Is Now A Good Time To Buy A House In Texas?

April 24, 2021

Owning a home is a perennial part of the American dream. But, for over a year, the housing market has been very up and down. Consequently, many potential homeowners here in Texas have found it difficult to get their foot in the door — literally.

But just because purchasing a home might be a tricky proposition right now doesn’t necessarily mean that this is a bad time to shop for a home. As always, finding a property you can feel comfortable calling home depends on more than economic forces that are beyond any individual’s control. Doing so is also a matter of your preferences, long-term goals, and current finances.

So, what does the rest of 2021 likely hold in store for house hunters? In this article, we’ll answer the most pressing questions consumers have about the Texas housing market, examine the emerging trends every homebuyer should be aware of, and review the general principles that have long been key to first-time home buying success.

Are home prices on the rise?

The answer is an emphatic “yes.” Over the past year, Texas home values have gone up 8.5 percent. Moreover, in March 2021, Texas home prices rose at a faster pace than at any time in the past decade. For example, in Dallas-Fort Worth, the median price of a single-family house is now $312,000 — the highest such figure ever recorded in North Texas.

Why are home prices rising?

A major contributing factor to this situation is the shortage of inventory. There are currently fewer homes for sale in Texas than at any time in more than two decades.

For example, slightly over 6,000 single-family homes were listed for sale with Dallas-Fort Worth real estate agents in March. At the current rate of sales, those 6,000 homes represent less than one month of inventory.

The situation is not much better in San Antonio or Houston. The former has approximately six weeks of available inventory and the latter about two months. All in all, Texas’s total months of inventory (MOI) is currently sitting at an all-time low.

In short, supply cannot keep up with demand. Many homes put up for sale receive multiple offers, and many are above the asking price. Look no further than Austin, where, on average, homes are selling for almost 7 percent over the asking price. At this same time last year, however, homes in the area were selling 1 percent under the asking price.

Another factor is further complicating the inventory situation and driving home prices upward. Thousands of individuals are relocating to the Lone Star State in search of career opportunities and an overall improved quality of life. Many of these individuals are arriving from the East and West Coasts. They have extra buying power thanks to the rapid appreciation of their previous homes.

According to a recent report issued by online real estate brokerage Redfin, out-of-state buyers can afford to pay as much as 32 percent more for a home than someone already living in Austin. Meanwhile, back in North Texas, newly minted Texans are pushing the median home sales price above $400,000.

Do current conditions favor sellers or buyers?

Generally speaking, the conditions described above favor sellers over buyers. The statistics on how long it takes a home to sell in Texas’ major metropolitan areas back up that observation.

According to the Texas Real Estate Research Center at Texas A&M University, scorching-hot markets such as Austin and Dallas-Forth Worth have driven the average days on market (DOM) for a home in Texas down to 42 days. A year ago at this time, the average DOM for a Texas home measured 56 days.

On the other hand, the decrease in active listings in recent months indicates many potential sellers are not willing to put their homes on the market until the threat of the pandemic has lessened considerably.

Similarly, current conditions might also give pause to would-be sellers wanting to upgrade to a more spacious (or luxurious) property. While it may be easier to sell your home, if you wish to stay in the same housing market, you’ll find yourself in the same predicament as other buyers.

What is the outlook for mortgage interest rates?

Historically, an improving economy correlates with rising mortgage rates. The prevailing opinion among economists and investors is that the U.S. economy will continue to strengthen in 2021 as stay-at-home orders are lifted, COVID-19 cases decline, and more aspects of life return to a semblance of normal.

That said, however, major players in the mortgage industry expect rates on 30-year mortgages to hover around the 3 percent range all through 2021. Even those projections that factor in an explosion in consumer confidence predict that mortgage interest rates will only rise as high as 3.6 percent. These low-interest rates should help homebuyers offset some of the inflation currently affecting home prices.

What do home buyers need to know about the government’s COVID-19 economic relief efforts?

