16 minute read
In Short Supply
Low Housing Inventory’s Effect on Low-Income Buyers
Table 1. Number of Homes Affordable with Financing by Price Range, MSA (2019)
Maximum Home Price Range
Austin- Round Rock
Dallas- Fort WorthArlington
Houston- The WoodlandsSugar Land San AntonioNew Braunfels
Conventional Financing
0 to $12,441 $12,442 to $24,882 $24,883 to $37,323 $37,324 to $49,764
306 722 1,078 1,488
876 2,976 8,870 16,011
2,453 5,696 12,278 20,822
779 2,312 4,900 9,432
$49,765 to $62,205 $62,206 to $87,087 $87,088 to $124,410
1,897 5,063 9,189 $124,411 to $186,615 35,754 $186,616 to $248,821 106,758 23,320 29,672
65,203
75,764 136,506 162,215
14,717 41,964 82,415 359,598 448,807 168,656 377,306 342,417 128,486
$248,822 to $373,231 168,776
442,371 309,557 112,553 $373,232 and above 161,247 334,903 229,027 69,143 492,278 1,767,940 1,638,708 635,357
FHA Financing
0 to $19,083 $19,084 to $39,606 $39,607 to $59,409 $59,410 to $79,212 $79,213 to $99,016
641 1,716 2,655 3,895 4,451
2,068 13,044 30,942 48,046 61,149
5,118 18,434 39,979 57,058 70,014
1,887 7,486 18,936 30,751 39,930
$99,017 to $138,622 10,510 $138,623 to $198,031 46,539 $198,032 to $297,047 170,925 $297,048 to $396,062 108,211 166,053 211,360
94,045 366,167 433,194 161,257 523,776 423,234 159,264 269,053 181,195 63,256
$396,063 to $594,093 88,534 195,392 118,760
41,338 $594,094 and above 54,201 92,255 80,362 17,207 492,278 1,767,940 1,638,708 635,357
Sources: CoreLogic and Texas Real Estate Research Center at Texas A&M University
A shortage of homes, particularly in the lower price ranges, has constrained affordability, especially for lowerincome households. The financial pressures the CCOVID-19’s effects on the nation’s labor market have bled over into the housing market, impacting not only current homeowners, but potential buyers as well. According to the Congressional Research Service, young workers, women, workers with low educational attainment, part-time workers, and racial and ethnic minorities were hit especially hard by the pandemic. Workers in industries that provide in-person services have also faced disparately high pandemic has imposed unemployment rates. As a result, their home-purchasing power has likely been on these households have diminished despite historically low mortgage interest rates. These groups further diminished their comprise a significant share of traditional homebuying potential. first-time buyers seeking affordable homes. Most assessments of owner-occupied housing affordability focus singularly on By Harold D. Hunt estimating the demand for homeownerand Clare Losey ship. For instance, the Housing Affordability Index produced by the National Association of Realtors measures the ability of a family earning the median income to afford the median-priced home with a conventional loan. However, by failing to consider the availability of housing in the buyer’s price range, it offers an incomplete assessment of purchase affordability. Without the availability of affordable homes, demand matters little.
