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Real Estate Blog & Resources

Growing Home Prices in Texas Reflect Strong Demand

Despite the recent downturn in the energy industry and the subsequent slowdown in employment growth in some areas of the state, Texas' housing market is as vibrant and booming as ever. Home prices continue to rise in the state, with price increases almost double the national average, The Dallas Morning News reported.

At the recent meeting of the National Association of Real Estate Editors in Miami, Lawrence Yun, chief economist for the National Association of Realtors, touched on the how Texas is diversified enough to withstand the oil price decline, which is why this energy-industry crunch has not seemed to impact the state's housing market. 

new homes available In fact, the number of available houses is not keeping up with the interested buyers, leading to the surge in home prices.

"The buyers are coming back to the market," said Yun. "As a result, prices could touch a new high this year."

Home Prices Continue to Rise

Home prices continue to rise due to a low housing inventory.

As home prices increase, builders need to ensure they keep the market supply high to meet the growing demand. While the larger land parcels around the country might be more difficult to come by, there are still available options for homebuilders purchase acreage for sale in Texas, especially in master planned communities with vacant lots ready to be sold to individuals eager to build their dream homes. 

While home prices are still about 25 percent lower now than they were in 2006, if the housing inventory for available houses does not increase to meet the demand, it could easily drive up home prices to higher levels, perhaps even higher than they were pre-recession. 

The National Association of Homebuilders is forecasting a 12-percent increase in home starts for the year, while Texas remains close to 40 percent below its pre-recession high of home starts in 2006, according to the source. Rental houses in markets including Dallas, Atlanta and Houston have grown approximately 50 to 60 percent since the recession. Meanwhile, investors have purchased about 3 million U.S. houses to transform live-in properties into rental properties.

Impending rate hike
According to Freddie Mac, the week ending in July 2, saw 30-year fixed-rate on interest for mortgages average 4.08 percent, a decline of 0.06 percent year over year. The low mortgage rates entice buyers to borrow a bit more, which can push up home prices. With the U.S. Federal Reserve likely to raise rates later this year - perhaps as early as September - the rate hike can add a significant amount of extra money to a monthly mortgage bill.

While some market watchers are speculating that mortgage rates will reach 6 percent following the Fed's eventual rate hike, CoreLogic does not anticipate more than a 5.1 percent gain in home prices. However, some brokers and real estate agents fear any price increase above 4 or 4.5 percent will discourage homebuyers from any new purchases.

One way homebuilders can combat this increase is to create more product to bring to the market, which will help drive down home prices and make these structures more enticing for homebuyers. This game of cat and mouse needs to maintain equilibrium, however, since too many homes on the market will depreciate value and create diminishing returns for homebuilders.

Increase in Mortgage Rates

Many economists anticipate a moderate increase in mortgage rates.