AUSTIN — Texas home prices skyrocketed in 2021, but it may begin to slow in 2022, experts say.
Mortgage rates dropped in 2020 as a direct response to the coronavirus pandemic. This pushed homebuyers into the market and set off a frenzy for homes in Texas when the state was already experiencing a population boom. But the push in demand where there was already a limited supply meant prices rose.
“The biggest trend [in 2021] was the increasing hike in home prices,” said Luis Torres, research economist at the Texas A&M Real Estate Research Center. “You’ve seen such strong demand due to historically low mortgage rates. I think that was a major contributor — seeing strong demand — and facing weak supply, well that pushed up home prices at a very, very high rate.”
Torres added that the number of homes sold in 2021 could have been better if the state had more homes available for sale.
According to Texas Realtors’ year in review report, the months of inventory dropped from 1.6 to 1.2 in 2021, and the average days on market also dropped to 34 — 21 days less than in 2020.
This low supply led to 21 of the state’s 25 largest metros to report median price rate increases in the double digits. Statewide, the median price rose to $300,000, a 15.7% increase from 2020. And the median price per square foot increased 35.6% since 2017, the report said.
The greatest year-over-year hike in median price was seen in the Austin-Round Rock area, where the amount jumped 30.8% to $450,000.
This was followed by the south-Texas cities of Brownsville-Harlingen, where the median price increased 24.4% year over year to $215,000.
“A lot of people are going to find themselves priced out. Affordability is going to be an issue and that should weaken demand in 2022 to more sustainable levels than we saw before the pandemic,” Torres said. “The housing market will probably remain strong, but not at  levels of activity.”
Lack of inventory has been a problem in Texas since the Great Recession in 2008 when the housing market crashed. Before the pandemic, builders started to catch up but a lack of workers and more costly supplies over the past two years slowed that process down.
Supply chain issues, current increasing levels of inflation, and uncertainty surrounding Ukraine will also likely impact how quickly new homes can be built, said Mark Sprague, state director of information capital at Independence Title, in a statement.
“The uncertainty in eastern Europe has stalled rising interest rates and contributed to keeping mortgage rates domestically below 4%, which is historically low. Ultimately, however, the already accelerated rate of inflation is expected to rise even further—hurting renters, buyers, and builders who continue to grapple with fast-rising construction costs,” Sprague said.
He added that material and labor costs are on pace to rise from 4% to 5% monthly through 2023 and potentially further.
“Although the possibility that housing inventory will continue to fall is now even more likely, strong housing demand … will ensure the housing market’s economic impact remains steady,” he said.
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