For this study, American Community Survey data were used to measure the proportion of renter households in each income category in Texas’ major Metropolitan Statistical Areas (MSAs). CoreLogic appraisal data, combined with estimates of the maximum home price affordable to households by income and loan type (conventional or Federal Housing Administration [FHA]), were used to quantify the supply of homes affordable to each income category. This analysis presents several limitations. CoreLogic data reflect the total supply of homes within each “price” range (where prices reflect appraisal district values), rather
Table 2. Demand/Supply Comparison for Renter Households with Financing (2019)
Renter Household Income
Austin- Round Rock
% of Renter Households % of Owner- Occupied Units Affordable Dallas-Fort WorthArlington
% of Renter Households % of Owner- Occupied Units Affordable Houston-The Woodlands- Sugar Land
% of Renter Households % of Owner- Occupied Units Affordable San AntonioNew Braunfels
% of Renter Households % of Owner- Occupied Units Affordable
Conventional Financing
Less than $5,000 5.0% 0.1% 4.4% 0.0% 5.0% 0.1% 5.9% 0.1% $5,000 to $9,999 3.3% 0.1% 3.6% 0.2% 4.4% 0.3% 5.2% 0.4% $10,000 to $14,999 4.8% 0.2% 4.8% 0.5% 5.5% 0.7% 6.1% 0.8% $15,000 to $19,999 4.3% 0.3% 5.3% 0.9% 6.5% 1.3% 6.6% 1.5% $20,000 to $24,999 4.7% 0.4% 5.7% 1.3% 6.4% 1.8% 6.9% 2.3% $25,000 to $34,999 10.6% 1.0% 12.2% 3.7% 12.8% 4.6% 13.4% 6.6% $35,000 to $49,999 15.4% 1.9% 16.3% 7.7% 15.6% 9.9% 16.1% 13.0% $50,000 to $74,999 20.2% 7.3% 20.4% 20.3% 18.5% 27.4% 19.0% 26.5% $75,000 to $99,999 11.7% 21.7% 12.0% 21.3% 10.2% 20.9% 9.8% 20.2% $100,000 to $149,999 12.4% 34.3% 10.1% 25.0% 9.3% 18.9% 7.6% 17.7% $150,000 or more 7.6% 32.8% 5.3% 18.9% 5.7% 14.0% 3.5% 10.9% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
FHA Financing
Less than $5,000 5.0% 0.1% 4.4% 0.1% 5.0% 0.3% 5.9% 0.3% $5,000 to $9,999 3.3% 0.3% 3.6% 0.7% 4.4% 1.1% 5.2% 1.2% $10,000 to $14,999 4.8% 0.5% 4.8% 1.8% 5.5% 2.4% 6.1% 3.0% $15,000 to $19,999 4.3% 0.8% 5.3% 2.7% 6.5% 3.5% 6.6% 4.8% $20,000 to $24,999 4.7% 0.9% 5.7% 3.5% 6.4% 4.3% 6.9% 6.3% $25,000 to $34,999 10.6% 2.1% 12.2% 9.4% 12.8% 12.9% 13.4% 14.8% $35,000 to $49,999 15.4% 9.5% 16.3% 20.7% 15.6% 26.4% 16.1% 25.4% $50,000 to $74,999 20.2% 34.7% 20.4% 29.6% 18.5% 25.8% 19.0% 25.1% $75,000 to $99,999 11.7% 22.0% 12.0% 15.2% 10.2% 11.1% 9.8% 10.0% $100,000 to $149,999 12.4% 18.0% 10.1% 11.1% 9.3% 7.2% 7.6% 6.5% $150,000 or more 7.6% 11.0% 5.3% 5.2% 5.7% 4.9% 3.5% 2.7% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Sources: CoreLogic and Texas Real Estate Research Center at Texas A&M University
Table 3. (Under)/Oversupply of Homes for Households Using Financing by Income Cohort, Price Range (2019)
Renter Household Income Maximum Home Price Range Austin- Dallas-Fort Worth- Houston-The Woodlands- San AntonioRound Rock Arlington Sugar Land New Braunfels Conventional FHA Conventional FHA Conventional FHA Conventional FHA
Less than $5,000 0 to $12,441 (24,230) (23,895) (76,456) (75,264) (79,143) (76,478) (36,436) (35,328) $5,000 to $9,999 $12,442 to $24,882 (15,456) (14,462) (60,549) (50,481) (66,074) (53,336) (30,451) (25,277) $10,000 to $14,999 $24,883 to $37,323 (22,361) (20,784) (75,748) (53,676) (78,571) (50,870) (33,761) (19,725) $15,000 to $19,999 $37,324 to $49,764 (19,516) (17,109) (77,185) (45,150) (86,467) (50,231) (32,233) (10,914) $20,000 to $24,999 $49,765 to $62,205 (21,412) (18,858) (78,191) (40,362) (75,368) (35,026) (29,377) (4,164) $25,000 to $34,999 $62,206 to $87,087 (47,113) (41,666) (150,443) (49,594) (133,590) 2,006 (43,226) 8,855 $35,000 to $49,999 $87,088 to $124,410 (66,394) (29,044) (152,551) 77,109 (93,657) 177,322 (19,814) 59,028 $50,000 to $74,999 $124,411 to $186,615 (63,879) 71,292 (443) 163,734 145,058 119,485 47,676 38,284 $75,000 to $99,999 $186,616 to $248,821 49,164 50,617 166,001 57,748 175,133 13,911 66,376 1,146 $100,000 to $149,999 $248,822 to $373,231 107,593 27,351 264,130 17,150 157,359 (33,438) 64,143 (7,072) $150,000 or more $373,232 and above 123,604 16,558 241,435 (1,213) 135,320 (13,345) 47,103 (4,833)
Sources: CoreLogic, U.S. Census Bureau, and Texas Real Estate Research Center at Texas A&M University
than the number of homes actually for sale within each price range (Table 1). Likewise, the demand figures reflect the total number of renter households in each income cohort (Table 2), as opposed to only those households looking to become homeowners. All data reflect 2019 figures; 2020 Census data will not be published until late 2021.
