Apartment construction in Texas will likely moderate, while the state’s single-family housing market may regain traction in 2015, according to the latest issue of the Federal Reserve Bank of Dallas’ Southwest Economy.
The market for single-family housing in Texas lost some momentum in 2014, with record-high prices, depleted existing-home inventories and declining affordability contributing to relatively slow growth in sales, writes Dallas Fed economist Laila Assanie in “Single-Family Housing Squeeze Eases in Texas; Multifamily Soars.”
Improved access to credit and an expanding supply of new homes for first-time and lower-income buyers will be essential for the state’s housing market to strengthen in 2015, Assanie notes.
Entry-level buyers have been squeezed in recent years by rising home prices and difficult-to-obtain mortgages, Assanie says, and builders have also moved away from constructing entry-level homes in favor of higher-priced move-up products.
However, new guidelines from Fannie Mae and Freddie Mac that took effect on Dec. 1 revise lending standards, including the elimination of a requirement that a borrower put 20% down. These new rules should motivate lenders and relax underwriting rules, Assanie says, benefiting the single-family housing market in Texas.
“This will allow low- and moderate-income borrowers greater access to credit, speeding up the review process and stimulating the housing industry,” Assanie writes.
Some Texas builders are also moving back into the entry-level market by offering higher-density products such as townhomes and patio homes, according to Assanie.
In the Texas multifamily market, Assanie says that construction activity is moderating and occupancy levels and rent growth will likely cool as units under construction are completed. Still, she says occupancy and rents should stay at or above the long-run average in 2015 in Texas due to economic and population expansion, diminished housing affordability and a declining homeownership rate in the state.
Mark Dotzour, chief economist and director of research at the Real Estate Center at Texas A&M University, says rapidly rising home prices in Texas could pose a threat to Texas economic growth, making the state less competitive for business.
“I feel that this is one of Texas’ most pressing economic development issues,” Dotzour says. “We need to build more homes to keep the supply high enough to prevent prices from getting so expensive that new workers choose not to relocate to Texas.”