Texas is set to become the epicenter of America’s housing downturn, as the state faces such a significant inventory glut that many of its markets are likely to see dramatic price declines, according to analysts. The massive population boom faced by the state between 2020 and 2024, when U.S. Census Bureau data shows it gained over 2.1 million new residents, spurred an unprecedented surge in new home construction in Texas, made easier by regulatory relief and lower costs.
This would generally be considered good news for buyers, as the nation is facing a chronic shortage of affordable homes, estimated anywhere between 1.5 million and 10 million. But by the time this new inventory flooded the Texas market, everything had changed. Domestic migration to the state had slowed down, held back by return-to-office orders; and higher borrowing costs and skyrocketing home values had pushed many would-be buyers to the sidelines.
"High mortgage rates and still-high home prices have dampened demand and allowed homes to stack up on the market, and now the pressure on prices is downward," Joel Berner, senior economist at Realtor.com, told Newsweek. While for Berner this is a natural "correction" of the Texas housing market, for Trevor Bacon, founder and CEO of housing data and analytics company Parcl Labs, it is a sign of a potential darker turn for the state. "Texas is dealing with a supply glut that was largely built for a very different demand and affordability environment," he told Newsweek.
"Demand peaked in 2021 when mortgage rates were still around 3 percent, yet roughly 75 percent of the stock added across Dallas, Houston, Austin and San Antonio since 2020 came after that peak," he said. "Today, there is simply too much housing at prices and financing costs buyers aren’t willing or able to absorb," he added. That is why Parcl Labs believes that Texas may become the weakest major housing market in the country.
"The market now has to rebalance with mortgage rates near 7 percent, and price appears to be the primary lever left," Bacon said. What is happening in Texas can be boiled down to a simple economic concept: an imbalance in supply and demand. Housing inventory on the state’s market is now roughly twice as high as monthly sales, according to Parcl Labs data, with supply accumulating faster than demand can absorb it.
To show just how much some Texas markets have built over the past few years, Bacon mentions that Dallas, San Antonio, Austin and Houston alone have accounted for roughly 15 percent of all new housing stock added nationally since 2020. And while these cities continue being attractive to newcomers, with fewer Americans moving across the country and dwindling demand, sellers in Texas have been increasingly forced to slash prices to encourage buyers. Roughly 48 percent of listings in the state have undergone a price cut, up from 40 percent in April, according to Parcl Labs.
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