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Houston Update

Signs of Weakness in Sales, But No Signs of Weakness in Mortgage Performance

Molly Boesel    |    Mortgage Performance

Ever since oil prices started collapsing in fall 2014 researchers have looked for signs of weakness in the Houston metropolitan area’s housing market, given the region’s heavy reliance oil-related jobs. The first sign came last week when the Houston Association of Realtors (HAR) reported that single-family home sales fell sharply in October 2015 compared with a year earlier 1.

Stability in the labor market is a key to fundamental housing demand, and slower home sales likely stem from declining employment in the Houston metropolitan area, which has the nation’s 10th-highest concentration of oil and mining employment2. The Bureau of Labor Statistics reports that the Houston area’s labor force (those people classified as either employed or unemployed) began falling on a year-over-year basis starting in June 2015, and the number of people employed started falling in July 20153. In September 2015 the area’s employment fell 1.1 percent from a year earlier.

Houston home prices are still higher than a year ago but they’re rising at a slower pace following two years of double-digit, or near-double-digit, annual gains. According to the CoreLogic Home Price Index (HPI), prices in Houston rose 7 percent year over year in September 2015, down from a 9.7 percent gain in September 2014 and an 11.1 percent increase in September 2013.

Mortgage performance in the Houston area has not shown signs of weakness. One of the earliest measurable indications of mortgage performance is the transition from being current on a mortgage payment to being 30 days past due. Historically, this so-called current-to-30 transition rate is sensitive to market stress, as can be seen in the accompanying graph with jumps in the rate after Hurricane Katrina in 2005 and after the sharp drop in oil prices at the end of 2008. For now, the current-to-30 transition rate is holding strong, with the rate near 15-year lows through August 2015, nearly a year after oil prices started to fall.

While Houston-area mortgage performance still appears strong, the forecast is for little if any growth in home prices over the next year. The CoreLogic HPI forecast shows that Houston home prices are about 20 percent above their long-term fundamental value, and are projected to be largely flat through September 2016 (a 0.5 percent annual increase through September 2016) .

The Houston housing market is starting to show its first signs of weakness since the fall in oil prices. Houston is the largest metropolitan area with a high oil employment concentration, but the smaller metropolitan areas of Midland and Odessa, Texas, have the highest concentration of oil-related employment in the country and might face a similar oil-related housing slowdown.

[2] Based on Census County Business Patterns data on employment for 2013.
[3] The BLS data can be found at

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