M. Roots Blog

The Texas real estate market has consistently been one of the most attractive in the U.S., driven by the state’s strong population growth, diversified economy, and business-friendly environment. As we look toward the next 24 months, several key factors will shape the direction of the market, including economic shifts, employment trends, and housing supply challenges. Using data from the U.S. Bureau of Labor Statistics (BLS) and other market insights, this post explores what investors and homebuyers can expect from Texas real estate over the next two years.

1. Continued Population Growth Fuels Housing Demand
Texas remains a magnet for domestic migration, with people relocating from higher-cost states such as California, New York, and Illinois. According to recent BLS reports, Texas has experienced robust job growth, which continues to attract workers to cities like Austin, Houston, Dallas-Fort Worth, and San Antonio. In 2023, the state’s unemployment rate hovered around 4.1%, below the national average, signaling a healthy labor market that will likely persist in the near term.

As population growth continues, demand for housing will rise, particularly in urban centers. The Texas Demographic Center projects that the state’s population could grow by as much as 1.2% annually over the next two years, with major cities seeing the bulk of this increase. This growth is expected to support both rental and homeownership markets, making Texas a fertile ground for real estate investors.

2. Rising Mortgage Rates and Affordability Concerns
One of the biggest challenges facing the Texas real estate market in the next 24 months will be rising mortgage rates. As of mid-2024, the average 30-year fixed mortgage rate in the U.S. has surpassed 7%, making it more expensive for both homebuyers and investors to finance property purchases. These elevated rates are expected to persist into 2025 as the Federal Reserve continues its efforts to curb inflation.

Higher mortgage rates could dampen buyer demand, particularly for first-time homebuyers who are more sensitive to changes in borrowing costs. According to the BLS, inflationary pressures in sectors like energy, housing, and food have remained persistent, which is contributing to the Federal Reserve’s cautious stance on reducing interest rates.

The impact of rising rates will be most strongly felt in Texas' larger metros where home prices have skyrocketed over the past decade. For instance, the median home price in Austin was $540,000 as of late 2023, up from $300,000 in 2019. This rapid appreciation, coupled with higher borrowing costs, may cause a cooling in price growth, although not a sharp decline due to ongoing population and employment growth.

3. Housing Supply Constraints Will Persist
Despite high demand, Texas continues to face a supply shortage, particularly in affordable housing. The COVID-19 pandemic and subsequent supply chain disruptions have caused significant delays in new construction, and inflation has increased construction costs, particularly for materials like lumber and steel. These factors have limited the number of new homes coming onto the market.

According to the BLS, construction employment in Texas grew by 2.6% in 2023, indicating that developers are ramping up efforts to meet demand. However, this growth may not be enough to alleviate the housing shortage over the next two years. Housing starts in Texas were up 5% in 2023 compared to the previous year, but the pace is still well below what is needed to keep up with population growth.

The lack of inventory, especially in affordable price ranges, is likely to continue driving up home prices in high-demand markets like Austin and Dallas, even if the overall pace of appreciation slows due to higher interest rates.

4. Shift Toward Suburban and Secondary Markets
In response to rising prices and limited housing stock in Texas' biggest cities, buyers and investors are increasingly turning to suburban and secondary markets. Cities like Fort Worth, Pflugerville (near Austin), and Pearland (near Houston) have seen significant growth as homebuyers seek more affordable alternatives while still remaining within commuting distance of major job centers.

According to BLS data, employment in suburban areas surrounding Texas’ biggest metros has grown faster than in the urban cores, a trend that is expected to continue as remote and hybrid work models become more entrenched. This shift toward suburban living is creating new opportunities for real estate investors, particularly in multi-family properties, as rental demand in these areas continues to rise.

5. The Rental Market Will Remain Strong
With rising interest rates pushing some potential homebuyers into the rental market, Texas’ rental demand is expected to remain robust over the next 24 months. According to the BLS, the cost of shelter (rent and utilities) increased by 7.5% in Texas from 2022 to 2023, driven largely by strong demand and limited supply. This trend is expected to continue, with rent increases likely to outpace inflation in cities like Austin, Houston, and Dallas.

Investors in multi-family properties will benefit from these conditions, as rental yields remain high and vacancy rates stay low. For those looking to invest in rental properties, suburban markets may offer better returns due to lower purchase prices and rising tenant demand.

Conclusion
Over the next 24 months, Texas real estate will continue to be shaped by a mix of strong demand, supply constraints, and rising borrowing costs. Investors and homebuyers can expect continued population growth and job creation to drive the market, but affordability challenges due to higher mortgage rates and limited inventory will create hurdles for some buyers. Shifting demand toward suburban and secondary markets, along with a strong rental sector, will provide ample opportunities for those looking to capitalize on the state’s ongoing growth. Staying informed of these economic trends will be key to making smart, profitable real estate investments in Texas.