a year.
“Now it is growing 8 to 10 percent and the supply is unable to meet the demand,” he said. “The price is at an all time high in Dallas, while the rest of the country is just trying to recovery.”
After worries about a slowdown in nationwide home sales a few months ago, Yun said that the housing outlook has brightened.
“I believe we are set for a multiyear recovery,” he said. “Four of the next five years will be improving.”