Investing in Single Family Assets in Texas
Is Texas a Good Place to Invest in Real Estate in 2024??
Investors seeking property to buy this year may want to consider Texas.?
Some experts predict it will be one of the nation’s hottest housing markets in 2024. Furthermore, investor activity in Texas, particularly in cities like Dallas-Fort Worth (DFW) and Austin, was up 6% year-over-year in 2023, according to a recent report, despite a constrained market.?
Known for its thriving business sector and cultural vibrancy, Texas is a growing hub for real estate investments. To understand whether Texas could make a good investment opportunity for you, consider the following market trends:?
Table of Contents?
Key Takeaways:?
Mortgage Rates: Current Trends and Historical Context?
U.S. mortgage rates are elevated. As of March 7th, 2024, according to Freddie Mac,? the average 30-year fixed rate is 6.88%. Though still relatively standard compared to historical averages, it’s a far cry from the 2-4% rates in 2020 and 2021. Consequently, many potential homebuyers who could have bought at lower rates are being priced out of the market.?
However, that could change if mortgage rates drop. Now that the Federal Reserve has made significant progress in taming inflation, it may cut its key rate, which is a benchmark for all other interest rates. On March 6th, 2024, Federal Reserve Chair Jerome H. Powell signaled that rate cuts in 2024 were likely??
Still, most experts don’t think average mortgage rates will fall by much. The consensus among industry professionals is that they’ll land somewhere between 5.8% and 6.6% by the end of the year. Even so, that’s an improvement from the current 6.88% average.?
If and when mortgage rates drop, it could unlock some pent-up homebuyer demand, injecting the market with more buyers and potentially even more inventory as current homeowners are more willing to sell and give up their locked-in low rates.?
Housing Shortage: Challenges and Opportunities?
It’s no secret that the U.S. is experiencing a major housing shortage, and Texas is no exception.?
Cities like Dallas, Austin, and Houston have about three months of inventory, while a balanced market would require at least six months of inventory.?
Part of the problem is the “lock-in effect.” According to a recent report in Zillow, nearly 9 in 10 U.S. homeowners have a mortgage rate below 6%. Over three quarters have one below 5%. For them, selling would require buying their next home at a significantly higher rate. Consequently, many are choosing not to sell, constraining the supply of existing homes.?
But again, if mortgage rates fall, it could motivate some of these homeowners to sell, thereby loosening existing home inventory.?
Another reason for the housing shortage is a lag in new home construction. Ever since the 2008 housing crash, builders have hesitated to overbuild and get stuck with homes they can’t sell. Furthermore, supply and labor shortages coupled with higher interest rates have increased construction costs. In Texas, builders also face challenging building permit processes in certain areas.?
As a result, it could be a while before the Texas housing market reaches an equilibrium between supply and demand, though it’s moving in the right direction.?
Economic Growth: Population and Business Influx?
Texas’s population is snowballing.?
Between 2021 and 2022, the state welcomed more new residents than any other U.S. state.? Major cities like DFW and Austin are on track to overtake other large metros in population growth within a decade.?
Much of this population boom is due to companies relocating here. Since 2020, numerous businesses have either relocated or expanded to Texas. Some examples of major companies with headquarters in Texas include AT&T, Southwest Airlines, and ExxonMobile.? According to Texas Real Estate source, Other examples of companies that moved recently:?
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Texas is also a growing tech hub. Cities like Austin and Dallas are frequently ranked among the top tech towns. Some of the state’s most prominent tech employers include Raytheon, Deloitte, and JPMorgan Chase. IT jobs are also expected to grow significantly in the next five years (source: CompTIA Tech Town Index).?
Companies are attracted to Texas for its lower operating costs (many Texas cities are named among the most business-friendly in America) and immense talent pool. Texas is also home to several major universities, providing a steady stream of skilled graduates.?
Finally, Texas’s central location with major airports, highway, and rail access, and no natural barriers such as rivers or mountains, leaves plenty of room for expansion.?
Home Prices: Historical Data and Future Projections?
Given the high demand for housing and the relative lack of supply, Texas home prices are rising fast. From 2018 to 2023, the median home sales price in cities like Dallas and Austin saw significant increases??
Despite higher mortgage rates dampening demand, home sellers can charge high prices because there are relatively few homes for sale.?
Of course, it’s impossible to say for sure where Texas home prices are headed—many factors impact prices. For example, if the housing supply increases, it will put downward pressure on home prices. However, many experts expect the housing shortage won’t be resolved for many years. Consequently, home prices will likely remain high—especially since homebuyer demand from millennials, America’s largest generation, is as high as ever??
Ultimately, some minor home price corrections are possible, but a dramatic fall in home values is unlikely. Instead, they’ll probably keep rising as they have for over a decade.?
Home Sales: Recent Trends and Election Year Impact?
With home prices and mortgage rates high and relatively little inventory to choose from, it’s unsurprising that Texas home sales took a dip over the last couple of years. However, home sales have started to pick up recently in cities like DFW and Austin.?
This was mainly due to the slight dip in mortgage rates at the start of the year. If mortgage rates continue falling in 2024, we’ll likely see home sales increase even more.?
That said, the 2024 presidential election may dampen home sales. Research shows that home sales are as much as 12.7% weaker between June and October of an election year than non-election years. This is because many homebuyers and sellers are waiting to see how the election outcome will impact economic policy.? Then, once it’s clear who the president will be, home sales tend to pick up, recovering to their normal levels by November and December.?
Aside from the lead-up to the election, however, the overall high demand for housing in Texas will likely spur an increase in home sales, especially as we enter the spring market, when people are more likely to move.?
Investing in Texas Real Estate: Tips and Final Verdict?
So, is Texas a good place to invest in real estate in 2024? Potentially. Overall, property values are rising, and market activity is heating up.?
Many Americans are fleeing expensive coastal areas for Southern states like Texas because it’s more affordable. This will put upward pressure on Texas home prices, incentivize construction companies to expand supply, or (most likely) both. In any scenario, there will be opportunities for investors.?
For example, buy-and-hold investors who buy property before it increases in value may benefit from long-term appreciation. Similarly, fix-and-flip investors who renovate distressed properties and put them back on the market to improve the housing inventory may benefit from the influx of new residents looking to buy homes.?
That said, any real estate investment has risk. You’re not guaranteed a profit in any market, so you must do your due diligence before committing to any real estate deal. Fortunately, there are tools available to make the due diligence process easier.?
Invest with Republic Investment Group
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