As we enter into 2024, we are stepping out of one of the most turbulent years for real estate in Texas in some time. On the heels of the most significant run up in home values in recorded history, we saw an abrupt and heavy shift that’s been challenging for sellers and buyers to grapple with.
In this article, we will recap what happened to the real estate market in Texas last year and discuss some predictions for the rest of this year.
The 5 most notable events in Texas real estate from 2023
1) Home values flattened or declined in most of the major markets
Unsurprisingly, soaring home prices came down to earth in 2023. It was an inevitable end to arguably the most remarkable run-up in home values in history. Some markets were affected more than others. For example, in Austin, home prices were flat at $523,250 for the year (down only 0.43% in 2023). Which isn’t bad. Looking closer, Austin saw values climb to over $600,000 in June and fall to $523,250 by December. A 13% decline over a 6 month span was painful to endure for Austinites. The silver lining is that home values are still up almost 45% over the span of the last 5 years. If you bought before or at the beginning of the pandemic, you should still feel great about your investment.
2) Interest rates skyrocketed and buyer demand plummeted
Interest rates were the biggest story of 2023. We were on track for another great year until the end of May, when rates jumped over 7%. The market froze due to buyer fear and an already strained affordability issue. National mortgage originations closed the year at less than $1.5 trillion compared to $2.75 trillion in 2022 and an eye-popping $4.51 trillion in 2021. Buyers had lost confidence in the market’s direction and wanted to wait and see how things would shake out with the FED’s potential rate cuts in 2024.
3) Days on market and months supply of inventory climbed, shifting to a more balanced market
For the first time in over 13 years, the market shifted from a scalding hot seller’s market to a balanced or buyer’s market in some areas. Days on the market climbed, sellers became restless, and our month’s supply of inventory finally started to grow. These were the changes buyers had been looking to take advantage of. The only problem was that nobody wanted a 7.5% or 8% interest rate. Hindsight will show us that late 2023 and early 2024 were probably the most favorable times for buyers to negotiate great deals in over a decade. Although I understand a buyer’s hesitation and gut reaction to waiting, intelligent and educated buyers looking for long-term investments may not see better conditions. We could see another surge in demand and prices as soon as rates fall.
4) The sell/buy (sellers who also turned into buyers) segment of the market almost completely disappeared.
One of the most significant impacts of rising rates was the “freeze-in” effect for homeowners. Usually, over 25% of homes sold yearly are home sellers who plan to sell and then buy. But who wants to trade in their 3.5% interest rate for one more than double that? The answer is almost no one. That segment of the market just went away. Forced life events like death, divorce, job loss, or transfer were the driving factors bringing resale homes to market. This is one of the factors that kept our housing market from spiraling entirely off the rails. We didn’t see a wave of panic selling like we did in 2008. Due to low rates, people had equity and affordable payments, so they just stayed put to wait out the market.
5) New construction in Texas surged in 2023
Three major Texas metro areas made the top 10 list of the nation’s highest new home construction rates. Houston took the number 1 spot, DFW was 2nd, and Austin was number 7. It’s an excellent sign for these markets that even in a down market, builders are still pushing the pace and investing there.
2023 Texas Housing Data
- The Median price for a home in the Austin MSA decreased 10.2% to $450,000
- Pending sales declined 3% in 2023
- Average Days on Market currently sits at 84 days (it averaged 70 days for all of 2023)
- 3.0 months supply of inventory
- Active listings increased by 49% as homes took longer to sell
- New listings fell 7% in 2023
- Total sales dollar volume fell 17%
- List price to sales price ratio was 96.1% (this compares the final closed sales price to the list price at the time the home went under contract)
- 23% of homes lowered their price in order to sell
The greater Austin area compared to all other major markets in Texas had the most turbulent year in real estate. Homeowners watched their values fall dramatically from their peak in June after rates spiked to over 7%. It was inevitable that Austin would have a larger correction than other metros who experienced lower appreciation rates. Austin continues to battle affordability problems and zoning constraints for building new housing in the urban core. The suburbs of Austin have ballooned as the population continues to rise.
