April 24, 2025 (press release) –
Texas home sales ended last year on a positive note, but will that trend continue in 2025, or will sales flatten? Let’s look at several demand factors influencing the market right now.
Population and Income Growth
Over the past few years, statewide population growth has been stronger than normal, even by Texas standards. The state had a 1.5 percent average growth rate over the past ten years, but an estimated 1.8 percent growth rate last year (Figure 1), well above the 0.9 percent national average for 2024. Texas appears to be in great shape thanks to a boost in international migration in recent years.
Texas household income growth has also remained strong. In 2023—the latest year available from the U.S. Census Bureau—the state’s median household income was $75,780 (Figure 2), slightly below the national median of $77,719. Income growth over the past couple of years has been above average, with a 7.9 percent year-over-year growth rate in 2022 and a 4.8 percent growth rate in 2023.
Mortgage Rates
The Federal Reserve made major policy shifts last year by dropping their target federal funds rate. From August 2024 (when rates began to drop) to today, the fed funds rate has dropped 1 percent. Normally, treasury yields and mortgage rates follow suit. However, to the frustration of many homebuyers, mortgage rates have remained stagnant. Average national rates are still in the upper 6 percent range (Figure 3), which places them above the ten-year average for rates. Combined with the fact that home prices are still elevated, this brings little relief in terms of housing affordability. Much of the blame for why treasuries and mortgage rates remain high is due to market skepticism concerning inflation.
Market Mood
The 2024 election results marked a big shift in sentiment regarding the general economy. According to the global nonprofit think tank The Conference Board, Texas consumer confidence improved in the final two months of 2024. Many industry insiders expect a continued drop in government regulations and a better business environment in the future.
At the same time there is also an almost universal rise in uncertainty, which can impact purchasing decisions. According to the Economic Policy Uncertainty Index, policy uncertainty is almost as high as it was in the early months of the pandemic (Figure 4), which was a series high point. Much of the recent uncertainty has revolved around inflation, continued Ukraine-Russia tensions, and tariff policy changes.
Even with Texas’ strong population growth to support housing growth, I think it’s possible to have a lackluster sales year. While many buyers may have the means and desire to buy a home, they might sense that there is a better window of opportunity on the way. Just a little bit of relief with mortgage rates will go a long way toward increasing purchasing power. Additionally, buyers may wait for the policy landscape to smooth over so their stock portfolios can recover. I think it will be a positive year for home sales, but perhaps not as positive as many would hope.
You can track Texas’ monthly housing market metrics on our website and by reading our Texas Housing Insight report and monthly/quarterly MSA spotlight reports.
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