Is the Texas Real Estate Bubble about to Burst?
Real estate has been in a bubble for several years, with prices reaching unprecedented heights. Anyone who has purchased a home in the past couple of years is in for a shock, as the next recession may be just around the corner. Perhaps it will manifest as early as the end of this quarter, signaling a potential negative GDP disaster. Technically, two consecutive quarters of zero to negative GDP define a recession, and recent consumer confidence polls indicate that people are already concerned. Inflation, currently at an over 40-year high of 8.6%, is expected to rise further to double digits by the summer. Given that 70% of the economy is consumer-driven, this is a clear red flag. Additionally, the record highs of diesel gas and fuel oil contribute to higher prices, and subsequent cutbacks are likely. With the stock market tanking this year, it's safe to assume that real estate foreclosures may start impacting housing prices.
Texas Real Estate Market Overview
While Texas is a large state, it's not meaningful to discuss the entire real estate market as a homogeneous entity. In May 2022, the Texas housing market is still strong, but the average days on the market are increasing. This is not a positive sign, indicating potential cooling in the market. Major cities such as Austin and Dallas have seen significant increases in home prices, suggesting the start of a bubble pop with declining prices in the near future. However, for places that haven't experienced rampant appreciation, the housing market may not see a significant decline.
Major Factors Influencing the Market
The key factors influencing the Texas real estate market include job opportunities, affordability, and the supply of houses. Texas has a history of demand rising and home prices going up, followed by a market cooling off and excess inventory. Builders often start many new homes, but months later, the market usually cools off, leading to excess inventory and price drops. This cycle has occurred in many locations across Texas over the past few decades. If there are currently more houses than buyers, prices will plummet. The worst-case scenario is a high-priced city with excess supply, facing companies laying off workers during rising mortgage rates.
Cities to Watch in Texas
Two major cities to watch in Texas are Austin and Dallas. The Austin real estate market is particularly concerning. Austin has seen significant increases in home prices, along with record-high diesel gas and fuel oil prices. The combination of high-priced city with excess supply and companies laying off workers during rising mortgage rates creates a volatile situation. This could very well describe the Austin housing market. While Dallas markets might be slightly more stable, the overall trend is not encouraging.
Conclusion
The Texas real estate market faces significant challenges and risks, especially with a potential recession looming on the horizon. While the situation is complex and varies by city, the trend of increasing home prices and decreasing market demand suggests that the bubble may be about to burst. Homeowners and investors should closely monitor the market and prepare for potential changes in the coming months.