Home sales continue to weaken, but demand remains good by historical standards. Contacts say slowing sales is partly the result of tighter lending standards, and cancellations are up sharply. In some instances potential buyers were unable to sell their existing home in another state, such as California or Florida. Inventories are rising for both homes and building lots. While existing home inventories are moderate by historical standards, there is a sizeable supply of new homes, particularly in the Dallas, Fort Worth and Austin areas. Builders are significantly curbing home starts, as the glut of new home inventory is pushing down prices and increasing incentives.
Apartment demand has been unexpectedly sluggish, particularly in Houston and Dallas. Rents are unchanged or up slightly in most markets, with the notable exception of Austin, where occupancy rates are high and rents rising. A significant amount of new construction is underway in most metropolitan areas, and the leasing environment is expected to become more competitive, with even the Austin market expected to soften.
Office leasing slowed over the past six weeks, although rents are still rising. Contacts remain optimistic but note a lot of speculative projects are coming online that may cause occupancy and rental rate increases to level off. Construction of a speculative Class A office building is being considered in Houston. Dallas contacts say investment activity is very aggressive, but investors are expected to pull back if rental growth does not accelerate.
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