Texas Border Business
We are finally seeing some balance returning to the Texas housing market, although notable issues remain (particularly affordability and supply). Prices are flattening and even dropping in some areas, and houses are staying on the market considerably longer than a few years ago. However, the current situation is more a reflection of slowing economic growth than a massive correction, and some buyers are benefiting.
The housing market was dramatically affected by the pandemic, with a surge in demand for housing as people upsized to deal with work and school from home or to have more space during the disruption. Simultaneously, mortgage interest rates were historically low. Inventories fell, the market shifted dramatically toward sellers, and almost half of houses sold above list price in Texas and during summer months of 2021 and 2022 (with some far above due to bidding wars).
Recent statistics indicate that Texas is ahead of the nation in normalization of the housing cycle. Buyers who locked in rates below 3% during the pandemic have been somewhat stuck because mortgage interest now generally exceeds 6%, notably decreasing affordability. However, these effects have moderated to some extent. Listings are rising, and only about 11% of homes sold above list price last month.
Even with some calming, statewide median sale prices are only down 1% over the past year, though they have dropped significantly more in specific areas. That decline pales in comparison to the rapid escalation that occurred previously. In greater Austin, the pandemic boom was extreme, and the market has now moved into a correction phase, with sharply rising inventories and notable price declines. The Dallas-Fort Worth area market is cooling, but more stable than Austin, and the Houston and San Antonio areas are relatively normal.
Most houses are selling at some discount to list price after the negotiation process. That’s good news for buyers facing higher costs for insurance, taxes, and interest. Texas has long been known for housing affordability, but that is no longer universally true (although the situation in the state remains better than many competitive areas). About one-third of Texas households are paying in excess of 30% of income on housing; the situation is particularly difficult for renters (with over half spending at least 30%).
The housing market is essentially resetting after a historic bubble. In addition, current uncertainties such as the weakening economy and geopolitical conflict are putting a damper on purchase decisions. The higher cost of materials subject to tariffs and construction labor shortages from immigration policies have also slowed the pace of affordable inventory development. As long as the slide doesn’t become excessive and lengthy, it’s part of a necessary and normal adjustment after the frenzy of the past. Stay safe!
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Dr. M. Ray Perryman is President and Chief Executive Officer of The Perryman Group (www.perrymangroup.com), which has served the needs of over 3,000 clients over the past four decades.