Results Reveal Shortages
Subject to these limitations, the under or oversupply of homes that renter households would have had sufficient income to purchase in 2019 in Texas’ major MSAs is shown in Table 3. Numbers are shown for both conventional and FHA financing. For example, in Austin-Round Rock, there was a shortage of 66,394 homes for renter households earning $35,000-$49,999 who were using conventional financing. For similar households using FHA financing, there was a shortage of 29,044 homes.
Several patterns are evident. The most prominent shows that, across all four MSAs, the shortage of homes is much more pronounced among lower-income households with conventional loans rather than FHA loans. Governmentsponsored mortgages generally offer more relaxed borrowing constraints than conventional mortgages (FHA loans do not require the same wealth and income—loan-to-value and debt-toincome ratios—as conventional loans). Furthermore, regardless of the type of loan, affordability is most constrained for lowest-income households, particularly those earning less than $50,000 annually. First-time buyers, who tend to be younger than repeat buyers, are more likely to fall in the lower-income cohorts.
The table shows homeownership is generally out of reach for the lowest-
LOWER-INCOME HOUSEHOLDS in all four major Texas MSAs are having difficulty finding homes within their price range. For example, in 2019 DFW had a shortage of more than 152,500 homes affordable to buyers earning $35,000 to $49,999 and using conventional financing.
Housing affordability generally describes the relationship between household income and housing costs. In the realm of homeownership, affordability is typically measured separately for existing homeowners and would-be homebuyers (particularly first-time homebuyers). The former refers to repayment affordability, which is the ability of the borrower (i.e., existing homeowner) to repay his/her mortgage. The latter denotes purchase affordability, or the household’s ability to obtain mortgage financing and buy a home.
In a separate article (“Downsized: Pandemic Diminishes Homebuying Ability”), homeownership demand is quantified for two types of mortgage loans: conventional and FHA. A standard measure of homeownership demand is the estimation of maximum home price that is affordable to a particular household. This is generally a function of the characteristics of the borrower (income, wealth, and credit score) and the loan as well as the mortgage interest rate, and additional costs of homeownership, including property taxes and insurance, and points and fees on the loan. The vast majority of homebuyers in Texas—87 percent—used mortgage financing in 2020.
The table establishes the maximum affordable home price for borrowers of varying incomes seeking either a conventional or FHA mortgage. For example, in 2019, the median family income in Austin-Round Rock was just over $95,000. The maximum affordable home price would be $236,380 for a conventional borrower and $365,614 for an FHA borrower.
Maximum Home Purchase Price
Income Home Price Affordable Conventional Loan FHA Loan
$150,000 $373,231 $577,285 $145,000 $360,790 $558,042 $140,000 $348,349 $538,799 $135,000 $335,908 $519,556 $130,000 $323,467 $500,313 $125,000 $311,026 $481,071 $120,000 $298,585 $461,828 $115,000 $286,144 $442,585 $110,000 $273,703 $423,342 $105,000 $261,262 $404,099 $100,000 $248,821 $384,857 $95,000 $236,380 $365,614 $90,000 $223,939 $346,371 $85,000 $211,498 $327,128 $80,000 $199,056 $307,885 $75,000 $186,615 $288,642 $70,000 $174,174 $269,400 $65,000 $161,733 $250,157 $60,000 $149,292 $230,914 $55,000 $136,851 $211,671 $50,000 $124,410 $192,428 $45,000 $111,969 $173,185 $40,000 $99,528 $153,943 $35,000 $87,087 $134,700 $30,000 $74,646 $115,457 $25,000 $62,205 $96,214 $20,000 $49,764 $76,971 $15,000 $37,323 $57,728 $10,000 $24,882 $38,486 $5,000 $12,441 $19,243
Source: Texas Real Estate Research Center at Texas A&M University
income cohorts. The supply of homes in their price range is simply insufficient. FHA’s more relaxed qualifying standards certainly enhance purchase affordability, but FHA financing generally remains unattainable for the lowest-income buyers, who lack both income and wealth (even without considering potential credit constraints).
