Rising Interest rate challenges Houston Housing Affordability – Report Housing Affordability Index

As per the report released for Q3 2022 by HAR team, housing affordability remains a challenge for homebuyers in the Greater Houston area amid a backdrop of slowing home sales, moderating home price appreciation and higher mortgage rates. Fewer households could afford to purchase a median-priced home in the third quarter of 2022 compared to a year ago, according to the report.

The median home price in the Houston area grew 12.8 percent to $349,500 in the third quarter of 2022. Forty-one percent of households in the Houston area earned the minimum annual income needed to purchase a home at the median price. That’s down from 53 percent in the third quarter of 2021. The monthly mortgage payment on a 30-year, fixed-rate loan, including taxes and insurance, rose to $2,250 from $1,590 a year ago. As a result, Houston-area homebuyers needed to earn 41.5 percent more income annually than they did a year ago to afford a median-priced home. 

See chart show year over year numbers,

This index really shows how the market has changed from last year with price increase and now with rate increase making many low income people not able to afford housing and pushing them to rent.

Please read full report here, https://www.har.com/content/department/newsroom?pid=1897

How mortgage rates affect Homeownership ROR

The Texas Real Estate Research Center recently looked at how different interest rates can affect the rate of return on homeownership for first-time buyers. The study’s model made several assumptions (Table 2). 

  • The home costs $250,000, which was the first-quartile  sales price for first-time buyers for an existing single-family home in Texas in 2Q2022.
  • The buyer made a 5 percent down payment ($12,500) on a $250,000 home.
  • Rent reflected the first-quartile rent for an existing single-family home in Texas in 2Q2022—$1,800 per month, or $21,600 annually. Rent reflects the opportunity cost incurred by the homeowner in purchasing a home. In other words, by purchasing a home, the homeowner is saving on rent. However, the true opportunity cost of homeownership is renting and investing the difference between the mortgage payment and rent in an investment account. For more on that, read “Purchasing a Home Versus Renting and Investing.”
  • As the loan-to-value ratio exceeds 80 percent (in other words, if there’s less than a 20 percent down payment), the model assumes private mortgage insurance of 0.5 percent.
  • The loan term was 30 years.
  • Property taxes were 3 percent of the home price; insurance, 1 percent.
  • Maintenance costs were 2 percent of the home price.
  • Closing costs equated to 2 percent of the purchase price; selling fees were 6 percent

For example, with a rate of 3 percent, homeowners can expect to expend $27,421 in year five on mortgage principal and interest and property taxes, insurance, and maintenance (Table 4). That amount increases to $32,637 with a 6 percent rate.

Meanwhile, homeowners with a rate of 3 percent can expect to make $72,883 from the sale of the home in year five, but only $63,587 with a 6 percent rate.

In addition, higher mortgage rates leave higher residual mortgage balances, because it takes longer for the mortgage principal to be paid down.

Beware of risks before taking on DIY Home Project

Why people love to move to Texas suddenly?

According to the Texas A&M Real Estate Research center, people have been crazy about Texas real estate for long due to the low housing prices and affordability factor but never really fond of it’s hot weather condition. In the last two years, post pandemic interest has really spiked many folds due to lots of different factors.

It has been an attractive relocation destination for the past decade thanks to its pro-business environment, relatively affordable housing, and friendly charm. While population growth has been strong all ten years, some years have stood out more than others.

A wave of Californians came to Texas in 2018, shortly after the Tax Cut and Jobs Act of 2017, which prompted numerous moves due to the loss of state and local tax (SALT) deductions. The onset of COVID in 2020 brought another wave of newcomers.

While the number of Texas households moving to less dense areas of the state has greatly increased, especially within the “Texas Triangle” (the region bordered by I-35, I-45, and I-10), the number of in-migrants has grown well beyond the national average. In fact, Texas had an almost 200,000 net increase in out-of-state moves between the summers of 2020 and 2021, second only to Florida, which had slightly more than one-quarter million.

The number of newcomers from California has been especially high over the past few years (Figure 2). The big question is, how many more Golden State residents will call Texas home because of the post-COVID scramble?

Here is the most common reason,

To learn more about this trend, check out the article, https://www.recenter.tamu.edu/articles/tierra-grande/Take-Me-to-Texas-2340


Check this really informative Infographics and understand how the Texas Real Estate Market is shaped by various factors and different buyers.