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April 2007

Houses are Holding
Texas Housing Market Bucks National Trend

Tamara Plaut, the senior economist for the Texas Comptroller of Public Accounts who has been with the agency for 21 years, interprets housing data associated with the Comptroller's Biennial Revenue Estimate for 2008-2009.

Q: Other states seem to be in dire straits. What exactly is a housing bubble?

A: A bubble happens after a boom. Basically, there was a national recession in 2000, 2001 and a big downturn in housing. The Federal Reserve Board lowered interest rates. When the economy came back, the low interest rates and growing economy turned into a housing boom. People have sold their beginner house and taken out their equity from it to buy a bigger house. That was the strong growth. Prices that were somewhat reasonable then became higher and higher and got out of whack with peoples' ability to pay. Then, the housing market goes into a really big downturn.

Q: What makes Texas so different?

A: Affordable land, an increasing population and a growing number of jobs are all factors contributing to Texas' relatively strong housing market.

Q: So Texas' economy has been strong. But does the state have a housing bubble?

A: No. We had a softer housing market. The prices of houses that are sold and the rate of increase is slowing, but it hasn't gone negative like it has in the rest of the United States.

Q: So it's not a bubble, and we're doing better than the rest of the nation?

A: Nationally, the housing market is in a really big downturn, particularly in the extremely high-priced markets, such as California, Florida and the Northeast. In Texas, our housing has gotten more expensive, but it is still much more affordable relative to household income than in the Northwest, the West Coast and Florida.

Q: What does all that mean for average Texas families? Will they be able to find affordable housing?

A: Texas' economic growth will slow with the nation. Housing permits are still relatively strong, but they have slipped from 21 percent above the previous year's level in the spring to 12 percent below the previous year's level in the fall of 2006. They are going up, but they are at a tipping point, so we predict a downturn in housing starts in Texas. Texas construction activity will lose momentum as the cost of owning or renting a home in Texas pushes closer to the national average of $227,500. The expected increase in unemployment from 2007-09 will also slow down the housing market. In the long run, what determines growth in the housing market is the number of new people coming into an area, the household formations and the number of jobs--you can't buy a house without a job.

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