Shortages in homes for highest-income households using FHA financing cause these households to “buy down.” In other words, they purchase homes that are priced lower than what is reasonably affordable to them. Consequently, they dip into the supply that is affordable to moderate and high-income cohorts.
Pandemic Puts on the Pressure
Texas’ housing market already faced a variety of challenges before the pandemic, including supply constraints and a decline in purchase affordability following the Great Recession. In 2019, the months of inventory—the supply of homes listed for sale relative to the number of homes purchased—measured a mere three months for the state. Generally, 6.5 months indicates a balanced market—that is, sufficient supply to meet household demand.
Supply is typically more constrained in larger markets because of strong population growth and greater shortages of developable land. Meanwhile, the widening gap between household income and home prices generally signals increased difficulty in meeting the qualifying standards for mortgage financing, particularly for households on the margin.
Assuming it takes longer for lowincome and minority households to recover economically, purchasing a home may prove difficult for first-time buyers as they strive to recover lost wages.
However, the government could relax qualifying standards for mortgages insured or guaranteed by federal entities. Furthermore, a potential swath of foreclosures could actually enhance purchase affordability for lower-income households. That will depend on the duration of the foreclosure moratorium and the speed of households’ economic recovery.
For more on how the pandemic has made it more difficult for some Texas households to purchase a home, read “Downsized: Pandemic Diminishes Homebuying Ability.”
Dr. Hunt (hhunt@tamu.edu) is a research economist and Losey a research intern with the Texas Real Estate Research Center at Texas A&M University.
Texas’ rural land market posted strong sales in the latter part of 2020. Sales for small properties were especially high, possibly boosted by concerns over COVID-19 contagion and civil unrest in urban areas.
By Charles E. Gilliland
Measures intended to reduce the spread of COVID-19 hit Texas land markets hard in early 2020, sending brokers to the sidelines as their phones stopped ringing and buyers canceled pending transactions. Reports from across the state painted a picture of markets beset by uncertainty. The troubled summer with riots in urban areas added to people’s concerns.
As the summer progressed, scattered reports suggested a wave of urban dwellers had begun descending on rural locations seeking small acreages away from the contagion and threatened violence in the cities. Many dismissed these reports as isolated incidents in normally quiet markets, not portents of an emerging trend. However, as the year drew to a close, sales data reported to the Texas Real Estate Research Center seemed
12 Number of Sales (Hundreds)10 8 6 4 2
Figure 1. Small Property Sales Numbers Austin-Waco-Hill Country
0
2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: Texas Real Estate Research Center at Texas A&M University
Figure 2. Annual Percent Change in Sales Numbers Austin-Waco-Hill Country
100
80
Percent Change 60
40
20
0 Average = +12.8%
–20
2015 2016 2017 2018 2019 2020
Source: Texas Real Estate Research Center at Texas A&M University
to confirm the opposite. Led by high volume Austin-Waco-Hill Country (Region 7), rural areas in the state’s land markets had a remarkable annual increase in total small property sales.
To gauge the strength of this phenomenon, the Center examined developments in the first size quintile (smallest 20th percentile of sales from 1966-2009) of rural land market sales for six of the state’s seven regions. Table 1 shows each region’s size boundaries for the first size quintile.
