Texas A&M University’s Texas Real Estate Research Center reports about 46% of the 4,246 homes sold between May 2022 and April 2023 took place in the Cypress South submarket, which includes Bridgeland, Dunham Pointe, Towne Lake and other fast-growing master-planned communities.Local real estate agents said the increase in interest rates to above 6% for a 30-year mortgage—which occurred in September for the first time since 2008, according to Freddie Mac data—may have caused prospective homebuyers to hold off on purchases. As of press time, the average national mortgage rate had not dropped below 6%.
“Actually, the Cypress area, that whole northwest quadrant of Houston and surrounding counties, ... is actually booming. That’s one of the areas we are starting to see a lot of growth,” said Cathy Trevino, chair of the Houston Association of Realtors.
As developers continue building out the Cypress community, inventory in the Cypress South submarket increased from 96 homes in January 2022 to 565 this April.
Mortgage rates, prices plateau
Jill Smith, a local real estate agent for Compass Realty, said she believes some buyers are waiting because of perceived economic uncertainty and higher interest rates. However, interest rates are not likely to change dramatically in the near future.
“I think people did start to realize that 6% and 7% are the new normal. Are we ever going to see 2% again? Probably not. Will interest rates go down at some point? Yes,” she said.
Rising home prices and mortgage rates along with home appreciation gains, and increases in property taxes and homeowners insurance costs have reduced affordability in Cy-Fair by 30%-40% in the last five years, said Mitch Medigovich, a mortgage lender with The Wood Group of Fairway Independent Mortgage.
The average price of homes sold in Cy-Fair in the first quarter of 2020 was $288,210, according to the Texas Real Estate Research Center, and was $402,628 in the first quarter of 2023. Home prices jumped 13.7% from 2020-21 followed by another 20.8% between 2021-22. But from 2022-23, the increase slowed to 1.7%.The National Association of Realtors’ Housing Affordability Index is based on home prices, interest rates and wage growth. The baseline score of 100% indicates households earning the median income can afford the median home price with a 20% down payment. Higher scores indicate homes in the area are relatively more affordable for its residents.
Medigovich said the local affordability index was 152% in 2018 but is now approximately 113%.
“The latter part of 2022, we saw mortgage interest rates hit 30-year highs, further fueling market uncertainty,” Medigovich said. “We’re actually seeing [loan application] activity increase with the rates as they are now, and if we see the lower rates which have been forecasted to be about 1% lower than they are now, we should also see greater demand for housing.”
Because of limited inventory, rental prices are going up while home pricing is slightly lower than this time last year in the Greater Houston market as a whole, Trevino said.
“We’re still sitting at 2.7 months of inventory [in the Greater Houston market]. That’s still not enough inventory to be a balanced market. A balanced market is more like six months,” she said.
Months of inventory shows how long it would take for all homes on the market to sell at the current pace of sales. As of April, the Copperfield area had 1.1 months of inventory, while neighborhoods in Cypress North had about 1.4 months. However, Cypress South had higher inventory levels at 3.4 months.New home loan strategies
Smith said she believes buyers should focus on the affordability of their monthly payments rather than mortgage rates or the cost of homes.
“During the height of everything, prices were going up 10%-15%. They’re expecting this year and probably next year we’ll see an increase of maybe around 2%. So, while they are still increasing, they’re increasing at a much slower pace than they were before,” Smith said.
Trevino said many consumers in the market are unaware of help that may be available to them. The Houston Association of Realtors’ website shows 34 assistance programs available in the Cypress area.
In addition to those programs, borrowers can take out a “buydown” loan that lowers their interest rates for the first four years after they’ve purchased their home, which can be an attractive alternative to putting down a larger cash down payment, Trevino said.
“Instead of putting more money into the down payment, they’re buying their interest rate down,” she said. ”Because if you put $10,000 more down, it’s really not going to make a big impact on your interest payment. But if you put up money to buy down your interest rate, that’s where you’ll see a larger impact on your mortgage payment.”
Rental market growth
The build-to-rent market has grown as builders choose to build in suburban communities, local ReMax real estate agent Collette King said.
“I think it’s great for folks that are new to an area and want to familiarize themselves with an area or where they want to live before they purchase. They want to try the schools, the commute to work, but it definitely offers an alternative to financing a new home,” King said.
Construction is underway on Wingspan, Bridgeland’s first build-to-rent neighborhood comprising 263 single-family homes. Preleasing will begin this fall, said Steve Sams, senior vice president of master-planned communities residential for The Howard Hughes Corp.
The area is attractive to renters because they benefit from the amenities associated with living in a master-planned community, and some families choose to rent in the area while their homes are being built in Bridgeland, Sams said in an email.
Trevino said as people are choosing to rent to avoid higher mortgage rates, the cost of renting will increase for the entire market area.
“Instead of [new] homes going first onto the market for sale, they’re going on the market for rent,” Trevino said. “I think builders are just taking advantage of the fact that there’s a lot of potential buyers who can’t qualify and are looking to rent. And as rent has really gone up, ... it’s a great source of income for those builders.”A May 19 analysis from Redfin real estate firm shows Houston is one of the four major metros nationwide where buying a typical home is more affordable than renting one. The analysis cited a lower cost of living and lower property values compared to other cities.
“A lot of renters can buy, and a lot of renters should buy. ... Take the $2,500 they have [for] the first month’s rent and security deposit—that’s $5,000. ... That’s a down payment. But I think renters know how to rent, and they continue to rent because that’s what they’re comfortable with,” King said.
