Texas has long been a popular destination for people looking to move because of its business-friendly environment, job growth, relative affordability, and lack of state income tax. This influx of new residents over the past decade has significantly impacted the Texas real estate market. As we move into 2023, there are some key factors shaping housing demand, prices, and what to expect this year across different cities and regions in the state.
Is the Housing Market in Texas Dropping?
After several years of booming home sales and rapid price appreciation, the Texas real estate market is showing signs of slowing down. Home sales dropped 13% in November 2022 compared to the previous year according to the Texas Real Estate Research Center. This dip in sales comes as mortgage rates have risen above 6% nationally, reducing buyer affordability.
However, prices are not dropping statewide yet. The median home price in Texas hit $355,000 in November 2022, up 12% from the previous year. This indicates there is still strong demand relative to limited supply. Builders have been unable to construct new homes fast enough to meet demand. With population growth projected to continue, especially in major metro areas, housing inventory will likely remain tight.
While prices are not falling dramatically so far, there are early signs of a cool-down. Homes are sitting on the market slightly longer before going under contract. Bidding wars are becoming less frequent and more intense. If mortgage rates remain high, price growth should continue moderating in 2023. But a full-on buyer's market with broad price cuts is not expected in most parts of Texas yet.
What is the Hottest Real Estate Market in Texas?
Austin continues to be the hottest real estate market in Texas by many measures. Home prices in the Austin-Round Rock metro area rose 17% in 2022. The median sales price reached $515,000, a record high. This rapid appreciation is pricing many first-time buyers out of the market despite Austin's relative affordability compared to other tech hubs like San Francisco and Seattle.
Demand heavily outweighs supply in the Austin market. Bidding wars remain common with homes selling above the asking price. Investors and second-home buyers are also very active in Austin. It's an attractive market for those looking to Airbnb or flip properties. With major companies like Tesla, Samsung, Meta, and Apple expanding in Austin, the influx of new residents is likely to sustain housing demand.
Outside of Austin, other Texas cities like Dallas, Houston, and San Antonio have also seen strong price growth and low inventory. But price hikes have been slightly more moderate in these areas. Cities dependent on the oil and gas industry like Midland and Odessa are now cooling off after a wild pandemic boom.
Overall, Austin remains the hottest seller's market in Texas by most measures. However, opportunities still exist for buyers in fast-growing and affordable suburbs surrounding the metro area.
Why is Real Estate so Low in Texas?
While Texas home prices have risen sharply in recent years, real estate in the state remains relatively affordable compared to other parts of the country. Here are some factors that contribute to lower real estate prices in Texas:
- Abundant land and few geographic constraints on building. Texas has vast amounts of open and developable land, especially in suburbs surrounding cities. This makes it easier to build new homes and keeps land prices in check.
- Business-friendly policies and lack of income tax. Texas promotes development through low regulations and taxes. This helps attract businesses and new residents. A lower cost of living and housing is part of the appeal.
- Lower costs for construction labor and materials. Building costs are generally lower in Texas than in coastal states because of lower union labor rates and less regulation. Texas also has an abundance of lumber and other building materials sourced locally.
- High property taxes offset other savings. While home prices may be lower, Texas has some of the highest effective property tax rates in the U.S. This increases the cost of homeownership. But overall, housing remains very affordable in Texas markets.
- Strong job growth and economic development. Texas has seen rapid job creation in recent years, especially in major metros. This brings more buyers into the market and more construction. A pro-business environment also attracts companies and residents from more expensive states.
So while prices are rising quickly, the fundamentals of ample land, lower building costs, lack of income tax, and a strong economy will likely keep Texas housing more affordable than many other states for the foreseeable future.
Is it a Good Idea to Buy a House in Texas?
For many homebuyers, Texas remains an attractive place to purchase real estate despite rapid price growth in recent years. Here are reasons it can still make sense to buy a house in Texas:
- Job growth and immigration should sustain housing demand. Texas has added over 4 million new residents since 2010. Major employers continue relocating and expanding operations in cities like Austin, Dallas, and Houston. This organic population and job growth will help support housing needs long-term.
- No state income tax. The lack of income tax reduces the overall cost of living in Texas. It keeps more money in homebuyer’s pockets, providing more disposable income for mortgage payments.
- Relatively affordable housing markets. Outside of Austin, home prices in Texas remain below national averages. There are still affordable options for first-time homebuyers in Dallas, San Antonio, Houston, and their surrounding suburbs.
- Better value for housing dollars than crowded coastal cities. Texas metros offer lower home prices per square foot compared to densely populated cities like Los Angeles and New York City. Homebuyers get more houses for their money.
