Is Now The Right Time To Buy A House? Texas A&M Expert Says ‘Be Patient’

Mortgage rates will increase in the coming year, hindering surging demand for homes at a time when supply is low, according to an economist at Texas A&M University.

“It’s a sellers’ market right now and the housing sector is really strong,” said Luis Torres, a research economist at the Texas Real Estate Research Center at Texas A&M. “The pandemic has increased the preference for home ownership, but supply has been lagging behind since even before the pandemic. So the problem right now is that you have really strong demand facing weak supply and that’s pushing up prices at a very high rate.”

Torres, who studies the Texas economy and real estate market, as well as researching the U.S. and world economies, said home buyers may want to “be patient to find their dream house.”

“If you find a house you really want and you’re in a position to buy, go for it, but don’t overpay because you don’t want all your money going into a mortgage payment each month,” he said.

This year the market should slow down, Torres said, and that will help mitigate the housing shortage, but the higher prices will stay.

“Demand should weaken somewhat, mortgage rates are going to increase because the Fed’s monetary policy is starting to taper now,” he said. “And there’s possibly two rate hikes in the coming year due to inflation. When inflation is higher, nominal interest rates increase. That will put the brakes on housing demand. Also the high prices we’re seeing are going to price some people out and that will decrease demand as well. So we’ll possibly be going back to more normal trends than we saw during the pandemic.”

For now, the issue going forward is affordability, Torres said.

“In Austin, home prices are up 30 percent over the last year, Dallas-Fort Worth, 20 percent, and Houston and San Antonio, 18 percent,” he said. “And that’s happening all around Texas, not just the major cities – we have double digit price growth throughout the state.”

The average home price in Texas in January 2020 was $277,945, and in June 2021 it had grown to $388,555. In November 2021 it fell just slightly to $382,862.

“It’s really hard to find a house to buy right now,” Torres said. “Not only are the prices high, the competition is greater. You may put in a bid for a house and multiple other people do, too.

“Right now one-third of homes in Austin have a price tag over half a million. That might not seem like a lot to someone in California, but that’s still a lot of money to pay for a house here in Texas.”

Torres said the supply problems contributing to the shortage began happening before the pandemic due to factors such as increasing lumber prices, constrained land development and changes to laws and regulations rolled in out in the wake of the 2007-08 housing crisis.

He said when the pandemic happened, the housing market was one of the sectors that benefited.

“Part of that was because people were working from home, so they needed more space to work,” he said. “If you look at potential home buyers during the pandemic, they work in industries mostly unaffected by the pandemic, so they could work from home, maybe they got a raise and they were in a good place to buy a house.”

Add historically low mortgage rates to the equation, and the preference for home ownership grew.

The current shortage and high prices are also affecting renters, Torres said. Nationwide, the average rent for a single family home rose 10.2 percent in September 2021, the fastest year-over-year increase in more than 16 years.

In College Station, for example, in December 2019, the average monthly rent for a one-bedroom unit was $735, in November 2020, $899, and in October 2021 it had grown to $959.

Torres said there is no “housing bubble” like there was in the early 2000s crisis.

“At that time, there was lax oversight and loose lending standards,” he said. “The supervising institutions weren’t doing their jobs and allowing all sorts of this malpractice. Also, many people were buying multiple houses as investment properties to flip. But that’s not happening right now. People are buying just a house to live in and prices are not going down. For nominal housing prices to fall, that’s a really rare occurrence.”

As far as high home prices in Texas, Torres said, “We’re not California yet, but look out in 20 years or so.”