The Texas real estate market has served as the national housing industry's poster child. Thanks, in large part, to a thriving economy complemented by relatively affordable housing, real estate in Texas set the pace for the country’s historical recovery after the Great Recession. In doing so, the Lone Star State leveraged its strengthening economy, attractive business environment, and bustling cities into a unique investment opportunity.
However, it is worth noting that while the pandemic may have set the Texas real estate market back in the first quarter of 2020, the wake it created may have actually created more opportunities for buyers and sellers. In particular, moves initiated by the federal government spurred more activity on both sides of recent transactions. The resulting activity bodes well for every participant in the market, but investors seem to be in the best position.
Domestic and international investors have found refuge in the Texas housing market, making sure to capitalize on discounted properties with plenty of potential. Most notably, however, is the similar interest in residential and commercial real estate. Opportunistic investors are finding value in both commercial and residential properties the state over.
The Top Texas Real Estate Markets
While the best real estate market in Texas is up for debate, here’s a list of the cities investors may want to pay special considerations to:
Unemployment Rate: 8.1% (latest estimate by the Bureau Of Labor Statistics)
Population: 28,701,845 (latest estimate by the U.S. Census Bureau)
Median Household Income: $57,051 (latest estimate by the U.S. Census Bureau)
Percentage Of Vacant Homes: 12.13%
Foreclosure Rate: 1 in every 16,325 (0.6%)
Texas Median Home Prices
Texas's median home value dropped to approximately $130,000 in the first quarter of 2012, when the Great Recession had taken its largest toll on the local housing market. Since it bottomed out, however, the Texas real estate market has managed to ride several tailwinds. At the time, the economy was strengthening, demand was increasing, and inventory was unfortunately lacking. These indicators, and several more, allowed Texas' median home value to increase as much as 69.2% for more than eight years. Today, the median home value in Texas is $220.034 and should continue rising, as long as inventory and demand remain at their current levels.
To put things into perspective, the median home value in the United States bottomed out around $161,000 in the first quarter of 2012. Since then, the median home value across the whole country has increased by 63.5% and is now upwards of $263,351. The difference between the Texas real estate market and the national housing market shouldn't reflect poorly on the state's performance but should instead serve as a testament to nationwide trends. Most notably, unemployment across the country has been cut in half. Texas, on the other hand, doesn't seem to have fared as well. While unemployment in Texas has improved since it peaked in April, it sat as high as 8.1% as recently as November, which is higher than the national average.
Unemployment in Texas has trickled over into the housing market, which may explain why a market as "hot" as Texas has trailed the national average in appreciation over the last year. Whereas the median home value in the United States appreciated 7.5% over the last 12 months, Texas' median home value jumped 5.9%. Simply put, higher unemployment may have prevented more people from buying in Texas, which simultaneously decreases competition and prevents sellers from asking for more money.
Moving forward, Texas's home values are expected to increase by as much as 10.0% over the next year (the median home value in the United States is expected to increase 10.3% over the same period of time). Increases are largely the result of issues leftover in the wake of the pandemic. In particular, supply can't keep up with demand. The lack of available inventory is driving up competition and home prices almost exponentially.
Texas Foreclosure Trends & Statistics
The Texas real estate market has a relatively low foreclosure rate compared to the national average. Whereas Texas' foreclosure rate is 0.6% (one in every 16,325), the national foreclosure rate is a slightly less modest 0.7% (one in every 13,482). The difference may be the result of similar household incomes and cheaper home values in the Texas real estate market.
Distressed inventory in Texas is primarily made up of auction homes. In fact, 85.1% of the state's distressed inventory is either up for auction or will be at some point soon. More importantly, however, most of Texas' foreclosures are currently being held by institutional lenders and banks; that means opportunistic investors may have better luck acquiring deals from banks than individual, distressed homeowners. That's not to say Texas real estate investors can't market to distressed homeowners, but rather that operating where the majority of foreclosures are will tilt the odds in their favor.
