Texas Hold 'Em: Some Of Texas's Top Housing Markets Have Stopped Growing. Here's Why

They say everything’s bigger in Texas – that includes construction – and it’s causing house prices to plummet.

Texas was the pandemic golden child as remote-working residents moved out of expensive Californian cities, realizing they could still enjoy warm weather without high housing costs and taxes. Tech companies cottoned on, too, causing a hiring and housing boom in Austin – with prices soaring 60%, according to the Wall Street Journal. It was a similar, albeit less spectacular, story in other Texas cities such as Houston, Dallas and San Antonio. However, what goes up must come down and house prices have fallen in all four of the state’s major metropolitan areas as construction ramped up to cater to the population growth. Between 2000 and 2022, according to U.S. Census Bureau data, Texas gained a total of 9,085,073 new residents, swelling its population to 30 million.

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Too Much Supply, Not Enough Demand

According to Housingwire, Austin’s year-over-year median price change had turned negative by the end of 2022. By May 2023, the annualized decline had registered at 13.2%. The past twelve months have been rocky for the city tagged “Baby Silicon Valley,” with an overall drop in house prices of 4.5%. In a market driven by supply and demand, Austin and other Texas cities had too much supply.

Despite this, the overall increase in house prices over the previous three years and increased taxes meant Texas was no longer the attractive proposition it had once been. However, due to the lag in planning permission, financing, surveys and permits, earlier plans to build housing were approved based on the expected population growth. So, a surplus of inventory has forced house prices to fall precipitously.

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A Pendulum Market

Texas housing market expert Nick Gerli, CEO of real estate data platform Reventure App, when quoted in Newsweek in November, summed up the pendulum Lone Star market, noting that home values in Austin were down “by almost 20%” from their pandemic peak, as demand dwindled while inventory grew. “Listings are now over 10,000, compared to 7,000 before the pandemic,” he wrote. “Huge supply.”

He added: “Texas housing supply has spiked to [its] highest level since at least 2017,” Gerli wrote on X. “Active listings are up 25% YoY and a massive 263% from the pandemic low. Texas is no longer in an inventory shortage. And is now oversupplied.”

Homebuilders And Investors Have Been Burned

In the trailing twelve months ending in June 2024, 15,569 units were completed in Austin. The city ranked second in Moody’s list of oversupplied markets. Average rents are down around 9% over the past year. According to Gerli, the Texas turnaround is because homebuilders and investors have been burned and exited the market. “Investors are having difficulty earning cash flow due to high prop taxes and stagnating rents. Builders need to do big markdowns to sell houses, hurting the resale market.”

Despite the decreasing prices, Austin is far from a fire sale. According to Zillow, Austin’s average home value is $513,622, down 4.0% from a year ago.

Tech Footprint Means Austin Is Too Big To Fail

However, given Big Tech’s presence in the city, the downturn will only likely be temporary. “Austin’s downturn is probably in the 6th or 7th inning,” Gerli told Newsweek. “Values are down almost 20% from the peak and inventory has spiked to the highest level in nearly a decade. I suspect there will be a modest correction over the next year, with the market bottoming in late 2025,” he added.

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