Trey Garrison of Housingwire.com predicts that Texas will see a shift towards single family construction in 2015. Citing the Federal Reserve Bank of Dallas’ most recent edition of Southwest Economy, Garrison says that “apartment construction in Texas will likely moderate, while the state’s single-family housing market may regain traction in 2015.”
2014 saw a drop in Texas’ single-family housing market. Dallas Fed economist Laila Assanie notes that there were record-high prices, and low existing-home inventories, which combined with a decline in affordability to slow down growth in home sales. Improvements in 2015 will rely on increased supply of existing homes and improved access to credit for first-time and lower-income home buyers, according to Assanie. It is these entry-level buyers who have been most seriously impacted by rising home prices and strict mortgage lending standards, as well as builders’ decision to embrace the higher-end “move-up” residences instead of affordable homes at the lower end of the price scale.
Dec. 1 brought revised lending standards from Fannie Mae and Freddie Mac. One major change is the elimination of a requirement that a borrower puts 20% down to buy a home. It is expected that these rule changes will mortivate lenders to relax the underwriting rules, which should also benefit the Texas single-family market. Assanie says that, “This will allow low- and moderate-income borrowers greater access to credit, speeding up the review process and stimulating the housing industry.”
Currently, builders are offsetting the risks of entry-level construction by taking a density approach. Townhomes, patio homes, duplexes, and condos have increased in recent years as a way to snag first-time buyers who wish to forage into home ownership. But this volume density strategy is expected to change.
The Texas multifamily market is leveling out, with occupancy levels and rent growth slowly cooling down as construction nears completion on the new units. However, occupancy and rents are expected to remain at or above market-value despite this slow cooling trend, due to Texas’ population and economic expansion.
According to Mark Dotzour, chief economist and director of research at the Real Estate Center at Texas A&M University, “I feel that this is one of Texas’ most pressing economic development issues.” Dotzour recognizes that ballooning home prices might negatively impact the state’s economic growth, adding “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.”