Texas Housing Market 2022

According to the latest housing market report from Redfin, from July, home prices in Texas rose 11.9% YoY. Home sales slumped 18.4% while the number of homes for sale went in the opposite direction, rising 18.7%.

The price of a home for sale across the state rose 11.9% to $371,900 over the last 12 months. The first half of 2021 and 2022 were marked by strong price growth. With the coming of higher interest and mortgage rates however, demand for Texas homes is dropping.

A drought in home sales however does not correlate to a drop in demand for rental housing in the state.  As the charts and data below reveal, Texas is increasingly seen in the eyes of buyers, investors and renters as a place of growth and opportunity.

Demand for Texas Property as High as Anywhere

Home builders in the Lone Star State did try to keep up to demand in Austin, Dallas, Arlington, Irving, Plano, Fort Worth, San Antonio, Houston, Lubbock, Corpus Christi, Laredo, and El Paso.  Investors are still enjoying a growing volume of homes for sale.

“People are continuing to move here, so there’s no reason to not think that all of our major metros in Texas as a whole still have that same underlying upward trend.” — said Adam Perdue, a research economist at Texas A&M University’s TRERC.

Demographics, taxation, pandemic flight, oil revenue, technology, inviting climate and city character have driven the push to Texas.  Will the US President’s open border crisis, carbon taxes, EV emphasis, and oil drilling prohibition shake homebuyer’s belief in oil rich Texas? Or will those factors actually drive Texas to higher heights?

Will the exodus from tax heavy California cease?  Even with oil prices declining, it may be a perfect storm to support real estate values and rental investment opportunity in Texas. And with interest rates rising, will even more Texans be pushed into an undersupplied market?

Is More Economic Diversification in Texas‘ Future?

The Democrat’s anti-oil measures are already causing some pain, yet global demand for oil and energy products and processing remains strong. The price of oil remains in the $85 range and natural gas is seeing surging demand. Exports to Europe will grow as supply dries up across the Atlantic.

Overall, the State’s oil revenues are predicted to grow even with oil lease production suppressed.  This should strengthen the case for property investors and property management companies.

Global Oil demand next 5 years. Screenshot courtesy of Statista.

Oil rig counts may plummet yet Dallas, Fort Worth, San Antonio, Plano, Houston, and Austin should enjoy steady growth.  The drawdown in oil revenue will encourage Texas to focus on tourism and technology to give the state greater strength in future. The rising tech center of Austin in particular is in intense demand from buyers and renters, and is a big center for property management.

Sales Slows as Inventory Improves

According to the Texas Real Estate Research Center, active listings are up 49.5% in Q@ 2022, and months of inventory has grown from 1.3 to 2.1 over the last 12 months.

More property investors are investing far from where they live, so you can bet plenty of investors are eyeing properties in Dallas, Austin, Houston, San Antonio, Fort Worth and along the coast.

Texas home price chart. Screenshot courtesy of the Dallas Fed.

LifeStyle is a Big Factor

The weather in Texas is dry and warm, which draws similarities to California but is perhaps more comfortable than Florida. And since Texas has a lower cost of living, it’s comfortable financially too. Some of the cities have charm and character (San Antonio and Austin) and this is no minor factor in why companies wish to come here, and tech workers too. They often prefer Austin.

Austin Texas

Austin, located in hilly countryside near the Colorado River offers ideal recreational opportunities making it an easy transition for tech workers from the Bay area of California.

“We looked at New Jersey, Atlanta and various other places, including Dallas, on the shortlist. When it came to Austin it was like a romantic feeling, like this is our place. We love the quirkiness of it. We love the kind of friendliness,” said Co-founder Darina Garland. — from report on Kvue.com

Employment in Texas

The most recent jobs report shows unemployment remaining at record lows, and jobless claims under expectations. The employment picture bolstered by a strong energy sector gives rental investors more confidence in buying rental properties here. This chart below shows the relentless rise of employment through the years. The influx of illegal aliens only means more demand for rental properties and an even larger Texas economy in the decades ahead.

Screenshot courtesy of the Dallas Fed.

Why Invest in Texas Rental Property?

1. no income tax in Texas
2. landlord friendly environment – law is on the side of property owners and investors
3. strong economic growth- Dallas Fed’s Texas employment forecast predicts 2021 growth of 6.6%
4. recession proof cities
5. strong influx of new residents – the state crossed the 29 million resident market for a gain of 4 million residents, or 16%, in the past decade (2 million new residents are Hispanic).
6. key mega-sized tech companies moving to Texas (Tesla, Samsung, Oracle, Google) and 45 other companies are relocating here
7. plenty of smaller sizes cities where work from home renters are moving to where single detached family homes are being built
8. 70,000+ homes listed for sales

Perhaps surprising is the fast growth of IT jobs in Texas during Q2, 2022, almost 4% higher then oil & gas which has enjoyed a boom period of revenue growth.  However, in the last few months, IT has begun to lag while the energy sector surges.  Leisure, hospitality and construction also reflect a destination of choice for millions.

Texas Service and Retail Sector Growth. Screenshot courtesy of dallasfed.org

Speculative Investment Will Help

Of course, any speculative investment in Texas‘ housing market will raise prices. And speculative investment is also the oil that lubricates new housing solutions. Investors will ensure rental housing gets built whether single family houses or multifamily units. Texas is blessed with more land than cities such as San Francisco, Los Angeles, Seattle, Miami, or San Diego and this helps paint a brighter forecast for 2023.

Will the trends continue to create endless rental property income potential and high rental yields? Let’s take a look at the possibilities.

Rent Prices in Texas

As this chart courtesy of Zumper shows, 10 large Texas cities are in the top 100 highest rent ranks which indicates strong demand for rentals. Laredo posted the largest month to month gain in rent price while Arlington has risen the most over the last 12 months. As the pandemic eases, we would expect demand for one bedroom and two bedroom apartments to return, and with that prices should rise in TX cities.

AAOA conducted their list of top single family rental yields and Wichita Fall, TX, Lubbock TX, and Austin-Round Rock, TX were at the top of the list.

Rent Yields (Gross Rent Multipliers in Select Texas Cities)

Texas may not have the highest GRM’s in the nation but  cities are in the top 100 nationwide.  Texas home prices are still more affordable than homes in New Jersey, Boston, New York, San Diego, San Francisco, Los Angeles, or Seattle. This info chart below shows the GRM for Texas cities (courtesy of Zillow).

The Texas housing market remains a viable one for rental investors.  Do your due diligence to discover great properties that will produce solid leads. Other cities across the US may not offer the kinds of returns available in Texas, yet the Texas economy

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