Texas has been one of the hottest housing markets over the last decade. Thanks to booming cities like Austin, Dallas, Houston, and San Antonio; coupled with no state taxes many Americans have flocked to the Lonestar state and driven up property prices.
Over the past decade, Texas housing prices have risen 99.56 percent, which equates to an annual home appreciation rate of 7.15 percent, according to the data collected by NeighborhoodScout. If you are a house buyer or real estate investor, Texas has been one of the finest long-term real estate investments in the United States over the past decade.
But the question being asked by many buyers, renters, sellers, and investors is whether home prices will continue to rise into 2023 or fall as the country enters into a recession and interest rates rise as the Federal reserve fights inflation.
There is no statewide rent increase limit in Texas, which means landlords are legally allowed to raise the rent as much as they like. Tenants can renegotiate or find other housing, but no legislation limits how much landlords can charge in rent.
The pandemic-fueled boom for multifamily building owners is fading fast as the new year gets underway. The slowdown in leasing demand and rent growth comes after an unprecedented run for the apartment and home rental industry that most housing economists say was shaped by the pandemic.
Vacancies are piling up and the biggest wave of new rental buildings in nearly four decades is expected to cut the pace of rent growth nationally. Some in-demand Sunbelt cities are already experiencing rent declines, in part because many tenants and people searching for apartments feel they can’t devote any more income to rent.
Demand for multifamily plummeted during the fourth quarter of 2022, after having been at above-average levels earlier in the year. It appears that rental demand has been negatively impacted by persistent inflation pressures, diminished savings levels of many households, and ongoing recession expectations.
A lower-than-normal rent growth is expected this year along with a higher national vacancy rate. However, due to elevated mortgage rates and the overall national shortage of housing, we believe that many renters will not move into homeownership in the near term, keeping multifamily fundamentals subdued but somewhat stable over the second half of the year.
Demand for multifamily rental units was robust during much of 2022 but then dissipated during the last three months of the year. According to data from RealPage, multifamily demand was estimated at 661,910 units at the end of 2021, compared to an estimated 303,031 units in 2020. But by year-end 2022, demand had turned negative at -103,485 units.
It is expected that the national multifamily vacancy rate will rise in 2023, primarily due to the amount of new supply expected to deliver over the next 12-18 months this year, just as the economy likely enters a recession and job growth turns negative. Much of this new supply consists of more expensive, class-A units in many places, and with elevated mortgage rates in many locations across the country.
Demand for all classes of multifamily units remained strong in early 2022 but began to ease later in the year, as illustrated below. According to data from RealPage, Inc., as of the fourth quarter of 2022, year-over-year effective rent growth for stabilized class A and B units was still a remarkable 8.5 percent and 9.0 percent, respectively, but both classes saw double-digit annual growth in the prior three quarters of the year.
Effective rent growth for stabilized class C remained high throughout the year, and class C ended the year with the highest effective rent growth at 12.4 percent. We believe that the slowing in rent growth across all classes later in the year was the result of slightly diminishing demand as the national economy eased, and a general easing in market conditions after several consecutive quarters of unsustainable rent growth.
Price increases will slow down, both for rent and house prices, from what they’ve been in the last two years which is an easy prediction because it has already been doing that. One main factor in flattening rent and housing prices are contributed to interest rates
As informed investors we should understand the risks associated with real estate investing and that there is no guarantee. Please do your due diligence.
