Fitch: Texas Residential Market Overvaluation Risk Rising on Oil

NEW YORK--(BUSINESS WIRE)-- Texas homes are now overvalued by 10%-15% on average, Fitch Ratings says. For the last two years, home prices in the state's two largest cities, Houston and Dallas, grew faster than incomes. Smaller cities, such as Midland, also face risk from their economic dependence on natural resources and the decline in the price of oil.

Fitch's "U.S. RMBS Sustainable Home Price Report," published in February, indicated that Dallas became overvalued in 2014, while Houston began in 2013. Dallas and Houston have seen 42 and 54 months of consecutive price growth, respectively. And, over just the past two years, Dallas home prices grew 10%, outpacing income growth by 3.3%.

In some Texas cities, the risk of the overvaluation is amplified by the decline in energy prices. Since recovering in late January, the price of oil was mostly in the $30-$40 range. This pushed down drilling activity in Texas. The Baker Hughes rig count dropped to 227 in March, down 42% from 538 a year ago and down 75% from November 2014. While Fitch's Sustainable Home Price Model measures point in time valuation, any decline in income or increase in unemployment would diminish sustainable prices.

We see the potential for the biggest impact of the oil price decline in cities, such as Midland, where 40% of wages come directly from the natural resources industry. The risk is more muted in Houston where oil and gas make up only 10% of income. Dallas is well diversified around the private sector, outside of natural resources.

Fitch views current home price levels in most US regions as sustainable and supported by improving unemployment and income growth.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160405006646/en/

Fitch Ratings
Marc Gilbert
Associate Analyst
U.S. Structured Finance
+1 646 582-4810
33 Whitehall Street
New York, NY
or
Rob Rowan
Senior Director
Fitch Wire
+1 212 908-9159
or
Media Relations:
Sandro Scenga, New York, +1 212-908-0278
Email: [email protected]

Source: Fitch Ratings

You May Also Be Interested In

• Renk Group AG: Release according to Article 40 (1) of the WpHG (the German Securities Trading Act) with the objective of Europe-wide distribution
• European Energy A/S: Interim Report H1 2026
• LUX Announces First Anniversary Under Creative Capital Ownership With Exclusive Gianan Wine Collaboration