Described as unprecedented, unbelievably competitive and explosive, the real estate market is being driven by historically low inventory, record-low interest rates, and skyrocketing lumber and building material costs, Realtors and homebuilders said.
“In almost 40 years of experience, I’ve never seen a market like this,” said Bill Lacy, mortgage production lead at financial institution Independent Financial. “There simply never has been a market like this, ever. It is just exploding.”
While this confluence of conditions is affecting the real estate market across the nation, Jeff Wiley, CEO of the Fort Bend Economic Development Council, said Fort Bend County has always been a desirable place to live due to its high-quality public schools, amenity-rich communities and pro-business attitude.
“In good economic conditions or bad, Fort Bend [County] will be a magnet for growth as long as we keep our competitive and comparative advantage nationally and regionally,” he said.
Low housing inventory
In Wiley’s 17 years at the FBEDC, he said he has never seen the county’s housing inventory levels this low.
Fort Bend County has had less than six months of housing inventory since October 2011, according to data from the Texas A&M University Texas Real Estate Research Center. Similarly, Harris County’s inventory has had four months or less of housing inventory since January 2015. The center describes six months of inventory as a stable market.
However, in May—the latest month with available data—the housing inventory reached 1.6 months in Harris County and 0.9 months in Fort Bend County, according to the center’s data. Mary Kiesewetter, a Realtor with Better Homes and Gardens Real Estate Gary Greene, said low inventory is the primary factor behind the state of the market.
“It is the driving factor because I have seen a couple fairly big booms where the market has become a big seller’s market, ... but nothing like this,” said Kiesewetter, who has been selling real estate in the greater Katy area for two decades.
Low interest rates and 30-year fixed-rate mortgages are driving the demand for housing—rates that have continued to trend downward since 1980, according to data from the Federal Home Loan Mortgage Corp., or Freddie Mac. Low existing inventory, combined with the rising costs of building materials, has caused homebuilders in the area to struggle to keep up with the demand for houses, said Rodney Howerton, an area president with K. Hovnanian Homes, which builds homes in the master-planned community Katy Pointe, which is north of Katy off of Clay Road.
“There’s a huge backlog of people waiting for their homes, and with such extreme demand, some builders are even canceling contracts with buyers because they just can’t keep up,” he said.
Rising home prices
As housing inventory started to decline and demand went up last year, home prices escalated, said Mike Roller, broker and owner of Roller Realty.
In Katy, the median sales price for homes is up $40,000, about 13.6%, from $295,000 in 2020 to $335,000 in 2021, according to data from houstonproperties.com. The pandemic and historically low interest rates played a clear role in the increasing demand, further increasing home prices, said Realtor Amy Lookabaugh, co-owner of Cinco Ranch Realty Group.
“For people who were anxious to get into a home with more space, something that had that home gym or the pool or home office that they were looking for, it became the perfect time,” she said. “Suddenly prices began to rise and rise, and still the market is not showing any signs of slowing down.”
Local real estate agents said another factor shaping the current market is the increasing number of out-of-state transplants moving to Texas. The state welcomed more than 537,000 new residents in 2019, according to the U.S. Census Bureau, marking the seventh year in a row it has attracted more than 500,000 new residents.
Kiesewetter said she has seen an influx of homebuyers wanting to move to Katy from other states, particularly California. Similarly, Keller Williams Realtor Pam Shockey cited her experience seeing four households moving to Fort Bend County for every one moving away from the area.
Out-of-state buyer Kayla Gregory began looking for a home in Katy remotely in May from Bellingham, Wash.—where most houses are selling for more than $500,000.
“I looked at 500 houses online and was feeling like we would never find the right one,” Gregory said.
She cited her husband’s job as their reason for relocating, adding Katy—much like other Texas suburbs—offers more space for less money than markets on the West Coast.
“Our house in Bellingham is 1,711 square feet and is pending for $606,000,” Gregory said. “Our new house in Katy is 3,600 square feet and $573,000. I’m looking forward to more space.”
Gregory, who ended up buying a new build in Cane Island, said she was attracted to the area because of its amenities.
