Texas Homes Flood Housing Market

Housing inventory is surging in Texas despite the nation facing a widespread shortage.

The number of homes for sale in the state has more than doubled from its low during the COVID-19 pandemic and now finds itself at more than 88,000 listings. That's the highest level since 2019 and far higher than the long-term average, real estate data platform Reventure CEO Nick Gerli said on Monday.

The U.S. active listing count for homes, meanwhile, was slightly less than 800,000, with Texas making up about 90,000.

Gerli said the inventory spike is especially acute across central Texas, where inventory in markets like Austin, San Antonio, Killeen and Waco is up 30 percent compared to the long-term average.

"The more that inventory grows, the more pressure there will be on sellers to cut prices," Gerli said on X, formerly Twitter.

Data from Zillow's home value index showed prices are already falling in some of these markets, with Austin showing an 8.2 percent decline year over year, while Beaumont saw a decrease of 5.7 percent.

In Texas, home affordability became a large problem in the past three years after droves of Californians, New Yorkers and various others fled to the state for its cheaper cost of living. That caused a higher demand than average, and prices accordingly shot up.

But as the migration slowed, more inventory is becoming available and being built every day, signaling the potential for Texas to transform into a buyer's market.

This doesn't match the situation at the national level.

Home prices across the country have steadily outpaced median income since 2013, but a huge disparity emerged in 2020. While there's been slight improvement, the majority of Americans still cannot afford an average home with their incomes, data shows.

While the higher supply of housing might seem promising, Gerli said 2024 could prove to be a rough year for the Texas market.

That's because the high levels of home building comes at a time when many California and New York remote-worker transplants will be heading back into the office and there's a larger reduction in investor homebuying demand.

Texas already builds more homes than any other state, Reventure found. The number for 2023 building permits was 222,000.

"All together it's a great thing that Texas builds so much," Gerli said on X. "It's a state that actually allows affordable housing to be built for its population. However, this building is now teetering on 'over-building,' and will likely result in heavy downward price pressure in 2024."

Gerli pointed out that the overbuilding could particularly be a problem as fewer Americans will likely migrate to the state post-pandemic.

"The levels of in-bound migration that occurred in 2021-22 were never going to be sustainable," Gerli said.

"These pandemic 'boom' areas will likely regress to their long-term norms for inbound migration, which are still 'good.' Still a decent amount of people moving in, but likely not enough to support local housing markets which have become way too expensive."

Before the pandemic, the typical house payment for a homebuyer in Texas was $1,000 per month. Today, it's $2,100. While this would be affordable for someone moving from California, it leaves the local population in Texas, and the majority of homebuyers, in a tough spot, Gerli said.

However, because of the general housing shortage, there are undeniable benefits for buyers, particularly lower prices.

"The surge in inventory, and associated decline in home prices that has started in some Texas metros, is great news for homebuyers across the state," Gerli told Newsweek. "It means that the state is starting to become a buyer's market. I wouldn't be surprised if things continue to get better for Texas buyers in 2024, given the still-high levels of building permits."

This doesn't come without its drawbacks, though. For those interested in purchasing property as an investment, it's unlikely you'll see the home's value significantly increase in the near future.

"Be careful buying in Texas in 2024 as either a regular buyer or investor," Gerli said. "The storm clouds for this market are building, in the way of higher inventory, increased price cuts, and downward price momentum."

There were still notable differences between cities, however. Prices were generally down in rural neighborhoods with lots of building as well as urban neighborhoods dominated by investors. However, across the board, prices shot up in the wealthy suburbs, and this is where homebuyers will still have the most trouble.

Why Texas Stands Apart

But, besides the mass migration, what makes Texas so different in terms of its housing market?

According to Sammy Lyon, an associate broker at Dow Capital, sprawl is a major factor.

"When cities have the ability to sprawl into new buildings and development, inventory can swing pretty rapidly," Lyon told Newsweek. "A lot of the supply chain and cost issues that affected construction during COVID have loosened."

Cities like Los Angeles and New York, on the other hand, are relatively contained, meaning there will be slower inventory shifts.

While buyers might be excited to see a lower price than average, they shouldn't necessarily see housing as an investment as much as a home, Lyon said.

"It's great for buyers if sellers get on board and adjust their pricing to reflect the shift, but homeowners should not be banking on appreciation as much as investing in having stable housing for years to come," Lyon said.