NAR Report Shows Bright Future in MetroTex Market Area

The National Association of REALTORS has released a market analysis for North Texas that shows promise for a healthy rebound in the future.

According to the report the North Texas housing market is still doing remarkably well despite a slide in sales. The bright outlook is based heavily on the strong job market in North Texas. This is because unlike past local housing downturns, which were accompanied with severe job cuts, the local economy continues to add jobs and with those additions along with mortgages rates staying low, the housing market is poised to do well. Since the peak of the housing market two years ago, the local job market added 176,900 net new jobs (July 2007 vs. July 2005). An increase in home sales and strengthening of home prices appears a certainty, in time. If, however, mortgage rates were to increase then the local housing market could remain sluggish with the possibility that home prices and overall housing wealth could drop and, consequently, consumer spending could slow. Past economic cycles have shown that a prolonged housing weakness can measurably slow the economy, and in some cases move it into a recession.

Inflation in North Texas appears to be contained. Both the headline and the core consumer price index decelerated to 2.4% and 2.2%, respectively, over the past 12 months. Better yet, most economists anticipate a further deceleration in inflation by the end of 2007. Such an outcome could well lead the Federal Reserve to cut the Federal funds and prime rates down the road. A federal funds rate cutis no guarantee of a fall in mortgage rates, but the signal that inflation is contained will force bond buyers to demand lower inflation premium, and hence, lead to lower mortgage rates as well.

The home price forecast in the North Texas area varies based on alternative assumptions regarding mortgage rates and the sustainability of mortgage debt levels. Prices are expected to climb 6.4% in 2008 if mortgage rates remain relatively stable at around 6.5% over the next two years. The bulk of the price increase comes from the rise in income (assumed to rise at the same pace as in 2006) while mortgage rates remain stable. The current mortgage debt servicing capacity, though higher than normal, could indeed be sustainable given the sustained job growth and constrained housing construction in the area.

Many of the analysts who have predicted a major housing market correction point to the  disconnect between income growth and home price growth in recent years. But the divergence has been minimal for the local area - implying home prices are properly valued.

The key question for this local market is whether or not the current debt servicing cost can be sustained. Unlike many of the high priced markets on the East and West Coasts, the North Texas area did not experience white-hot price growth. In addition, there is plenty of room for suburban development and urban redevelopment. Simultaneously, the local labor markets have done well, taking on jobs while wages and salaries have grown. As a result, conditions in much of the area are more affordable today than before 2000.

As stated earlier the local job market is very important in supporting housing demand. But at the same time, changes in housing supply can quickly upset the market balance. It is, therefore, critical to monitor the housing demand and housing supply factors to assess if the local market is trending to a tighter or looser condition. On the supply side, there has been a marked reduction in new home construction in the past year. A drop in new housing supply helps prevent prolonged oversupply conditions. The 32,761 new single-family home additions in the past 12 months is far lower than the job gains.

As you can see from NAR's report the future appears to look bright despite for the North Texas housing market.