- Retirement-friendly destinations with active lifestyles. Low or no income tax, warmer climate, and business-friendly environment make Texas appealing for retirees looking to relocate. Healthy job markets also attract younger remote workers.
The key is finding the right opportunity at a price you can manage. Buying in overheated markets like central Austin is riskier. But getting in on an emerging suburb before prices escalate can provide long-term value. Talk to a local real estate agent to identify neighborhoods with growth potential.
Is Texas a Good State for Real Estate Investing?
Between surging home values, strong rental demand, and relatively high yields, Texas has emerged as one of the best states for real estate investing. Here's a look at why Texas can be a smart market to buy investment property:
- Home price and rent growth exceed national averages. Texas has seen some of the strongest home appreciation and fastest-rising rents nationwide over the past decade. This provides an opportunity for equity gains and cash flow growth.
- Increased demand from a growing population. Texas has added over 4 million new residents since 2010. This organic population growth increases demand for both owner-occupied and investment properties.
- No state income tax results in better yields. The lack of state income tax allows investors to keep more rental income. Property taxes are higher, but overall yields in Texas can be 100-200 basis points higher than in other states.
- Strong job growth in major metros. Ongoing job creation and relocations to cities like Dallas, Austin, and San Antonio drive rental demand. Tech and energy hubs attract younger renters.
- High property turnover. Many military families and oil industry workers tend to move more frequently to Texas. This provides options to raise rents and optimize returns between tenants.
- Strong eviction protections for landlords. Texas laws favor property owners in eviction disputes. This helps mitigate risks when tenants fail to pay rent.
Focus on fast-growing cities like Austin that provide both appreciation and cash flow. Be cautious about buying in neighborhoods dependent on energy sector employment. Consult local experts to identify emerging investment hot spots before the secret gets out.
Will Home Prices Drop in Texas in 2023?
As the Federal Reserve continues hiking interest rates to fight inflation, the rapid home price appreciation Texas has seen over the past few years is expected to slow down. However, experts do not predict an across-the-board drop in home values statewide this year. Here is the 2023 housing market outlook for Texas:
- Price growth will moderate but remain positive. Most analysts forecast single-digit price gains between 5-8% in 2023, down from over 15% in 2022. Low supply and ongoing demand will prevent full-on price declines.
- Sales activity will cool further. Higher mortgage rates are reducing buying power and sidelining some prospective buyers. Home sales are projected to drop 15-20% in 2023. Bidding wars and homes selling rapidly over the asking price will fade.
- Inventory will gradually increase. As sales slow down, the market is expected to shift away from the severe inventory shortage of the past two years. More homes actively listed for sale will provide buyers more options.
- Investors may pull back. With less competition from first-time buyers, investor purchases are forecast to decrease. But they'll likely continue scooping up properties in growing metro areas.
Overall, Texas' housing slowdown should be moderate and gradual rather than a painful market crash. Sellers will need to price homes appropriately and buy cautiously, but statewide home values are not expected to sink in 2023 amid ongoing population growth.
Is Texas Still Worth Moving to? Pros and Cons
Texas remains a popular destination, attracting around 500,000 new residents annually. But is it still worth packing up your life and moving to the Lone Star State? Here are the current pros and cons to weigh:
Pros:
- No state income tax and low overall tax burden
- Broad job growth across multiple industries
- Lower cost of living and real estate prices (outside central Austin)
- Business-friendly environment with less regulation
- Central location with direct flights across the country
- Warm climate and plenty of open space
Cons:
- Blistering summer heat and humidity
- Rapid population growth straining infrastructure like roads and schools
- Hurricanes and storms can impact Gulf Coast cities
- Higher property taxes offset no income tax
- Tight housing supply and inflated prices in Austin
- Controversial political environment in some cities
New residents need to choose locations carefully to maximize benefits. Moving to a sprawling suburb with a reasonable commute can provide affordable housing and quality of life. Just brace for oppressive heat waves in the summer! Overall Texas remains attractive for those looking for low taxes, jobs, and relatively affordable housing.
Is it Worth Buying Investment Property in Texas?
Between surging home values, strong rental demand, and relatively high yields, Texas has emerged as one of the best states for real estate investing. Here's a look at why Texas can be a smart market to buy investment property:
- Home price and rent growth exceed national averages. Texas has seen some of the strongest home appreciation and fastest-rising rents nationwide over the past decade. This provides an opportunity for equity gains and cash flow growth.
- Increased demand from a growing population. Texas has added over 4 million new residents since 2010. This organic population growth increases demand for both owner-occupied and investment properties.
