10 minute read
Cold Comfort
Winter Storm Uri didn’t slow down Texas home sales, but it did slow the pace of new listings. Meanwhile, housing inventory has yet to be helped by the reopening of the economy. By Joshua Roberson
Over a year has passed since the start of the COVID19 pandemic. Remarkably, the housing market has remained incredibly robust despite negative pressures from both the economy and the virus. Then came Winter Storm Uri.
Was a historic snowstorm able to knock the housing market off balance? Did a major change in health policy affect homebuyer or, more importantly, home seller sentiments?
Deep Freeze
Uri hit the Lone Star State in mid-February. The novelty of snowfall in Texas quickly wore off as snow levels rose and temperatures dropped below freezing. The situation worsened
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when Electric Reliability Council of Texas’ (ERCOT) electrical grid failed, leaving many residents without power and unable to keep warm.
The impact on the housing market was severe but brief. Pending and actual sales declined dramatically during the week of the storm but returned with a vengeance the following week, once again demonstrating the high demand for housing (Figure 1). The pace of new listings coming to market also took a hit but, unlike sales, didn’t make the same dramatic comeback.
Until mid-February, new listings were coming into play at rates similar to previous years. With housing in such short supply, this was a welcome sight. The pace of new listings hasn’t been the same since Uri. In fact, Uri created a listings gap between 2021 and past years that continues to widen (Figure 2). This gap comes at a crucial point, just before the prime home-selling season begins.
This shortfall in new listings has been statewide, with a few exceptions. Despite a rough oil market, Midland and Odessa are still ahead with their new listings pace even after the slowdown in February. The other exception is El Paso, which is not connected to the ERCOT power grid like the rest of the state.
While Uri certainly had an impact on listings that week, it’s important to separate broader housing trends from the short-term shock brought on by the pause in business activity. Looking back, the shortage of listings is not only a Texas trend but a national one as well. Instead, unexpected shocks such as natural disasters have a way of exacerbating underlying trends. In other words, Uri likely spurred a decline in listings that had already been expected.
10.0 Weekly Sales (Thousands) 7.5
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Figure 1. Sales Before/After Winter Storm Uri
1 2 3 4 5 6 7 8 9 10 11 12 Week in 2021 (January-March)
Source: Texas Real Estate Research Center at Texas A&M University
YTD New Listings (Thousands) 250
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0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 Day of the Year 2019 2020 2021
Source: Texas Real Estate Research Center at Texas A&M University
Is it Safe to Come Out Yet?
In early March, Gov. Greg Abbott ended the state’s COVIDrelated business restrictions and mask mandate. For many service-related businesses, the policy change was a much-needed
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2020 Retail Services
Source: Federal Reserve Bank of Dallas 2021
spark that hopefully will improve consumer confidence, provided virus conditions remain manageable.
According to the Federal Reserve Bank of Dallas, the change in business sentiment, particularly for retail establishments, is apparent. Outlook for future business activity and overall company outlook are already on the rise (Figure 3). Expected revenues and employment opportunities are also on the rise but at lesser magnitudes. Optimism is increasing among businesses, but how about among consumers?
Months after the governor’s announcement, it’s tough to tell if consumers are as eager to return to their former consumption habits. Google’s Mobility Index shows many Texans appear more likely to venture away from home now than they were at any other time since the start of the pandemic. Does that mean that they’re spending more? Possibly, but the answer is unclear.
Although Google data show foot traffic at retail and recreation locations throughout the state are on the rise, revenue streams may not have caught up yet. Sources such as Womply, a small business services company, claim revenues for many local businesses in Texas are still far below pre-pandemic levels, suggesting business fortunes may not return overnight even with looser restrictions.
The gap is widest for food accommodation and leisure Figure 4. Food Accommodation, Leisure & Hospitality and hospitality businesses, Revenue Index Since COVID which also suffered the largest 0% employment setbacks since the pandemic. As of April 2021, these sectors were operating at revenue levels that were nearly 60 percent below February 2020 levels (Figure 4). Meanwhile, there’s been no Revenue Index –20% –40% –60% hesitation among homebuyers to buy during the pandemic. The –80% policy change doesn’t appear 2019 2020 2021 to have had much impact on sales so far. Unfortunately, All Food Accomodation Leisure and Hospitality there doesn’t appear to be much Source: Opportunity Insights (https://tracktherecovery.org/)
change in seller sentiment either, judging by the pace of new listings. It’s uncertain if opening up the economy will do much to alleviate housing market pressures on the supply side since the economy and the housing market have, for the most part, acted independently of each other since the onset of COVID.
Heading to the Suburbs
One of 2020’s biggest migration trends was the push toward the suburbs, at least for certain types of households. U.S. Census Bureau data show overall migration was down, but that was largely driven by the downward spiral of renter household movement. Homeowners, a much smaller cohort, had a record year of moves. Nationally, most of the movement was not from state to state but rather from a densely populated to a less densely populated part of a metropolitan area. Although state-to-state migration did expand in 2020, it was largely overshadowed by growth in movement both within the same county and to surrounding counties. What evidence of the national trend is there in Texas? Change of address requests collected by the U.S. Postal Service suggest there was serious movement to the outskirts of Texas’ major metros, both in
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Jan. 10. First broadcast webinar, “2018 Austin Economic Outlook,” viewed live.
