Why Texas Housing Markets Could Survive a Recession in 2020

Key highlights from this report:

  • The U.S. is likely in a recession, and it will likely get worse.
  • This could cause home prices to drop in some U.S. cities.
  • Historically, Texas housing markets have been less likely to crash.
  • Affordability and strong demand could shield Texas real estate markets in 2020 – 2021, as in the past.

Housing Market Crash Unlikely in Texas

The current health and economic crisis has a lot of Texans wondering: Will the Texas housing market crash later in 2020? Will home prices drop in cities all across the state?

While it’s too early to know the full extent of our economic turmoil, Texans can take comfort from looking at historical trends. The state’s housing market has fared well during past recessions. And with the current supply-and-demand situation in most Texas cities, the real estate market could “survive” the current downturn as well.

With that being said, we do expect home values in most Texas housing markets to rise more slowly — or even dip — during the second half of 2020. But a full-scale “crash” seems unlikely for the Lone Star State.

The chart below shows the house price index for Texas, going all the way back to the 1980s. The gray vertical bars represent economic recessions. The largest of the gray bars, over on the right, indicates the Great Recession of 2008 to 2009.

Chart with Texas home values

A few points will jump out at you, when viewing this chart:

  • Home prices in Texas have risen through four of the last five recessions.
  • During the Great Recession, home values in Texas leveled off a bit but did not drop.
  • From 2012 to 2019, home prices in the state rose sharply, largely due to population growth and increased demand.

Real Estate Considered ‘Essential’ in the State

Many states in the U.S. have issued some form of stay-at-home or shelter-in-place order, to help slow the spread of the coronavirus. Texas is one of those states.

This past week, Governor Greg Abbot said that the order “requires all Texans to stay at home except to provide essential services or do essential things like going to the grocery store.”

Real estate is considered an “essential” business in the state, and can therefore be practiced as long as social distancing is maintained.

Texas REALTORSĀ®, the state’s Realtor association, recently issued the following advice to its members: “While real estate is an essential activity statewide, keep health and safety top of mind when conducting business.”

Rising Unemployment Will Reduce Buyer Demand

Despite its “essential” designation, the real estate market in Texas will undoubtedly slow down over the coming months as the coronavirus pandemic continues to disrupt the economy and job market.

Jobless claims in Texas soared recently, as they have in other states. According to data provided by the Labor Department, initial unemployment claims in the state rose by more than 600% from February to March 2020. That’s largely the result of business closures, layoffs and furloughs stemming from the coronavirus outbreak.

So even though people are “allowed” to buy homes in Texas, many would-be buyers will have to postpone or cancel their plans for financial reasons. This will likely cause a housing market slowdown across Texas.

But if history is any indication, the effects of such a slowdown could be less severe in Texas compared to many other states. With a strong economy, relatively cheap land, and a growing population, the Texas housing market could rebound quickly from whatever downturn it experiences.

Rob Kaplan, president of the Federal Reserve Bank of Dallas, recently told The Dallas Morning News:

“Based on our models, our judgment is obviously a severe contraction in the second quarter, probably some negative GDP at the start of the third quarter and then a rebound.”

He was referring to the state as a whole.

Some Local Markets Are More Vulnerable than Others

While Texas housing markets have fared well during past recessions, the sharp rise of home values could make some cities more vulnerable to a downturn in 2020. The Austin metro area falls into this category.

Over the past few years, most cities across Texas have experienced steady home-price gains. This is most evident within the major cities of Austin, Dallas and Houston.

Here are the home-price trends for the state’s three biggest cities, based on data provided by Zillow.

  • Austin: The capital city’s median home price rose by 4.7% over the past year or so, one of the largest gains of any Texas city. The median price point rose from around $230,000 in 2012 to nearly $400,000 as of February 2020.
  • Dallas: The median home value in Dallas rose 2.3% over the past year. The median climbed from $120,000 in early 2012 to $220,000 in early 2020.
  • Houston: The median home value in Dallas rose by around 2.6% over the past year. The median price climbed from $118,000 in early 2012, to $190,000 in early 2020.

As you can see, prices have risen higher and faster in Austin, Texas than they have in Dallas or Houston. That’s partly the result of population growth. Austin has long been a popular destination for job seekers and house hunters alike. The city’s population grew by a whopping 20% from 2010 to 2018.

Overall, however, the Texas real estate market could see a repeat of past recessions when home prices either leveled off or continue climbing. A housing market crash — or even a major decline in home values — seems unlikely at this point.

Disclaimer: This article includes housing predictions and forecasts, which are the equivalent of an educated guess. No one can predict future housing or economic conditions with certainty, and HBI makes no claims to that effect.