In looking for foreclosures, investors should look to the neighborhoods with the highest distributions of distressed homes:
Atascosa: One in every 2,592 homes is distressed
Hutchinson: One in every 2,652 homes is distressed
Childress: One in every 2,938 homes is distressed
Liberty: One in every 4,325 homes is distressed
El Paso: One in every 4,392 homes is distressed
While the Texas real estate market may have a relatively low level of foreclosures, it's safe to assume filings will increase sooner rather than later. While it's hard to say exactly how much foreclosures will increase, the financial hardships created by the pandemic will certainly increase. Therefore, filings will most likely increase before they start to get better. As a result, investors who position themselves well now may be able to simultaneously lend distressed homeowners a helping hand and land their next deal.
Tax Lien Investing
Tax Lien or Deed: Redemption Deed state
Interest Rate: 25% for the first 6 months
*Penalty for redemption after the sale
Redemption Period: 2 years prior to sale
*6 months after sale for property that is not homesteaded
*2 years for homestead property and farmland
Texas Real Estate Investing
Following years of historical appreciation, homes are selling for more in Texas than they have in years past, which bodes well for local investors. However, years of appreciation have made it harder for the Texas real estate investing community to find attractive profit margins. Sure, rising foreclosure rates should enable investors to secure deals below market value, but the truth remains: Real estate in Texas is less conducive to rehabs than in years past. That's not to say Texas real estate investors can't continue to renovate deals (the absolutely can), but rather that the new housing market created by the pandemic is more suited for long-term investors. In particular, today's most prominent indicators appear to lean heavily in favor of rental property owners.
In addition to historical appreciation rates making attractive profit margins harder to come by, investors may want to consider building a rental property portfolio because of today's interest rates. Consequently, the Fed announced it would keep interest rates low to provide a catalyst for the housing market, and it worked. As recently as December, the monthly average commitment rate on a 30-year fixed-rate mortgage was 2.67%, according to Freddie Mac. It has never been cheaper to borrow institutional money, and buyers are taking notice. Rates are so low that they may simultaneously help justify high acquisition costs and increase monthly rental property cash flow.
Additionally, landlords will find plenty of demand for their properties. With a state-wide price-to-rent ratio of 11.49, it's more affordable to buy a home in Texas than to rent one, but inventory levels remain insufficient. While more people want to buy, a lack of available housing is relegating many people to the renter pool. Even those who want to buy are forced to rent. As a result, landlords will find their assets receiving plenty of attention and perhaps even demanding a premium rental rate.
Investors are lucky to have several viable exit strategies at their disposal, but none appear more attractive than building a proper rental property portfolio in the wake of the pandemic. Too many important market indicators are pointing towards becoming a buy-and-hold investor to ignore.
Texas Housing Market Predictions
The Texas housing market has done very well for itself in the last eight years. For the better part of a decade, in fact, real estate in Texas has exhibited many of the same characteristics as its national counterparts. Price increases, confidence in the market, and several other indicators are in line with national trends, but what does that mean moving forward? What can the Texas real estate investing community expect moving forward?
Secondary cities will grow in popularity: Smaller, secondary cities (like Lubbock) will attract more millennial homebuyers. If for nothing else, years of appreciation have made larger, more popular cities too expensive. As a result, secondary cities will simultaneously attract more buyers and probably increase in price.
Appreciation will continue: Appreciation in Texas is largely due to a lack of inventory and increasing demand, which isn't likely to be resolved in 2021. New builds are on the way but won't arrive when many had hoped because of the pandemic. Nonetheless, the continued lack of supply will keep driving up demand and prices.
The Texas real estate market was the poster-child of the national recovery following the Great Recession. The Lone Star State was at the forefront of nearly every indicator and made up a lot of ground in a relatively short period of time. In doing so, the Texas real estate market became a commodity for local investors, who did very well for themselves for the last eight years. In fact, investors did so well for so long the market started to appreciate at a historic rate. Today, investors can still rehab homes, but indictors suggest long-term rentals may be the best bet to succeed in the Texas housing market.
*The information contained herein was pulled from third party sites. Although this information was found from sources believed to be reliable, FortuneBuilders Inc. makes no representations, warranties, or guarantees, either expressed or implied, as to whether the information presented is accurate, reliable, or current. Any reliance on this information is at your own risk. All information presented should be independently verified. FortuneBuilders Inc. assumes no liability for any damages whatsoever, including any direct, indirect, punitive, exemplary, incidental, special, or consequential damages arising out of or in any way connected with your use of the information presented.