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29th Annual Outlook for Texas Land Markets draws record crowd of 509.
IN MID-FEBRUARY, WINTER STORM URI brought unprecedented cold weather to Texas. According to a University of Houston online survey, 69 percent of residents lost power at some point during the storm for an average of 42 hours, and 49 percent were without running water for an average of more than two days. Nearly a third reported water damage in their home.
Examples of Migration to Suburbs in 2020
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absolute terms and year-over-year growth (see map). Data tracking includes family movement in and out of specific ZIP codes. Given known housing and migration trends, these families more likely represent homeowners than renters, but the data don’t explicitly distinguish between the two.
Many of these areas were already high-growth territories, and the pace only accelerated after the pandemic. For example, in ZIP code 78132, which covers north New Braunfels, migration added a net of almost 1,000 new families in 2020, amounting to a 19 percent increase over the prior year. The influx of families coincided with a more than 25 percent increase in home sales.
Meanwhile, some of the deepest drops in net family migration came from core counties of Texas’ major metros. ZIP code 78660 in Pflugerville had an almost 30 percent drop. Annual home sales in that area fell almost 6 percent. However, to say demand there is struggling would be misleading. Instead, what is likely happening is that sales in this market, and many others like it, have reached the point where the market can no longer accommodate demand because of almost nonexistent inventory. While sales are down, sellers in these areas
are basically calling the shots selling their homes in record time and at aggresLubbock sive price points with little Dallas 76227 wiggle room for negotiation. Given the underlying housing dynamics, this adds New Braunfels (78132) a variety of potential homeAnnual Sales 1,204 (+28%) buying motivations other New Family Growth 973 (+19%) than the virus or a need to 78132 Houston upgrade. Potential homebuyers may simply have no San Antonio 77583 choice but to move to outer metro areas.
Returning to Normal?
Texas’ housing market had Source: Texas Real Estate Research Center an aggressive first half of at Texas A&M University 2021, despite two major events. Winter Storm Uri didn’t stop home sales for long. However, it did slow the pace of homes coming to market, a situation that has yet to be remedied by the reopening of the Texas economy. For these reasons, housing supply continues to dominate concerns. After a long break in everyday commerce, the return to full normal may take longer than hoped. Roberson (joshuaroberson@tamu.edu) is a senior data analyst with the Texas Real Estate Research Center at Texas A&M University.
Aubrey (76227)
Annual Sales 1,991 (+25%) New Family Growth 1,361 (+16%) Rosharon (77583)
Annual Sales 1,339 (+27%)
New Family Growth 735 (+28%)
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Developers have broken ground on the first residential subdivision in Texas consisting entirely of an upgraded class of HUD-code manufactured homes. These “CrossMod” homes qualify for conventional Fannie Mae and Freddie Mac financing. By Harold D. Hunt
The first residential subdivision in Texas exclusively offering “CrossMod” manufactured homes is currently under development about four miles outside Seguin. CrossMod is the Manufactured Housing Institute’s trademarked name for an upgraded class of national HUD-code manufactured homes (MH). It should not be confused with “modular” homes built to meet a specific local building code. “The goal for this development is to provide someone with a nice home that they are proud to own in a lower price range than starter homes in a traditional densely developed subdivision,” said Dustin Arp, president of New Braunfels-based Spark Homes LLC, the subdivision’s developer.
CrossMods, which are only sold with land as real property, are eligible for financing under the same conventional loan terms as site-built, single-family homes through Fannie Mae and Freddie Mac. The two government-sponsored enterprises (GSEs) teamed up with the manufactured housing industry to develop and finance factory-built housing of similar quality to site-built starter homes but at a more affordable price point. While Fannie Mae has named its mortgage program MH Advantage, Freddie Mac has chosen the name CHOICEHome.
“The GSE loan programs offer a rare opportunity for the MH industry to grow from representing only 9 percent of all new home sales annually,” said Dave Busche, director of business development central region at Skyline Champion Homes. “MH finally has the chance to enter into mainstream homebuilding and really participate in the affordable housing solution.”
“You also need a mix of FHA (Federal Housing Administration) and VA (Veterans Affairs) loan products along with the conventional loans being financed by Fannie and Freddie,” said Arp. “You can’t just offer conventional financing in a development like this. A CrossMod that qualifies under the MH Advantage or CHOICEHome programs can qualify for an FHA or VA loan. It is just less likely to make value on an appraisal, and the interest rate would be higher when compared with site-built homes. But the real difference is about $2,000 to $3,000 in added closing costs from cost surcharges such as points.”
Arp’s least expensive floor plan starts at $185,000 with no options or upgrades. The majority of homes in the development will be priced between $200,000 and $230,000. Lot size is one acre while home sizes range from 1,113 to 1,789 square feet.
“Developers choosing a subdivision model similar to production homebuilding on a typical 1/8-acre lot could probably reduce these prices by about $15,000 to $18,000,” Arp said.