- 2nd consecutive negative year for Houston housing
- Home sales fell 12.0% to 83,854
- Total dollar volume dropped 12.6%
- Median home price for December was $330,000, down 2.5% YOY
- Average single-family home price was also flat at $412,161
- Average days on market fell 1 days from 57 to 56 days
- Months supply of inventory climbed from 2.6 in 2022 to 3.3 in 2023
- Active listings jumped 13.9%
- Pending sales in December jumped 14.5%
- The list price to sales price ratio in Houston was 97.3%
- 16.9% of homes dropped their price in order to sell
Houston is proving to be a powerhouse market both nationally and in Texas. The jump in pending sales in December is a sign that the small rate relief we saw in late November pushed some of that pent up demand off the fence. With homes essentially flat in 2023, Houston showed to be more resilient than Austin when it came to homes holding their value. We are not expecting any significant changes in the Houston market until we see rates fall. Optimistically, that may begin in Q2, which is perfect timing for sellers rolling into peak season.
- The Median price in December climbed 1.4% YOY to $335,000
- Closed sales dropped 7%
- Active listings climbed 15.9% as homes sit on the market longer
- Days on Market was flat YOY and sits at 62 days
- Months of inventory climbed from 2.6 in 2022 to 3.4 which places us in a balanced market in the DFW area
- List price to sales price ratio in Dallas is 97.8%
- 21.6% of homes dropped their price in order to sell.
The DFW market proved to be resilient through the market correction. Median sales price climbing YOY is a great sign and the list price to sale price ratio hugging up on 98% meant that sellers were still commanding high values for their home. We still saw a dramatic cooling of the market, but all things considered, the DFW market is still growing and remains strong.
- Single-family home sales declined by 9%
- Average price $373,093, down 2%
- Median price $314,950, down 2%
- Average days on market 67, up 86%
- Pending listings, down 5%
- Active listings, up 48% YOY
- Sales price to list price ratio 96%
- 22% of home sold as a result of a price drop
The San Antonio market struggled very similarly to Austin. Days on Market were up markedly as the number of active listings climbed. San Antonio saw a much lower regression curve from the peak prices in May of 2023 to December showing only a decrease of $26,000, compared to Austin’s more than $75,000 fall. San Antonio is still significantly more affordable than Austin which makes it a strong market for first time home buyers, investors and builders. We expect a return to steady appreciation rates once the market normalizes and rates fall.
2024 Texas Housing Market Predictions
Coming out of a brutal year for real estate in Texas, we are expecting to find some relief in 2024. The expectation is that Q1 will be a continuation of where we left off last year with some glimpses or positivity. Rates are still oscillating in the high 6’s which is significantly better than 3-4 months ago, but the pendulum has yet to swing the other way when it comes to market confidence.
What we can expect in Texas Real Estate in 2024
- Rates will come down, but we may have to wait until mid year to see a meaningful adjustment.
- I predict that rates in the high 5s or low 6s will be the magic “sweet spot” to bring the sell/buy market back. Lots of homeowners are wanting to move and are waiting on the rate to fall closer to the current one they have.
- Once rates fall, expect the market to heat up and move back to a seller favored environment.
- Buyer’s should be making their moves now while inventory is up, seller’s are more desperate and the market conditions are in their favor. Waiting for savings from falling rates could be washed away by higher sales prices.
- We will see an increase in foreclosure and short sales but only for the segment of homeowners that purchased between 2021 and 2022. We are a few years from the point they can sell and break even or make money. Some of them will not be able to wait that long.
- Investors should find better market conditions and more opportunities for deals. More equity rich sellers will be open to relocating as rates fall. And instead of seeing a steady decline in home values from June to December, they should see either flat or slightly rising appreciation rates and possibly falling days on market.
- Expect commission conversations to intensify in 2024. The commission lawsuits as well as the decreasing list to sale ratios has sellers and buyers more apt to push the envelope on commission elasticity.
It’s important to note that the “crash” that many expected didn’t happen in 2023. We saw a meaningful correction in Texas but most would argue it could have been much worse. We don’t have a crystal ball, and there is no guarantee we are not out of the woods, but there is a lot to be optimistic about in 2024 for the Texas Real Estate Market.
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