What Rising Oil Prices and Global Uncertainty Mean for Houston Homebuyers Right Now

A Lot Is Happening in the Economy Right Now and Houston Buyers Need to Pay Attention

The economic backdrop for homebuyers has shifted meaningfully over the past several weeks and understanding what is driving that shift is the first step toward making smart decisions in the current environment. From oil prices to inflation data to the Houston housing market itself there are several developments worth understanding clearly before you decide whether to move forward with a purchase or sit on the sidelines waiting for conditions to improve.

The Strait of Hormuz and What It Means for Inflation

The most significant economic development affecting the near-term outlook for interest rates and affordability is what is happening in the Persian Gulf. The Strait of Hormuz, the narrow waterway through which over 20 percent of the world's oil supply passes, has been effectively blocked with Iran preventing ships from moving through. The result has been a dramatic surge in oil prices with West Texas Intermediate crude climbing more than 50 percent from mid-February levels.

The inflationary effect of that kind of oil price movement is broad and unavoidable. Energy costs are embedded in virtually everything consumers buy. Products need to be transported to stores. Raw materials require energy to produce. Manufacturing processes rely on fuel and chemicals. When energy prices spike those costs work their way through the entire supply chain and eventually show up in the consumer and producer price indexes.

As Rich at Habayit Home Loans explains the timing of when those readings arrive matters significantly for the interest rate outlook. The Consumer Price Index and Producer Price Index are twelve-month trailing averages which means that significantly elevated inflation readings arriving in April and May will keep the measured inflation rate higher for a full year even if the underlying pressures begin to ease. That sustained elevated reading gives the Federal Reserve every reason to hold rates where they are and very little reason to cut them.

The Federal Reserve and What Comes Next

The European Central Bank has already flagged the possibility of up to three rate hikes this year in response to inflationary pressures. While the Fed and the ECB are separate institutions operating in different economies the signal from Europe reinforces the picture of a global central banking environment that is not in a position to ease monetary policy aggressively in the near term.

One notable development on the domestic side is the upcoming leadership change at the Federal Reserve. Jerome Powell's term concludes in May and President Trump will have the opportunity to appoint a new chair. Current reports suggest the incoming chair is likely to take a more aggressive stance on inflation and may be more inclined to cut rates than the current leadership has been. Whether that shift produces meaningful rate relief for borrowers in the near term remains to be seen but it is a development worth monitoring.

What the Jobs Picture Is Actually Showing

The employment data coming out of multiple sources is telling a somewhat conflicting but ultimately cautionary story. Initial jobless claims rose noticeably in recent reporting periods. ADP employment data showed private employers adding roughly ten thousand jobs per week over the four weeks ending March 7th. But the Bureau of Labor Statistics report showed 92,000 job losses over the same general period.

The discrepancy matters and the direction it tends to resolve is worth understanding. The Bureau of Labor Statistics report is historically optimistic at the time of initial release and retroactive revisions almost always show that the job losses were larger than initially reported. The net picture points toward a labor market that is softer than the headline numbers suggest and that softness has its own implications for consumer spending and housing demand going forward.

What Is Actually Happening in the Houston Housing Market

Despite the broader economic headwinds the Houston housing market is holding up better than many markets across the country. February data showed a 3.3 percent decline in unit sales compared to the prior year but dollar volume was only down 1.7 percent, a meaningful distinction that indicates property values are not declining even as transaction volume has eased slightly.

Ted C. Jones, chief economist of HAR, has been clear in his assessment that the Houston market bottomed out years ago and has returned to normal levels. For buyers who have been waiting for a more significant correction that framing is important. The bottom has already passed.

The one segment of the Houston market showing genuine softness is the $250,000 to $500,000 range where sales volume is down nearly ten percent. The half-million to one-million-dollar segment is essentially flat. Above one million and below $250,000 the market is seeing stronger activity driven by investor participation and purchases from buyers with the financial capacity to operate outside the financing-dependent middle market.

What This Means for Buyers in the $250,000 to $500,000 Range

The softness in the middle segment of the Houston market is actually meaningful good news for buyers who are shopping in that price range right now. As Rich at Habayit Home Loans points out the slowdown in that segment translates directly into negotiating room that simply does not exist in stronger parts of the market. Sellers who have been sitting without strong offer activity are more open to concessions, credits, and terms that make a purchase work better for the buyer.

That negotiating advantage exists right now. It may not exist indefinitely as market conditions continue to evolve and as the post-Rodeo seasonal pickup brings more buyer activity back into the market. Rich has tracked inquiry volume since 2016 and found that new buyer inquiries during Houston Rodeo run approximately 90 percent below the rest of the year. With Rodeo now over that seasonal adjustment is already underway and buyer activity is expected to increase in the weeks ahead.

Why Waiting for Lower Rates May Not Be the Right Strategy

Current mortgage rates, while higher than the pandemic-era lows that many buyers remember, remain well below the 51-year historical average. Texas property tax relief passed by the state government has further improved affordability relative to prior years. The combination of those two factors means that buying conditions, while not as favorable as the record lows of 2020 and 2021, are still reasonable by long-term historical standards.

For buyers who are outgrowing their current housing situation, whether that means a growing family that needs more space or an empty nester whose home has become more than they need, waiting for rates to return to pandemic-era levels is a strategy that carries its own costs. Every month of waiting is a month of not building equity, a month of potential price appreciation in the market, and a month of living in a housing situation that no longer fits.

The negotiating room that exists in the $250,000 to $500,000 Houston market right now is a present-day opportunity that may not be available by the time rates move meaningfully in the direction buyers are hoping for.

Reach out to Rich at Habayit Home Loans at 281-841-1723 or visit habayithomeloans.com to talk through what the current market means for your specific situation and what your options look like right now.

Sources

HoustonAssociationofRealtors.com FederalReserve.gov EnergyInformationAdministration.gov MortgageNewsDaily.com BureauofLaborStatistics.gov