Is Something Wrong with Texas Home Prices?/media/... · Houston‐The Woodlands‐Sugar Land San...
Transcript of Is Something Wrong with Texas Home Prices?/media/... · Houston‐The Woodlands‐Sugar Land San...
Is Something Wrong with Texas Home Prices?
Finding Shelter: Affordability Squeeze in a Tight Texas Housing MarketDallas Federal Reserve
February 23, 2018
Constrained supply plus strong demand = accelerated price gains
Note: Seasonally adjusted.Sources: Federal Housing Finance Agency and Real Estate Center at Texas A&M University.
House Price Index(Index 1Q2007=100)
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I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
United States
Texas
Austin‐Round Rock
Dallas‐Plano‐Irving
Fort Worth‐Arlington
Houston‐The Woodlands‐Sugar Land
San Antonio‐New Braunfels
Since 2012, Texas housing prices have been rising faster than incomes
Sources: Federal Housing Finance Agency (FHFA), U.S. Bureau of Economic Analysis, and author’s calculations.
Ratio Texas Personal Disposable Income Per Capita to House Prices(Index 1Q1975=100)
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100
150
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250
300
350
400
450
1975
‐ Q1
1976
‐ Q2
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1981
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1982
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1985
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1987
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1988
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1990
‐ Q1
1991
‐ Q2
1992
‐ Q3
1993
‐ Q4
1995
‐ Q1
1996
‐ Q2
1997
‐ Q3
1998
‐ Q4
2000
‐ Q1
2001
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2002
‐ Q3
2003
‐ Q4
2005
‐ Q1
2006
‐ Q2
2007
‐ Q3
2008
‐ Q4
2010
‐ Q1
2011
‐ Q2
2012
‐ Q3
2013
‐ Q4
2015
‐ Q1
2016
‐ Q2
2017
‐ Q3
Fundamentals influence price movements in housing markets
Supply side: Building permits Housing starts Land costs Construction costs Regulation
Demand side: Demographics Income growth Employment growth Interest rates Locational characteristics (schools, work centers, and transportation)
Comparing estimated values to actual prices might show price misalignments
The Federal Housing Finance Agency (FHFA) house price index.
Methodology used by Case‐Shiller (2003) applied to Texas and major MSAs (Austin, Dallas‐Fort Worth, Houston, and San Antonio).
Methodology was one of first to point out formation of a housing bubble in U.S. housing market.
Estimates confirm Case-Shiller results from 1Q2004 to 2Q2011 leading to housing boom and subsequent bust
Sources: Federal Housing Finance Agency (FHFA), U.S. Bureau of Economic Analysis, and author’s calculations.
Case‐Shiller U.S Home Price Estimates(Index 1Q1975=100)
0
50
100
150
200
250
300
350
400
450
1975
‐ Q1
1976
‐ Q2
1977
‐ Q3
1978
‐ Q4
1980
‐ Q1
1981
‐ Q2
1982
‐ Q3
1983
‐ Q4
1985
‐ Q1
1986
‐ Q2
1987
‐ Q3
1988
‐ Q4
1990
‐ Q1
1991
‐ Q2
1992
‐ Q3
1993
‐ Q4
1995
‐ Q1
1996
‐ Q2
1997
‐ Q3
1998
‐ Q4
2000
‐ Q1
2001
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2002
‐ Q3
2003
‐ Q4
2005
‐ Q1
2006
‐ Q2
2007
‐ Q3
2008
‐ Q4
2010
‐ Q1
2011
‐ Q2
2012
‐ Q3
2013
‐ Q4
2015
‐ Q1
2016
‐ Q2
2017
‐ Q3
U.S.: Actual FHFA Price Index U.S.: Estimated value FHFA Price Index
Misalignment since 1Q2015 suggests recent price changes cannot be explained by Supply and Demand
Sources: Federal Housing Finance Agency (FHFA), U.S. Bureau of Economic Analysis, and author’s calculations.
Case‐Shiller Texas Home Price Estimates(Index 1Q1975=100)
0
50
100
150
200
250
300
350
1975
‐ Q1
1976
‐ Q2
1977
‐ Q3
1978
‐ Q4
1980
‐ Q1
1981
‐ Q2
1982
‐ Q3
1983
‐ Q4
1985
‐ Q1
1986
‐ Q2
1987
‐ Q3
1988
‐ Q4
1990
‐ Q1
1991
‐ Q2
1992
‐ Q3
1993
‐ Q4
1995
‐ Q1
1996
‐ Q2
1997
‐ Q3
1998
‐ Q4
2000
‐ Q1
2001
‐ Q2
2002
‐ Q3
2003
‐ Q4
2005
‐ Q1
2006
‐ Q2
2007
‐ Q3
2008
‐ Q4
2010
‐ Q1
2011
‐ Q2
2012
‐ Q3
2013
‐ Q4
2015
‐ Q1
2016
‐ Q2
2017
‐ Q3
Texas: Actual FHFA Price Index Texas: Estimated value FHFA Price Index
Same misalignment observed in Austin since 2Q2014 . . .
Sources: Federal Housing Finance Agency (FHFA), U.S. Bureau of Economic Analysis, and author’s calculations.
