Houston Real Estate Market Report: Summer 2022

The market I am watching in Summer 2022 is measurably different from the one I started tracking in spring, and the data backs that up. I want to be direct about what I am seeing before I interpret it: this is not a correction yet, but it is a deceleration, and I think it is important to say that clearly rather than frame it away.

Houston Association of Realtors (HAR)’s June report shows Houston’s median home price at $330,000, essentially flat from May and up 11% year over year — that appreciation figure is still strong, but compare it to the 19% year over year (YoY) we saw in March and the direction is clear. Active listings for Harris County rose to approximately 16,000 in June, up from under 12,000 in March. Months of supply is climbing toward 2.4. None of these numbers describe a buyer’s market, but they describe a seller’s market that is losing intensity.

The Rate Shock Is Real

In my Spring report I said I was watching the rate trajectory closely. Here is what happened: the Federal Reserve raised its benchmark rate by 75 basis points on June 15th — the largest single hike since 1994 — and followed with another 75 basis points on July 27th. The target range is now 2.25–2.50%. Freddie Mac’s Primary Mortgage Market Survey (PMMS) for the week ending June 23rd showed 30-year fixed rates at 5.81%. They pulled back briefly in July as recession fears emerged, dropping to around 5.22% in early August, but the general direction has been upward and I do not expect meaningful relief before the November Federal Open Market Committee (FOMC) meeting.

The Mortgage Bankers Association (MBA) weekly mortgage applications index has been declining for months. Refinance applications are essentially dead. Purchase applications are running roughly 20% below year-ago levels nationally. In Houston that decline is softer because of the employment base, but it is present. I am seeing longer decision timelines from buyers I am working with and more fallout from pre-qualification letters that were valid three months ago at different rates.

Houston Employment Still Holding

The Greater Houston Partnership’s July economic indicators show Houston’s job growth remains positive. The energy sector is the specific bright spot — West Texas Intermediate crude (WTI) has pulled back from the $120 peak but is still well above the levels that stress the Houston energy base. If oil holds above $80, I expect the Houston employment picture to stay supportive through the rest of the year. If it drops significantly from here, that changes my read on fourth quarter.

Corridor Observations

Inner loop: Still the most resilient. Showing activity has softened but well-priced homes in Bellaire, West U, and Museum District are still moving in under 30 days. The medical center demand floor is real and I expect it to be the last thing to soften in this market.

Northwest — Cypress, Bridgeland, Marvida early phases: I am watching builder cancellation rates. When buyers locked a new construction contract at 4% and the home is now delivering at 6%+, some of them are walking. I have seen this with clients in this corridor. Builders are starting to get flexible on incentives in ways they were not three months ago. Resale in this area needs to price against what builders are now willing to offer.

Katy and Fort Bend: Inventory is building faster here than in the inner loop. I am seeing more price reductions in Realtors Property Resource (RPR)’s data for the 77450 and 77494 ZIP codes than I saw in spring. Not alarming, but it is a data point.

My Outlook for Fall 2022

I think we get a meaningful slowdown in fall. The rate trajectory suggests we could be looking at 6.5–7% thirty-year rates by October if the Fed executes two more significant hikes as the dot plot implies. At that level, Houston’s buyer pool contracts further, days on market extends into the 40–60 day range in most suburban corridors, and sellers who were holding at spring prices start making decisions. I do not think we see widespread price declines — inventory is still too low for that — but I think sellers who are waiting for a spring-2022 offer in September are going to be disappointed. The window for peak pricing has likely closed.