Katy home sales fell 10 percent year-over-year in January as the mean reversion continued to take shape in the Houston area real estate market. Houston as a whole saw home sales volume that was up about 1 percent. Sales of new construction declined in January, falling 5 percent within Katy ISD and down 4 percent in Houston. Single-family home prices were holding steady compared to last year.
As readers may know, I don’t take much stock in typical sales spin. I think the data does a much better job of telling us what’s happening. The data suggest the mean reversion toward more affordable homes is still intact. Outside of the rise in luxury homes during the last few months, we are still seeing better demand for affordable homes. This is why you see builders like Toll Brothers bringing more stripped-down products into the Houston market to capture sales.
Once the election euphoria fades into the reality of a stagnant economy, I suspect the local real estate market will remain soft in 2017, particularly if mortgage interest rates remain above 4 percent. I think there were a number of buyers who were spurred off the fence during the last few months by the spike in rates. Interestingly, mortgage rates are indicating the animal spirits that many were hoping for might not actually materialize.
Broken out by price segment, you can see that Houston home sales are suffering from a lack of affordable home inventory. I don’t share the view that higher luxury home sales are a sign of a healthy Houston housing market. It think the reality is quite the opposite. Houston is not San Francisco, and until Houston median salaries catch up to those of our West Coast neighbors, I think we are going to regret the inevitable outcome of market distortions.
Those market distortions are a big reason why Houston going to lag the nation in rental prices again in 2017. Recent numbers show that Houston area apartment rents continue to be weak in light of the saturated market. Houston received a “D” rating and a negative outlook from Camden Property Trust, primarily because Houston is still saturated with luxury class-A units. Apartment owners are still offering two and three months of free rent to occupy many of these new units.
This saturation of the rental market is definitely affecting Katy. Average rents declined by 5 percent year-over-year in January in Katy’s relocation market south of I-10. Rents in North Katy also fell by 4 percent. Houston didn’t fare much better, as single-family rents softened from last year. Houston townhome and condo rents posted a 4 percent drop.
Remember that every day is not a great day to buy a home…Some days are better than others!