Case‐Shiller Austin Home Price Estimates(Index 1Q1975=100)
0
50
100
150
200
250
300
350
1990
‐ Q1
1990
‐ Q4
1991
‐ Q3
1992
‐ Q2
1993
‐ Q1
1993
‐ Q4
1994
‐ Q3
1995
‐ Q2
1996
‐ Q1
1996
‐ Q4
1997
‐ Q3
1998
‐ Q2
1999
‐ Q1
1999
‐ Q4
2000
‐ Q3
2001
‐ Q2
2002
‐ Q1
2002
‐ Q4
2003
‐ Q3
2004
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2005
‐ Q1
2005
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2006
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2007
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2008
‐ Q1
2008
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2009
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2010
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2011
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2011
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2013
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2014
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2014
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2015
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2016
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2017
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Austin: Actual FHFA Price Index Austin: Estimated value FHFA Price Index
. . . in DFW since 1Q2014
Sources: Federal Housing Finance Agency (FHFA), U.S. Bureau of Economic Analysis, and author’s calculations.
Case‐Shiller DFW Home Price Estimates(Index 1Q1975=100)
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100
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300
1990
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1990
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1991
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1992
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1993
‐ Q1
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1994
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1995
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1996
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1996
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1998
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2000
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2008
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2011
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2011
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2014
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2014
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2015
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2016
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2017
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DFW: Actual FHFA Price Index DFW: Estimated value FHFA Price Index
. . . in Houston since 4Q2014
Sources: Federal Housing Finance Agency (FHFA), U.S. Bureau of Economic Analysis, and author’s calculations.
Case‐Shiller Houston Home Price Estimates(Index 1Q1975=100)
0
50
100
150
200
250
300
1990
‐ Q1
1990
‐ Q4
1991
‐ Q3
1992
‐ Q2
1993
‐ Q1
1993
‐ Q4
1994
‐ Q3
1995
‐ Q2
1996
‐ Q1
1996
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1997
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1998
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1999
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1999
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2000
‐ Q3
2001
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2002
‐ Q1
2002
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2003
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2004
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2006
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2007
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2008
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2008
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2009
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2010
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2011
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2011
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2012
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2013
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2014
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2014
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2015
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2016
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2017
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Houston: Actual FHFA Price Index Houston: Estimated value FHFA Price Index
. . . in San Antonio since 2Q2015 Possible overvaluation of home prices at state and MSA levels
Sources: Federal Housing Finance Agency (FHFA), U.S. Bureau of Economic Analysis, and author’s calculations.
Case‐Shiller San Antonio Home Price Estimates(Index 1Q1975=100)
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250
1990
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1990
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2001
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2002
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2002
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2003
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2004
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2005
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2006
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2007
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2008
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2008
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2009
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2010
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2011
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2011
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2012
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2013
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2014
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2015
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2016
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2017
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San Antonio: Actual FHFA Price Index San Antonio: Estimated value FHFA Price Index
Housing starts represent supply fundamentals Are they capturing the supply constraints faced by homebuilder?
In aftermath of 2008–09 Great Recession, housing supply held back by lack of developed land resulting in upward pressures on land costs for homebuilders.
Other constraints: • high costs of labor and materials• reduced profit margins• incentive to construct homes priced more than $300,000.
Single-family construction has not recovered causing low inventories
Note: Seasonally adjusted and detrended.Source: Bureau of Economic Analysis and Real Estate Center at Texas A&M University.
Texas Single Family Permits Per Capita and Months of Inventory(Index Jan2005=100, Months)
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4
5
6
7
8
9
20
40
60
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100
120
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Jan‐05
Aug‐05
Mar‐06
Oct‐06
May‐07
Dec‐07
Jul‐0
8
Feb‐09
Sep‐09
Apr‐10
Nov
‐10
Jun‐11
Jan‐12
Aug‐12
Mar‐13
Oct‐13
May‐14
Dec‐14
Jul‐1
5
Feb‐16
Sep‐16
Apr‐17
Nov
‐17
Permits Per Capita (Left Axis) Months of Inventory (Right Axis)
Months of inventory for housing: less than $250,000, at historical lows
Note: Seasonally adjusted and detrended.Source: Real Estate Center at Texas A&M University.
Texas Months of Inventory by Price Cohort(Months)
2
4
6
8
10
12
14
16
Jan‐11
Apr‐11
Jul‐1
1
Oct‐11
Jan‐12
Apr‐12
Jul‐1
2
Oct‐12
Jan‐13
Apr‐13
Jul‐1
3
Oct‐13
Jan‐14
Apr‐14
Jul‐1
4
Oct‐14
Jan‐15
Apr‐15
Jul‐1
5
Oct‐15
Jan‐16
Apr‐16
Jul‐1
6
Oct‐16
Jan‐17
Apr‐17
Jul‐1
7
Oct‐17
$0‐$199,000$200,000‐$299,999$300,000‐$399,999$400,000‐$499,99$500,000+
Identifying home price misalignments: not easy and even more difficult “bubbles”
No sure way of knowing what prices “should be”
No single methodology offers complete confidence.
No certainty to say home prices overvalued or undervalued or if price bubble is forming.
Various methodologies can be used to complement each other.
Evidence regarding Texas' 25 MSAs record episodes of “explosive behavior" in house price
Map indicates a misalignment in North Texas home prices relative to their fundamental-based normative values.
During U.S. housing bubble, homebuyers motivated to invest by strong expectations in future price changes Homebuyers generally perceived little risk of a possible fall in housing prices.
Emotional, casual word‐of‐mouth factors played important roles in home‐purchasing decision.
These conditions difficult to measure and based on feedback and comments of housing market participants.
Purchasing home for investment purposes, perceived little risk of falling home prices, etc.
Seem not to be present currently in Texas housing market or in major Texas MSAs.
At same time, market did not face a significant supply constraint causing sale inventory levels to fall to historical low.
Major contributor to current possible misalignment in home prices appears to be significant supply constraint in Texas housing market.
RECenter will continue to monitor and analyze.
Please visit our webpage
www.recenter.tamu.edu