Houston Real Estate Market Report: Fall 2022

I am going to open this report with the number that is defining the current moment: 7.08%. That is the 30-year fixed rate from Freddie Mac’s Primary Mortgage Market Survey (PMMS) for the week ending October 27th. It is the highest reading since 2002, and it has arrived on top of two consecutive 75-basis-point Federal Reserve rate hikes — September 21st and November 2nd — that pushed the fed funds target to 3.75–4.00%. The bond market had largely priced in these hikes, but the speed of execution is still affecting buyer psychology in ways that the data is now confirming.

Houston Association of Realtors (HAR)’s October report shows the Houston market has definitively slowed. Median home price is holding around $320,000 in Harris County, but that figure obscures what is happening to volume: closed sales are down 27% year over year. Active listings are up to approximately 22,000. Months of supply crossed 3.0 in October. Days on market has extended to 42 days on average. This is still not a buyer’s market by classic definition, but it is no longer the seller’s market of the first half of 2022.

What I Was Predicting in August vs. What Happened

In my Summer report I said I thought we might see 6.5–7% rates by October if the Fed executed two more significant hikes. We got there faster than that, and the effect on buyer activity has been on the severe end of my range. I said I did not expect widespread price declines — that is still holding, barely, but the pressure is building. I am seeing more price reductions in Realtors Property Resource (RPR) data than I anticipated. Sellers who listed in September at prices set in April are either reducing or sitting. The ones who are reducing are closing. The ones who are sitting are accumulating days on market that will make spring re-listing harder.

Builder Pivot: Incentives That Resale Can’t Match

The most significant structural development I am watching in the northwest master-planned markets is the builder incentive expansion. Builders in Bridgeland, Cross Creek Ranch, and Marvida are now offering 2/1 buydown programs through their preferred lenders that temporarily reduce the buyer’s interest rate by 2 points in year one and 1 point in year two. At current market rates, that means a buyer gets a first-year rate in the low-to-mid 5s rather than 7%+. The monthly payment difference on a $450,000 loan is roughly $500 per month. Resale sellers cannot replicate that without a comparable seller concession toward rate buydown, and most are not offering it.

This matters because resale sellers in active construction zones who are comparing their days-on-market to builder absorption rates are not comparing apples to apples. The builder is selling with a subsidized rate. The resale is selling at market rate. The buyer knows the difference.

Houston Employment: Still a Cushion, But Watching Energy

The Greater Houston Partnership Q3 report shows Houston employment remains above pre-pandemic peaks and job growth is positive. West Texas Intermediate crude (WTI) crude is holding in the $80–90 range, which is supportive but down from the $120 highs of June. If energy softens further, that affects the employment base here more than it affects Dallas or Austin. I am not predicting an energy downturn, but I am noting it as the variable that could accelerate a Houston housing correction if it materializes.

The bright spot on employment is the Texas Medical Center expansion. TMC3 and related medical complex growth are generating construction employment and the beginning of a professional housing demand pipeline that I expect to become more visible over the next several years. For the south-side inner-loop markets, this is a meaningful tailwind.

Down Payment Assistance: More Important Than Ever

As affordability erodes, down payment assistance programs deserve more attention. Texas State Affordable Housing Corporation (TSAHC)’s Homes for Texas Heroes program is available for healthcare workers, teachers, and first responders — relevant for a lot of buyers in the TMC corridor — and offers a below-market rate plus DPA. The Houston Houston Homebuyer Assistance Program (HAP) program for city-limit buyers is still funded. At current rates, the value of these programs in reducing effective carrying cost is materially higher than it was a year ago when rates were sub-4%.

My Outlook for Winter 2022–2023

I think winter is going to be the quietest stretch this market has seen since 2019 at minimum. The buyers who were active in summer are largely done. The buyers who need to move will still transact, but the casual market participant — the buyer who was looking because rates were great and they had time — has exited. Sellers who need to sell should price aggressively now rather than hoping for better conditions in January. My best read on rates is that we get to 7.5% before we see sustained relief, based on the Federal Open Market Committee (FOMC) dot plot suggesting a terminal rate of 4.75–5.0%. I could be wrong — if inflation breaks faster than expected, the rate picture changes — but that is my current baseline.