Houston Real Estate Market Report: Winter 2022–2023

The Houston Association of Realtors (HAR) December report makes for sobering reading. Closed sales in December 2022 were down 35.4% from December 2021. Active listings finished the year at approximately 17,500 in the Houston metro — the highest since early 2019. Months of supply crossed 3.2 in December. Median home price came in at around $310,000, down from the $335,000 peak of spring. The market is not in freefall, but it is unambiguously slower than it has been in several years, and the buyers who remain active know they have time on their side in a way they have not had since 2019.

The variable I want to discuss most carefully in this report is what I am calling the lock-in paradox. The buyers who are not buying are mostly buyers who already own a home at 3–4% and do not want to trade up to a 6.5% mortgage. This is rational behavior. And it means that inventory is not building as fast as you might expect given how few transactions are occurring. The sellers who would normally replenish the resale market are staying put. So we have a market with low demand AND constrained supply, and the two are partially canceling each other out to produce something that looks like frozen prices rather than falling prices.

Rate Movement: Some Relief, Not a Rescue

Freddie Mac’s Primary Mortgage Market Survey (PMMS) has pulled back from the October peak of 7.08%. The week of December 29th came in at 6.42%. The first reading of 2023, January 19th, was 6.15%. This is meaningful relief on the monthly payment, but it is not the sub-5% environment that would unlock the buyers who are currently sitting. The Mortgage Bankers Association (MBA) purchase application index is ticking up slightly from its recent lows, which tells me rate-sensitive buyers are responding to the pullback, but we are a long way from the activity levels of early 2022.

The December Federal Open Market Committee (FOMC) hike was 50 basis points rather than 75 — a deceleration — and the dot plot suggests the Fed expects to reach its terminal rate of approximately 5.0–5.25% with a few more smaller hikes in early 2023. If that projection holds, and if inflation continues to decline from its June 2022 peak of 9.1% (December Consumer Price Index (CPI) came in at 6.5%, still well above target), the case for rate relief in the second half of 2023 becomes more plausible. I am cautiously optimistic about H2 2023 but I am not betting on it.

What the Market Actually Looks Like Right Now

In my conversations with buyers and sellers this January, the mood is patience. Buyers who do not have urgency are waiting. Sellers who do not have urgency are not listing. The transactions that are happening are between people who have to move — job relocations, estate sales, life transitions. Those sellers are pricing realistically and those buyers are making offers that reflect current conditions. Inspection contingencies are back in full force. Repair requests are substantive. Seller concessions toward closing costs or rate buydowns are expected rather than exceptional.

In the northwest corridor, I am watching Bridgeland and Marvida activity closely. New construction deliveries are continuing even as resale slows, which means the builder and resale markets are competing for a smaller pool of active buyers. The builders with the most aggressive rate buydown programs are winning more of those buyers than resale sellers who have not adapted their positioning.

DPA Programs Worth Knowing Now

A few updates on assistance programs. Federal Housing Finance Agency (FHFA) raised the conforming loan limit to $726,200 for 2023, which opens conventional financing to a higher tier of Houston buyers. Texas Department of Housing and Community Affairs (TDHCA)’s My Choice Texas Home program provides up to 5% in DPA and does not require first-time buyer status. Southeast Texas Housing Finance Corporation (SETH)’s 5 Star Texas Advantage program is worth knowing about for buyers in Harris County who need both down payment and rate assistance. At current rates, these programs are more valuable than they were a year ago.

My Outlook for Spring 2023

I think spring 2023 will be better than winter but weaker than spring 2022. The buyers who were waiting for any rate relief are getting some, and that will bring them back. But the sellers who were hoping for a return to spring-2022 conditions are going to be disappointed. My honest prediction: Houston median prices stabilize in the $305,000–$325,000 range through the first half of 2023, with volume recovering modestly from December’s lows but not approaching prior-year levels. The wildcard is energy: if West Texas Intermediate crude (WTI) stays above $75, Houston’s employment base stays supportive. If it drops below $60, I revise that prediction downward.