- No state income tax results in better yields. The lack of state income tax allows investors to keep more rental income. Property taxes are higher, but overall yields in Texas can be 100-200 basis points higher than in other states.
- Strong job growth in major metros. Ongoing job creation and relocations to cities like Dallas, Austin, and San Antonio drive rental demand. Tech and energy hubs attract younger renters.
- High property turnover. Many military families and oil industry workers tend to move more frequently to Texas. This provides options to raise rents and optimize returns between tenants.
- Strong eviction protections for landlords. Texas laws favor property owners in eviction disputes. This helps mitigate risks when tenants fail to pay rent.
Focus on fast-growing cities like Austin that provide both appreciation and cash flow. Be cautious about buying in neighborhoods dependent on energy sector employment. Consult local experts to identify emerging investment hot spots before the secret gets out.
What is the Best State to Buy a Home in?
The best state to buy a home depends on your budget, lifestyle needs, job market, and whether you prioritize affordability, schools, amenities, or low taxes. Here are the top states to consider for homebuyers in 2023:
Affordability: Texas, Georgia, North Carolina, Florida, Tennessee, Ohio These states offer relatively low home prices coupled with strong job markets in major metros. Texas and Florida have no income tax.
Appreciation Potential: Idaho, Arizona, Florida, Tennessee, Texas
Fast-growing states like Idaho, Tennessee, and Arizona offer upside for long-term home values, but with more limited job markets.
Low Taxes: Texas, Florida, Tennessee, Washington, Wyoming States like Texas, Tennessee, and Florida offer no income tax and generally low overall tax burden. Property taxes may be higher.
Top Public Schools: Massachusetts, New Jersey, Connecticut, Virginia, New Hampshire These states generally have the highest-ranked public schools if education is your priority. But home prices reflect that.
Job Market: Texas, California, Florida, North Carolina, Colorado, Washington, Arizona Major metros in these states offer abundant jobs across tech, finance, healthcare, and other sectors. Competition is high for workers.
Ultimately, identify your must-have criteria, from schools to amenities to affordability, and find states that align with your goals. Weigh the pros and cons of buying in up-and-coming secondary markets that meet your needs versus established, competitive cities.
Is Texas a Good Place to Be a Landlord?
Between surging rental demand, high yields, and landlord-friendly laws, Texas has become one of the best states to own rental property. Here's a look at the advantages for landlords in Texas:
- Strong tenant demand in growing metros. Major cities like Austin, Dallas, Houston, and San Antonio have seen substantial rent growth and quick turnover between tenants.
- High rental yields compared to other states. Lack of income tax and relatively affordable home prices allow investors to secure properties with strong cap rates and cash flow.
- Lower taxes than many states. No income tax enables landlords to keep more of their rental income. Property taxes are higher, but the overall tax burden remains low.
- Tenant-friendly laws favor landlords. Texas policies make it easier to evict non-paying tenants and charge application fees/deposits to limit risks.
- New residents and job growth fuel rental demand. The ongoing influx of new residents from other states increases the tenant pool. Employers expanding adds more renters.
- No rent control. Unlike California and Oregon, Texas does not limit how much landlords can raise rents year over year. Provides flexibility to increase rents.
- A warmer climate enables year-round leasing. Mild winters make Texas an easier climate to maintain consistent occupancy and cash flow year-round.
Texas does have challenges like property taxes and insurance costs that landlords must account for. Overall, major Texas metros provide perhaps the nation's best balance of high rental yields, strong demand, and favorable laws for investment property owners.
Is Building a House Cheaper Than Buying in Texas?
As home prices soar across Texas, more homebuyers are exploring whether building a new home could be cheaper than buying an existing house. Here's a look at the cost comparison:
- Land acquisition is cheaper. You can buy vacant land for new construction in suburban subdivisions much lower than comparable resale home lots.
- Input costs are rising quickly. Construction materials, labor, and development fees have all risen substantially in 2022, shrinking new build cost advantages.
- More control over finishes and layout. You can customize it to suit your needs more efficiently versus buying a house requiring renovation.
- The speed of construction varies. Supply chain and labor shortages can extend build timelines significantly, so account for potentially longer wait.
- Incentives are available for new builds. Some metro areas and developments offer property tax breaks, covered closing costs, and other perks to attract buyers.
Overall, building a 2,000 square foot home can still pencil out 5-10% cheaper than buying a comparable resale in many Texas markets, but run the numbers carefully. Weigh benefits like customization against risks like rising costs/delays. Investigate all options before deciding.
How Much Does it Cost to Build a 3,000 Sq Ft House in Texas?
