Houston Real Estate Market Report: Spring 2024

Spring 2024 arrived with the rate cuts that buyers had been promised and did not deliver. The Fed paused at its March and May meetings, and Freddie Mac’s Primary Mortgage Market Survey (PMMS) climbed back from the December low of 6.61% to 7.17% by April 25th. The futures market, which had been pricing in six cuts for 2024 back in January, has now pushed the first expected cut out to September. I flagged this risk in my winter report. I did not correctly predict the specific timing but the general warning that the rate cut narrative was overextended has proven accurate.

What is interesting — and what I did not fully predict — is that the spring market has recovered anyway. Houston Association of Realtors (HAR)’s April data shows closed sales up approximately 8% from April 2023. Median home price has firmed to around $320,000. Days on market has tightened from the 55-day fall average to 40 days. Active listings are essentially flat with year-ago levels. The buyers who came back to the market in late winter did not disappear when rates moved back toward 7%. They had made peace with the current rate environment and they proceeded.

The Rate Disappointment Math

Here is a calculation worth thinking about. A buyer who entered a contract in January at 6.5% and closed in March at 6.75% paid $1,950 per month in principal and interest on a $400,000 loan. A buyer who waited until May hoping for 6% and now faces 7.17% pays $2,094 per month on the same loan. The buyer who waited in the hope of saving money is now paying more per month than the buyer who acted in January. This is not an argument that timing the rate market is impossible. It is an observation that the market’s consensus about where rates were going was wrong, and the buyers who acted on that consensus paid for the error.

The Consumer Price Index (CPI) data through April is the explanation. February, March, and April all came in above 3.0%, with March at 3.5% — a reversal of the disinflation trend that had defined 2023. The Fed cannot cut into a re-accelerating inflation environment, and the bond market knows this. Until inflation gets convincingly below 3% on a sustained basis, rate relief is going to be incremental and delayed rather than dramatic and immediate.

Corridor Update

The inner loop is the tightest it has been since 2022. Well-maintained homes priced correctly in Bellaire, Museum District, and West University Place are generating competitive offer situations. The medical center demand is as strong as I have observed since starting in this business. Physician relocations coming into TMC are moving on fixed timelines and are not rate-sensitive in the way that conventional buyers are.

Northwest corridor: I called this market a resale recovery in my winter report, and I think that is proving out. Bridgeland established-phase resale is competing more effectively with new construction than it was in 2022–2023. The builder incentive packages have moderated as builder inventory positions improved. Marvida is generating its own buyer demand rather than just absorbing Bridgeland overflow.

Katy and Fort Bend: Spring activity is solid. Katy ISD continues to anchor buyer demand in this corridor in a way that is relatively rate-insensitive. The trade-up buyer — the family in a 3-bedroom selling to buy a 4-bedroom — is back in the market in meaningful numbers.

Outlook for Summer 2024

My summer prediction: rates stay in the 6.75–7.25% range unless the May and June CPI reports show a clear resumption of disinflation. The first Fed cut probably comes in September at the earliest if current trends hold, and it is probably 25 basis points, not 50. Houston transaction volume stays modestly above 2023 spring/summer levels because pent-up demand is being released regardless of rates. I think the bigger risk for summer is inventory: if sellers who have been holding back all start listing at once in response to the improved spring showing activity, we could see an inventory surge that gives buyers more options and extends days on market. That would not be bad for the market overall, but it would be unwelcome news for sellers who are counting on the spring’s competition to continue through July.