Additionally, out-of-state buyers are often drawn to Texas, and Katy specifically, because of its relative affordability and desirable schools, Lookabaugh said.
“So many people are moving here for personal reasons, political reasons, anything you can imagine, and it’s a perfect scenario where you have all of those things at once,” she said. “It’s all contributing to the skyrocketing cost and demand for homes.”
The cost to build
The cost of both newly built and custom-built homes is also increasing, spurred by skyrocketing prices for building materials, which are pushed by labor shortages and more homeowners deciding to improve their existing home or move during the pandemic, experts said.
For K. Hovnanian Homes, home prices had typically increased about 3% per year in the past, Howerton said. But this year, the company has had to raise the prices of homes in some neighborhoods more dramatically to keep up with the increases in material costs—meaning the prices for some houses have risen 30%.
“A bigger house means more lumber, so with that cost rising, we have some neighborhoods where the homes are being sold for $100,000 more than what they were being sold for a year ago,” Howerton said. “It’s unprecedented.”
A Texas A&M University report on lumber and timber prices published in June showed the cost of lumber increased 250% year over year between May 2020 and May 2021. The building material cost increases are largely tied to labor shortages that have come about as a result of the coronavirus pandemic, Howerton said, since some companies were forced to lay off or furlough employees. That shortage of staff contributes to the delay in building and creates a backlog for buyers waiting for their homes, he said.
“A flooring company might be short on carpet or tile installers, for example, so builders have to wait or go elsewhere and possibly increase costs again,” he said.
Bricktown Custom Homes owner and Katy-area resident Steve Gandy said Houston’s competitive construction industry and undeveloped land made Houston a better place to build a home compared to other Texas cities. He said the Katy area in particular has taken advantage of those merits.
“This market is better than others. In Houston, we’ve got it down,” Gandy said. “We know how to produce houses, and we have land. In these other areas, like Dallas-Fort Worth, they’re scrambling to find land. They are just now starting to blossom out and starting to go further out, but we have been doing that. [The Katy area] is almost to Brookshire now.”
Gandy said the Houston area, however, has not been immune to the labor shortages being experienced across the country. Gandy said he predicts the labor shortages will continue to affect the building industry as homebuilders continue working to meet the increasing buyer demand.
“If they’re going from house to house to house, they’ll need more men,” he said. “Labor prices will start to escalate, so that is a way of coming into norm. It used to be really cheap to build in Texas, but it’s just not that way these days.”
Competitive market
The recent competition among homebuyers in Katy is unparalleled, Kiesewetter said. For example, Kiesewetter said she held two open houses for a home in Autumn Grove in Cinco Ranch soon after it was listed, and 32 parties attended the open house on the first day and 27 on the second.
“All of those people were out looking for houses, and like with any listing now, so many people were making offers far above the asking price,” she said. “There’s never been anything like it.”
Community Impact Newspaper analyzed real estate data from the Houston Association of Realtors for 10 recently sold homes in each of the six Katy-area ZIP codes. Of those 60 houses, 38 homes sold for above the asking price. Furthermore, eight homes sold for about $10,000 more than the asking price, and nine homes sold for at least $25,000 more.
Local Realtors said they often prepare their clients who are looking to buy a home that they might have to submit multiple offers before theirs is selected. This is true more so at lower price points than higher ones.
“We’re still in multiple-offer situations on nearly every home that comes on the market,” Lookabaugh said. “It’s been unbelievably competitive out there for buyers.”
As a mortgage originator, Lacy said he agreed with most area Realtors that the competitive conditions will likely soon lead to buyer fatigue.
“The frustrations clients are feeling is understandable,” he said. “The ups and downs they are going through is exhausting, and there’s no end in sight.”
Ultimately, it is an incredible market for people looking to sell, Lacy said. Residents can list their home, get dozens of offers within days and get tens of thousands of dollars more than what they asked for.
“But then you’re in the same position as everyone else, looking to buy and likely stuck trying,” he said.
Laura Aebi contributed to this report.