Small Properties’ Sales Explosion
between 2015 and 2020. Third quarter 2020 growth was nearly double the previous high of 37.1 percent in first quarter 2015. However, that growth occurred when markets were on the upswing from the financial meltdown in the subprime mortgage industry that depressed market volumes for several years. The number of sales in third quarter 2020 nearly doubled the average number for the past six years. Clearly, activity rose to never-before-seen levels. Sales volumes increased significantly in six regions (Region 2 was excluded due to the limited number of transactions) in third quarter 2020 (Table 2). In addition, third and fourth quarter numbers represent continued market growth. In general, prices for small rural properties have trended up in all regions, with quarterly fluctuations associated with changes in the location of sales (Table 3). Fourth quarter 2020 results indicate price increases likely accompanied volume growth across most areas of Texas. These results suggest the hypothesized flight to the countryside began in the third and fourth quarters of 2020. Experienced market observers who speculate about how long this phenomenon can continue should keep in mind some factors that contributed to the moves. First, social distancing measures caused restaurants and entertainment venues to close, making city life much less attractive. Second, urban living made social distancing more challenging. Finally, disorder in the streets of major cities prompted many to seek more Latest data show sales of small properties in Austin-WacoHill Country’s rural markets exploded in the third and fourth quarters of 2020 (Figure 1). In the Table 1. Small Property Rural Land Sizes remote settings. third quarter, the region logged 1,103 reported sales, Region Number Region Name Lower Bound Upper Bound exceeding 1,000 sales in a quarter for the first time. 1 Panhandle and South Plains 10 acres 160 acres Fourth quarter reports logged 978 sales for that quar- 3 West Texas 10 acres 95 acres ter. Third quarter 2020 sales were up 85.1 percent 4 Northeast Texas 10 acres 35 acres over the same quarter in 2019, while fourth quarter 5 Gulf Coast-Brazos Bottom 10 acres 43 acres sales were up 70.7 percent (Figure 2). 6 South Texas 10 acres 45 Acres
This remarkable growth occurred in a market 7 Austin-Waco-Hill Country 10 acres 50 Acres where sales volume growth averaged 12.8 percent Source: Texas Real Estate Research Center at Texas A&M University
DATA SUGGEST COUNTRY LIVING APPEALED
to a growing number of people in 2020. Small property sales increased remarkably in rural areas of Texas’ land markets.
Large Properties Also Impacted
The combined effect of the virus and political unrest appears to have impacted the large property market as well.
Large land sales, defined as acreage larger than the upper bound in Table 1, had similar large increases in activity (Table 4). All regions except 1 and 3 had substantial growth in activity in the third quarter. Fourth quarter numbers, meanwhile, show growth in all regions.
Investors seeking a safe haven for their capital in uncertain times flocked to this market. Some reportedly subdivided them into small properties, selling them quickly.
Back to ‘Normal’?
Violent confrontations in cities quieted after summer 2020, and vaccines could be the harbinger of a return to a more normal social milieu, easing concerns about living in cities.
If 2020’s concerns are allayed in 2021, fewer urban dwellers may feel a need to purchase rural land. However, the opening weeks of 2021 saw unrest reappear and created worries of more to come. On top of that, a core urban demographic longs for country getaways even in the absence of these concerns.
Ultimately, the strength and longevity of this uptick in demand for small rural properties depend on how the remainder of 2021 unfolds. Dr. Gilliland (c-gilliland@tamu.edu) is a research economist with the Texas Real Estate Research Center at Texas A&M University.
Table 2. Small Property Rural Land Sales Volume
Region Number Region Name
3Q2020 Sales/Percent Change
4Q2020 Sales/Percent Change
1 Panhandle and South Plains 62 / 87.9% 45 / 73.1%
3 West Texas 275 / 59.0% 229 / 36.3%
4 Northeast Texas
871 / 36.1% 772 / 45.4% 5 Gulf Coast-Brazos Bottom 532 / 45.4% 511 / 78.0% 6 South Texas 294 / 61.5% 304 / 75.7% 7 Austin-Waco-Hill Country 1,103 / 85.1% 978 / 70.7%
Source: Texas Real Estate Research Center at Texas A&M University
Table 3. Small Property Rural Land Sales Prices
Region Number Region Name
3Q2020 Price Per Acre/ Percent Change
4Q2020 Price/Percent Change
1 Panhandle and South Plains $4,001 / 32.93% $3,913 / 4.85% 3 West Texas $3,064 / -2.00% $3,184 / 1.88% 4 Northeast Texas $10,347 / 3.40% $10,568 / 5.24% 5 Gulf Coast-Brazos Bottom $11,508 / 2.14% $11,675 / 4.04% 6 South Texas $8,749 / 7.96% $8,926 / 7.96% 7 Austin-Waco-Hill Country $9,492 / -3.54% $9,769 / 0.06%
Source: Texas Real Estate Research Center at Texas A&M University
Table 4. Large Property Rural Land Sales Volume
Region Number Region Name
3Q2020 Sales/Percent Change
4Q2020 Sales/Percent Change
1 Panhandle and South Plains 81 / -3.57% 135 / 107.7% 3 West Texas 256 / -6.92% 271 / 123.7% 4 Northeast Texas 681 / 48.7% 604 / 59.0% 5 Gulf Coast-Brazos Bottom 290 / 38.8% 317 / 115.7% 6 South Texas 167 / 25.6% 201 / 95.2% 7 Austin-Waco-Hill Country 704 / 57.1% 702 / 80.0%
