DALLAS – One of the country's top financial ratings firms is blowing the whistle on Texas' hot housing market.
Fitch Ratings warns that Texas has the most overvalued home prices in the country and that a correction may be coming thanks to falling oil prices.
"After largely skirting the excesses and downsides of the last housing boom, significant recent growth has made Fitch cautious on the Texas housing market," the New York-based financial analyst says in a just-released report. "Fundamentals do not appear supportive of current prices and the economy is vulnerable to the energy sector.
"Overall, Fitch views Texas prices as approximately 11 percent overvalued, with prices in Houston, Austin, and Dallas each growing by over 20 percent since 2011," Fitch said.
The ratings firm said that the Lone Star State has "vaulted past California and now has the housing markets deemed most overvalued."
Home sales prices in the Dallas-Fort Worth area this year are at record levels – more than 15 percent higher than at the peak of the market before the recent housing crash.
A lack of homes available for purchase coupled with North Texas' fast-growing economy has caused residential prices to jump by 7 percent in just the last year, data from real estate agents shows.
Economist Jim Gaines with the Real Estate Center at Texas A&M University said he's looked at Fitch's new Texas housing report and doesn't agree with the conclusions.
"I'm not buying the overvalued card right now," Gaines said. "Yes, prices have increased substantially for Texas markets – but only after being essentially flat for almost five years.
"Texas and the specific markets named, have experienced way above average growth in employment, incomes, and overall prosperity and it's reflected in home values increasing," he said.
Still, Fitch analysts are fretting that the recent plunge in oil prices and energy company profits could kick the legs out from under Texas' residential values.
"The economies in Texas are strong with economic growth outpacing that of national improvement, but these high home price levels may be unsustainable," Fitch director Stefan Hilts said in the report. "One concern is the recent drop in oil prices, long a primary economic driver of the Texas economy.
"A strong energy sector has propelled recent economic strength."
Despite its warning about overheated Texas home prices, Fitch's report recognizes the overall strength of the state's economy.
Texas has been leading the country in both job growth and population gains.
"Texas has an economic resiliency beyond energy that will help offset any significant downward movement in home prices for these markets over the next year," said Hilts.
Ted Wilson, a principal with Dallas-based housing analyst Residential Strategies, said that Fitch's concerns about the oil sector declines – at least for the Dallas-Fort Worth area – are overstated.
"Certainly markets like Midland would get hit much harder," Wilson said. "There would be some impact here, but certainly not devastating.
"With regard to housing values, the D-FW market has always been one of the most affordable markets in the nation," he said. "Yes, prices have gone up here some locally, but I wouldn't characterize the increase as overvalued presently. And certainly with the tight supply of inventory, we are not on the verge of any price collapse."
Texas home price gains have already cooled from late last year and early in 2014.
But the year-over-year gains in residential prices in the Dallas-Fort Worth area are still running about twice the long-term average rate and are higher than nationwide increases.
"Of course, recent decline in oil price and the energy sector could start putting some brakes on the rate of increase even further," Gaines said. "As such, we are expecting home prices to continue to increase in 2015, but a distinctly slower rate than the past couple of years."
During the recent recession when many metropolitan areas in California, Nevada and Florida lost 50 percent or more of their home values, Texas prices fell only slightly.
And the housing markets in Dallas, Houston, Austin and San Antonio were some of the first in the country to recover.
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