Texas Housing Still Affordable, Says Real Estate Center’s Jim Gaines

COLLEGE STATION (Real Estate Center) – Texas’ long-standing status as a state with affordable housing continued in 2014, according to the Real Estate Center’s latest Texas Housing Affordability Index (THAI). In fourth quarter 2014, the state had an index value of 1.74.

“This means the state’s median income was 1.74 times (or 174 percent of) the income required to qualify to purchase a median-priced home with an 80 percent mortgage at the prevailing interest rate and the lender requiring that the total mortgage payment be no greater than 25 percent of the buyer’s monthly income,” said Center Research Economist Dr. Jim Gaines. “The higher the index value, the more affordable homeownership is in the state.”

The rapid rise in home prices around the state since 2011 has caused concern regarding housing affordability for Texas residents. The statewide median home price increased a total of 24 percent between 2011 and 2014, with annual increases of 6 percent, 9 percent and 7 percent during 2012, 2013 and 2014, respectively. The median price for a home increased even more in many communities.

But Gaines said these increases are somewhat misleading.

“During the ten-year period since 2004, the Texas median home price increased an average of 3.6 percent per year – less than the long-term average,” he said. “Median family income during these same years increased just 5 percent overall. The 30-year fixed mortgage interest rate fluctuated between 3.36 and 4.44 and averaged just under 4 percent, generally contributing to overall affordability. The THAI peaked in fourth quarter 2012 and first quarter 2013 at 2.21, and affordability has declined nearly 21.5 percent since then. The comparable U.S. affordability index declined nearly 26 percent during the same period.”

Gaines said home affordability in Texas has gone virtually full cycle since 1999.

“The composite THAI for 1999 in Texas was 1.74,” he said. “After dipping to 1.58, the index reached a high of 1.81 in 2003 then dropped to 1.45 by 2007. The median home price declined by 0.3 percent and 0.7 percent in 2008 and 2009, respectively, and advanced only 1.2 percent and 0.8 percent in 2010 and 2011. With median home price holding basically flat for these four years, the THAI expanded rapidly, reaching the peak of 2.14 in 2012. The index is back to 1.72 for the full year of 2014.”

Texas remains a relatively affordable state compared with comparable U.S. measures of affordability, Gaines said.

“During the 16 years from 1999 to 2014, Texas has averaged an index value about 20 percent higher than the comparable U.S. index score,” he said. “The ‘Texas spread,’ or the differential between the U.S. index value and the Texas index, narrowed to only 6 percent in 2011 as home prices nationally bottomed out, but has rebounded to a nearly 15 percent spread in 2014.”

For more from Gaines on housing affordability, tune into this week’s Real Estate Red Zone podcast.