The nation’s central bank, the Federal Reserve or Fed, slashed the federal funds rate when the coronavirus recession began. One year later, the Fed continues to signal its intention to keep this rate as low as possible — and for the foreseeable future.

Although the federal funds rate does not dictate mortgage rates, it profoundly influences how banks lend money to each other and their customers. A low federal funds rate typically translates into little upward pressure on mortgage rates, much to the benefit of homebuyers.

Regarding down payment and closing cost assistance, the federal government does not give housing grants directly to individuals. Rather, federal funds are allocated to states and certain municipalities. These authorities distribute those funds to individuals.

The Texas State Affordable Housing Corporation (TSAHC) is a 501(c)(3) organization that serves low-income and underserved communities. TSAHC’s mission is to provide acceptable housing options to those who do not commonly have them through conventional financial channels via programs such as down payment assistance grants.

In addition to the TSAHC, the Texas Department of Housing and Community Affairs (TDHCA) sponsors the “My First Texas Home” program for military veterans and first-time homebuyers.

Have lenders tightened their requirements because of COVID-19?

As the effects of the pandemic spread in the spring of 2020, mortgage lenders did indeed begin tightening their lending standards. Their reasoning? To better protect themselves against borrower default.

As unemployment surged in 2020 due to the pandemic, many lenders began adding overlays to their loan origination process. Overlays are new lending policies creating new standards for certain mortgages, such as raising the minimum FICO credit score to qualify for a Federal Housing Administration (FHA) loan. These overlays effectively disqualified many potential borrowers with credit scores in the 500s and low 600s.

Now, however, as expectations for a complete economic recovery build, it appears that lenders are relaxing some of these requirements. For example, the Mortgage Bankers Association’s Mortgage Credit Availability Index, which measures the difficulty of getting a loan, began rising as early as November 2020. Increases in that index indicate that credit will probably continue to loosen in 2021.

However, if you’re seriously considering trying to secure a mortgage, start making the kind of financial decisions that can help you boost your credit score, preferably into the 700s.

What else can I do now to put myself in the best position to purchase a home?

Market conditions are only one factor in the home buying equation. Your overall readiness to accept the responsibilities that come with homeownership is just as critical to your decision-making process. Be sure you can answer the following questions before approaching a realtor and scheduling open houses.

1) Are you prepared to put down roots?

If you purchase a house, how long do you intend to stay in that location? The ideal is to remain in a house long enough — four to five years on average — for rising property values and your equity to exceed the costs of buying and selling, including real estate commissions and mortgage closing costs. If your future feels more uncertain, you might want to take a cautious approach to home buying.

2) How secure is your job?

Buying a house is not a good idea if your employment situation is precarious. A mortgage represents a substantial financial commitment and can become extremely stressful after a job loss. So, take a good, hard look at your current employment situation before attempting to buy a house.

3) How likely are you to have your mortgage application approved?

First, you’ll need savings. This cash will help you cover your down payment and closing costs, as well as moving expenses. You also need to consider this trade-off: the larger your down payment, the lower your monthly mortgage payment will likely be.

Secondly, as noted, you’ll need excellent credit. The higher your credit score, the better your chances of securing a mortgage. According to data provider Ellie Mae, the average FICO score for all closed mortgage loans in February 2021 reached 753 — up from an average of 738 in February 2020.

Lastly, you’ll need to prove that you can manage debt. Lenders are particularly interested in your debt-to-income (DTI) ratio. Your DTI is the percentage of your gross monthly income that goes toward monthly debt payments, including housing costs, car loans, student loans, and credit cards. Lenders prefer a DTI of 36 percent or below, but the lower, the better when it comes to qualifying for a mortgage.

Of course, not all of these facts and figures apply equally to every real estate market here in the Lone Star State. Consult with a local Guaranty Bank & Trust mortgage specialist today to find the home loan that best meets your needs. Connecting with any of our friendly, caring, and collaborative experts is as easy as visiting your nearest Guaranty location or scheduling a video appointment. We look forward to welcoming you to the growing Guaranty community.

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