Construction costs can vary across Texas, but here is an approximate cost estimate to build a 3,000-square-foot single-family house as of 2023:
Land acquisition: $75,000 - $150,000
Permits/fees: $7,000 - $12,000
Architecture/design: $15,000 - $40,000
Site work: $15,000 - $30,000
Foundation: $25,000 - $50,000
Framing labor + materials: $50,000 - $75,000
Exterior finish: $40,000 - $80,000
Roofing: $20,000 - $40,000
Plumbing: $25,000 - $40,000
HVAC: $15,000 - $25,000
Electrical: $15,000 - $25,000
Drywall: $15,000 - $25,000
Interior finish: $60,000 - $120,000
Appliances/equipment: $20,000 - $40,000
Total turnkey cost: $400,000 - $750,000+
With current lumber prices and labor shortages, new construction costs in Texas for a 3,000 sq ft home likely start around $400,000 up to $750,000+ depending on location, finishes, size of the lot, and other factors. Get quotes from multiple builders to compare.
Why Are Houses in Texas So Expensive Now?
Several factors have aligned to drive up home values across Texas over the past few years:
- Strong population growth. Texas has added over 4 million new residents since 2010, rapidly increasing housing demand.
- Low housing supply. Homebuilders have struggled to deliver enough new construction to keep up with population growth. This inventory shortage drives bidding wars.
- Record low mortgage rates. Until mid-2022, historically low-interest rates expanded buyer purchasing power and enabled more bidding. Rates have risen since.
- Investor purchases. Deep-pocketed investors buying properties to flip or rent out have added competition.
- Work-from-home flexibility. The pandemic enabled more remote work and inspired relocations from pricier states like California.
- Strong job growth. Major Texas metros have added jobs at a rapid clip, bringing more high-earning workers into housing markets.
While prices have surged statewide, growth has been most pronounced in Central Texas. The median home price in the Austin metro hit $515,000 in late 2022, a 17% annual increase.
Are Houses in Texas Cheaper Than Florida?
Texas and Florida are both popular destinations for people relocating from higher-cost states. But how do home prices compare between the two Sun Belt markets? Here's an overview:
- Florida median home price is higher. As of late 2022, the median existing home sale price in Florida was $379,000 compared to $355,000 in Texas statewide.
- Coastal Florida cities cost more than Texas metros. Miami, Naples, and Key West all have significantly higher home prices than Dallas, Austin, or Houston.
- Inland Florida cities can be comparable or cheaper. Places like Orlando, Tampa, and Jacksonville have more similar home prices to the larger Texas cities.
- Texas suburban homes are cheaper. Suburbs around cities like Dallas and Houston generally offer lower prices per square foot than suburbs in South Florida.
- Florida condos cost more. Waterfront condos and retirement communities lift Florida's condo/townhome prices above Texas.
- Taxes vary. Texas has no income tax but higher property taxes. Florida has no income tax and more consistent property taxes.
Overall Texas offers more affordable single-family homes than coastal Florida, but similar options to inland Florida metros. Apartments and condos cost more in popular Florida retirement areas. Carefully compare locations that meet your criteria.
Are Houses in Texas Cheaper Than California?
The median home price in California is now over $800,000 statewide, more than double the $355,000 median cost in Texas. Here is how home prices compare between the two states:
- Texas metro home prices are 50-60% cheaper. A $700,000 home in a city like Austin or Houston would cost $1.5 million+ in most California cities.
- Mid-range Texas home prices equal low-end California homes. A $300,000 house in Texas buys a dated starter home in California.
- Rental prices are 40-60% less expensive in Texas. Rents for comparable apartments are nearly half the cost in Texas compared to California.
- Texas offers relatively more land and larger homes. Buyers looking for space get more houses and property for the money.
- Property taxes are lower in California. Texas has high property taxes which narrow the overall ownership cost gap slightly.
- California's incomes are higher. Higher-paying jobs help offset the steep housing costs in California for some residents. But prices remain out of reach for many workers.
In terms of sheer housing costs, Texas remains much more affordable than California - especially for larger single-family homes. Carefully compare ownership costs like taxes, insurance, and utilities at locations you're considering.
The Texas real estate market has seen rapid home price appreciation and strong demand over the past decade, especially in major metros like Austin. While the market is moderating slightly, experts expect home values will continue rising in 2023, just at a slower pace.
For buyers, Texas remains relatively affordable compared to other states. There are still opportunities to find value, but being prudent is key as the market shifts. For investors, ample population and job growth should support rental demand. But focus on cities with diversified economies, not just oil and gas.
While Texas' housing market is not as frenzied as it was in recent years, tailwinds like no state income tax, business-friendly policies, and ongoing migration from pricier states should keep real estate here an attractive long-term investment. Just brace for the heat!
