If you were expecting the Houston housing market to take a breather in April after the strong performance in the first quarter, you’d be very disappointed with the numbers reported by the Houston Association of Realtors. Instead of a pause, the market continued its uncompromising upward surge by posting double digit year on year gains in sales and prices. Below are the fundamental stats worth knowing:
- Single Family homes sold: 6482 (+ 27% from last April)
- Single Family average price: $253.9k (+14% year on year)
- Single Family pending sales: 4999 (+23% year on year)
- Months of Inventory on the market: 3.4 (-37% from last April)
- Bank foreclosures down 30%, now make up just 10% of total sales
- Townhouse and condominium sales + 31%
The storyline remains unchanged. In 2013, demand awoke from its confidence deficiency paralysis and realized that time was expiring fast on ridiculously cheap money. This awakening led to an acute inventory (supply) shortage which turned this market into a dog chasing its tail at a blistering pace and driving up prices in the process. The latest reported average sales price during April is the highest on record. To find a higher number of properties sold in a month, you’d have to go back to August 2007 and its pre-recession self. Just when you think suppliers of supply (builders, sellers and banks) might jump in, satisfy the demand and increase inventory, months of inventory on the market drop further to 3.4 months. And that’s citywide. If you zoom into smaller, popular pockets (i.e Woodlands, Memorial, Oak Forest/Garden Oaks), there’s even less inventory
Funny thing is, the Summer is just getting started.
Houston Association of Realtors press release
Erion,
This is great for sellers but are rent increases keeping pace to prop up ROI?
So far, they are dancing at the same rhythm. It will remain to be seen what happens later.
On a separate point, the way I see it, the biggest threat to ROI isn’t price increases but interest rate increases.
Interesting, could you please elaborate?
Well, for every 0.5 percentage point increase in the interest rate on the mortgage on your investment property, the cash on cash return drops by 1.0-1.5% depending on your loan to value (The higher the leverage, the larger the drop).
So if interest rates rise as they’re expected to do in the next 12-18 months, there will be downward pressure on ROI even if prices remain unchanged.