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By Giulia Carbonaro
Senior Reporter
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Home sales are dropping in several major Texas cities including the capital Austin, Dallas, and Houston, as homebuyers burdened by historically high mortgage rates and rising housing costs fail to see the appeal of the state's growing inventory.
According to Norada Real Estate Investments, it could be the beginning of "a major correction phase" for the state.
Why It Matters
The Lone Star state's housing market boomed during the pandemic, when the rise of remote work allowed out-of-state Americans to relocate to cities offering cheaper homes, lower taxes, and relatively more affordable cost of living, as well as vibrant job markets and sunny weather. This growth in demand at a time when the state, like the rest of the country, was struggling with low levels of inventory, sent home prices skyrocketing.
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Spurred by this sudden surge in demand, Texas started building more new homes than any other state in the country—with the exception of Florida—but this inventory is now landing on the market without finding many interested buyers, adding up to existing homes listed for sales which are sitting idle for long periods of time before going under contract.
According to Redfin, the number of homes sold in Texas dropped by 6.2 percent year-over-year in February, while the number of homes for sale increased by 16 percent during the same period. This shift in inventory and sales is likely to indicate that Texas is shifting toward becoming a buyers' market.
What To Know
According to data from Nick Gerli's Reventure App, there were 123,237 active listings in Texas in April—a record after years of shortages. Between 2018 and 2020, according to the real estate analysis company, inventory levels lingered in the 88,000s and 90,000s.
In 2021, they were down to 35,997, as buyers engaged in ruthless bidding wars to snatch their dream home from the market. In 2022, they were down to 34,932. Inventory finally started growing in 2023 and 2024, reaching respectively 68,817 and 95,156.
But with the current mortgage rates—still hovering near the 7 percent mark—and uncertainty around the future of the U.S. economy growing, the higher levels of inventory are struggling to find interested buyers. These homes landing on the market are not finding the same levels of competition they were greeted with during the pandemic.
"From my perspective as someone who follows these markets, such a rapid and significant rise in inventory is a screaming signal," Marco Santarelli, the founder of Norada Real Estate Investments, wrote in a recent report. "It tells me that the intense competition among buyers has faded. Sellers are finding their homes are sitting on the market longer, and they're facing much more competition from other homes for sale. This shifts the power dynamic firmly toward buyers."
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According to Gerli, inventory has risen because homebuilders "inundated the market with supply the last 4 years, and that supply is now getting resold onto the market," and because domestic migration to the state has slowed down, "with some people now leaving" the state.
Additionally, "the local population in Texas is now priced out of buying homes, and cannot support demand," he said.
As a result, home values are dropping. At the state level, values are down -0.7 percent year-over-year, according to Reventure's data, and down 1.6 percent from the middle of 2022.
In the former pandemic boomtown of Austin, prices are down 20.4 percent from their peak. "That's the biggest metro-level correction in America in that time span, with a huge swath of the gains Austin experienced during the pandemic being wiped out," Gerli said.
What People Are Saying
Santarelli wrote in a February report: "I believe that the Texas housing market will see a more balanced, and somewhat slower growth trajectory over the next couple of years."
Nick Gerli, the CEO of Reventure App, wrote on X: "I could see a 15-20 percent correction in the cards, especially if there is a recession in the oil industry. Oil prices are down to $57/barrel, and this is a level that's problematic for Texas' economy. As many local operators shut down production when oil gets that cheap. Which then has a knock-on effect on local employment and home prices, especially in markets like Houston and San Antonio."
What Happens Next
Many of the housing markets that became the most overheated during the pandemic are now experiencing a so-called correction, including Texas and Florida, the two fastest-growing states in the country.
This does not mean that their housing markets are headed toward a crash, as inventory remains low compared to historic trends and pent-up demand. On the other hand, while dropping home values are bad news for homeowners, aspiring homebuyers pushed to the sidelines in recent years might finally get an opportunity to step on the property ladder in these states.
According to Gerli, Texas home values are currently 17.7 percent overvalued today compared to long-term historical norms. That means that prices could drop even further before adjusting to reach that balance. Reventure currently expects prices to drop by 4 percent statewide over the next 12 months, though Gerli thinks it could be even more dramatic.
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