Housing costs are on the rise in the Lone Star State

Texans are having trouble finding affordable housing in recent years, despite the region having a historic reputation of being a low-cost state.

Average single-family home prices in the City of Fort Worth have risen from $188,536 in 2018 to $318,653 in 2023, according to the Tarrant Appraisal District. These trends extend to the rest of the state and have caused home buyers as well as renters obstacles when finding affordable housing in Texas.

Laila Assani, a senior business analyst from the Federal Reserve Bank of Dallas, said that housing prices normally increase between 3%-5% each year along with an average inflation rate of 2%.

However, current inflation rates are averaging at 3.2%, according to US Inflation Calculator.

Additionally, major cities like Austin reported an average 30% increase in home prices as of Q3 2021. Dallas, San Antonio and Fort Worth followed with an average 21% spike during the same period, according to the Federal Reserve Bank of Dallas.

Source: Federal Reserve Bank of Dallas
Source: Federal Reserve Bank of Dallas

Supply and demand

A reported 10,000 people move to Texas daily, said Marcus Phipps, the Texas REALTORS 2023 chairman of the board.

With so many people moving to the state, there are not enough homes being built or available to accommodate the rise in popularity.

The Great Recession of 2008 decreased the rate at which homes are built in the U.S., said Dr. Daniel Oney, the research director at the Texas Real Estate Research Center at Texas A&M University.

Prior to 2008, 4.5% of the nation's economy was spent on constructing homes, as opposed to only 3.5% now, Oney said. This equals out to 500,000 fewer homes being built each year in the U.S. despite a population that continues to rise.

California and New York are sending the most people to Texas, along with Illinois and many other Midwestern states.

Buyers originating from California and New York in particular pose challenges to most other buyers as they typically come with more capital due to where they originate from, Assani said. This edge allows them to outbid other buyers as well as pay in cash, which can be a more appealing offer for sellers.

The COVID-19 Federal stimulus packages also gave people across the country enough funds to move and afford larger mortgages, causing higher bidding on homes, Oney said.

These trends have disrupted the lives of many lower and middle-class individuals and families, said Robyn Heathcock, a broker associate at Keller Williams Realty. The current market has forced out many people of these social classes and put-up barriers to purchasing and listing a “‘move up’ home.”

Storm clouds and snowfall are seen over the San Gabriel mountain range behind downtown Los Angeles on Sunday, Feb. 26, 2023. (AP Photo/Richard Vogel)

The Hoboken, N.J., waterfront, with New York City in the background, is shown on Wednesday, Oct. 25, 2023, on the day that two major flood control projects that were designed after Superstorm Sandy got under way. (AP Photo/Wayne Parry)

Texas compared to the U.S.

When comparing the state to the rest of the nation, average home prices still tend to fall below the national average.

In 2020, homes in the state averaged around $266,000. Now, Texas real estate is averaging around $340,000, Phipps said.

In contrast, the nationwide average home price is still higher at $431,000 as of Q3 2023, according to the Federal Reserve Bank of St. Louis.

In addition, when looking at how homeowners spend their wages on housing costs, Texas is substantially lower than other regions, Oney said.

A way to determine housing affordability in a region is by dividing the median prices of homes in the state by the median household income. Economists say that the result should be around three in order to be considered affordable. This means that the cost of a home is three times the median household income, Oney said.

Currently, Texas is around four, while other states like California and New York hover around eight to 10, Oney said.

Source: Federal Reserve Bank of St. Louis
Source: Federal Reserve Bank of St. Louis

Construction costs

The supply chain disturbances caused by COVID-19 also affected the housing market through inflated construction costs, said Assani.

It has been reported that resources like steel, piping and bricks, along with many others, have seen a rise in costs. This directly causes the prices of the homes made within recent years to be higher as well.

Also, contractors could not keep up with the demand seen in 2020 due to the high volume of requests as well as smaller crews due to workers quarantining from exposure to the virus.

In addition, wages have also increased for those working in the construction industry, resulting in more expenses the contractor needs to tack onto the price of the home.

In this Oct. 17, 2008 file photo, a construction worker frames a new home in a subdivision in Carrollton, Texas. The Commerce Department said Thursday, Jan. 22, 2009, that new home construction plunged 15.5 percent to an all-time low last month. (AP Photo/LM Otero, file)

Challenges for renters and buyers

A hurdle renters have to overcome is a disparity between monthly income and monthly housing costs, according to the Texas Comptroller's Office.

It is reported that 26.4% of Texans are spending 30% or more of their monthly income on housing expenses alone.

In addition, in order to affordably rent a property at the state median price of $956 per month, residents need to earn $38,234 per year, which is $18.38 per hour. However, the state average hourly income is $17.89 per hour, causing additional roadblocks for many.

On the other hand, buyers need to take into account the nearly 29% increase in state-wide average home prices, high property taxes and high mortgage interest rates.

In 2020-2021, mortgage interest rates were reported to be around 2%-3%. Now, rates are hovering around 7%, making it harder for buyers to afford the mortgages they need, Phipps said.

Additionally, Texas has the sixth highest property tax rate in the country at an average of 1.66%, according to the Texas Comptroller's Office. This increases the monthly expenses Texans are needing to pay and decreases affordability.

Eric Kelley, a recent homebuyer in Fort Worth, mentioned that while looking to purchase a home, he had to compete with large investment firms that were trying to buy properties in bulk.

In contrast, the decision made along with his wife was less a financial investment and more an emotional investment since they will be living in the home for a long period of time.

The decision to purchase a home was made after being tired of living in an apartment that raised his rent by $500 during his residency while also dealing with the chaos of his neighbors close by.

The downside for Kelley when owning a home is the responsibility to pay for repairs on the property as well as insurance and taxes.

A sign in a subdivision shows newly built D.R. Horton houses for sale in a Fort Worth, Texas file photo from Nov. 14, 2006. D.R. Horton Inc., one of the nation's largest homebuilders, said fiscal first-quarter sales orders fell 28 percent year-over-year, dampening sentiment that the housing sector may be getting over its troubles. (AP Photo/Donna McWilliam, File)

Bills and legislation to bring costs down

In a state-wide election that took place in November 2023, officials in Austin introduced Proposition 4.

The newly approved piece of legislation is intended to provide tax aid for people across the state, with individuals expected to receive an average of $1,300 in property tax relief each year, said Phipps.

Also, in order to speed up home construction times, HB 14 was passed to allow for third-party inspectors to survey homes if state or local inspectors cannot do so in a timely manner.

The Federal Reserve is also attempting to alleviate pressure on the market by reducing the federal interest rates, which in turn could reduce mortgage rates, Heathcock said.