You’ve probably heard rumors about the affordability of homes in the Lone Star State. But, you may have wondered: why is it so cheap to buy a house in Texas?
Home prices in Texas are relatively low due to extensive available land, low labor costs, lax regulation, and high property tax rates. The abundance of these factors significantly reduces the overall cost of home construction, subsequently making Texas housing quite affordable.
Feeling curious about this? Stick around and we will delve into why the prices of Texas homes appear to defy the national trend.
Setting the Scene: Texas Real Estate Market
Before delving into why it is relatively affordable to buy a house in Texas, it would be good to have a basic understanding of Texas’ real estate market. The Lone Star state offers a wide variety of property types, from urban condos to sprawling ranch estates, and everything in between.
A Brief Overview: Property pricing in Texas
Texas, known for its vast landscapes and diverse cities, has seen a steady rise in property values over the years. However, compared to other regions in the U.S, property prices are surprisingly affordable. The median home value in Texas is $242,500, as of 2020, compared to the national average of $284,600.
This does not mean that property prices are flat across the state. Indeed, some cities in Texas have a median home value higher than the national average, like Austin with a value of $365,600. Others, like San Antonio, are far more affordable, with median home values sitting at $192,000.
The Role of Supply and Demand
One key factor influencing Texas’ affordable real estate market is the basic economic concept of supply and demand. Simply put, the high availability of land, coupled with a robust housing market, keeps prices relatively low.
Expanding Urban Populations
Note that Texas is home to four of the nation’s ten fastest-growing cities – Houston, Dallas, San Antonio, and Austin. While this could lead to a surge in property prices, these growing urban hubs have managed to maintain lower than average housing costs. The vast expanses of Texas lend themselves to the construction of new housing, preventing the sharp price upticks that occur when demand heavily outweighs supply.
Job Market Influence
Another factor to consider is the strong economy in Texas. The Lone Star State is home to over 50 Fortune 500 companies, and its job market is massive and ever-expanding. This has led to a steady stream of new residents, which in turn puts a strong, consistent demand upon the housing market. However, thanks to the plentiful land and a construction industry that continues to build new housing, this demand does not cause prices to skyrocket as it would in more geographically constrained areas.
Breaking Down the Affordability Factor
When considering the cost of buying a house anywhere, the primary factor to look at is affordability. In the case of Texas, the affordability of houses can be broken down into a few key factors. Let’s have a more in-depth look at these factors.
Cost of Living vs. Income
One of the primary reasons why houses in Texas are relatively cheap is the balance of the cost of living and income. Generally speaking, the cost of living in most parts of Texas is significantly lower than other parts of the country. This means that your dollar goes a lot further in Texas, including when it comes to buying a house. Here are some specifics:
- The cost of living index in Texas is 93.9, while the U.S. average is 100
- The average income in Texas is $59,570, close to the U.S. average of $61,937
As such, on average, people in Texas have almost the same income, but the lower cost of living allows them to buy more house for their money.
Property Taxes: An Unexpected Twist?
Now, you might assume that lower house prices would mean lower property taxes. But that’s not necessarily the case in Texas.
While it’s true that the initial purchase price for a home in Texas might be less expensive, the State of Texas has no income tax. Therefore, much of the local and state government is funded by property taxes. So, although the purchase price of a home is lower, Texas residents still contribute a significant amount to the state’s coffers through their property taxes.
- The average property tax rate in Texas is 1.81%, significantly higher than the national average of 1.07%
This might seem like a significant disadvantage, but again, considering the relatively low cost of houses, it’s often still cheaper overall to live in Texas than in many other parts of the country.
Sizing Up: Texas’ Large Landmass and Housing
Everything seems bigger in Texas and that applies to landmass and homes too. The Lone Star State is known for its vast land area and huge, relatively inexpensive houses. This section will explore how Texas’ abundant land availability and the trend of building oversized homes may explain why it’s relatively cheap to buy a house in the state.
The Impact of Land Availability
Texas is the second largest state in the United States, both in terms of population and geographic area. It spans roughly 268,596 square miles, making it larger than many countries including France and Japan. This enormous land area plays a significant role in real estate prices.
When it comes to real estate, the basic rule of thumb is that prices hinge on the principle of supply and demand. If land is in high demand but limited in supply, the price per square foot will naturally rise. However, with a vast supply of land in Texas, the state doesn’t face the same kind of demand pressure.
The availability of land ensures that there’s less competition between prospective buyers, leading to lower land and property prices. This chain reaction eventually translates into affordable housing in Texas, even in some of the state’s largest cities.
Oversized Homes: The Texas Trend
Everything is indeed bigger in Texas, even the homes. This “extra-large” trend is rooted in the availability of land. With plenty of space to build, there’s room for larger homes without the need to increase prices dramatically.
According to the U.S. Census Bureau, the average house size in the US is about 2,301 square feet. However, in Texas, homes often exceed this average. According to a 2020 data analysis by HomeArea.com:
|Average House Size (Square Feet)
In other words, while a buyer may pay slightly more for the larger square footage of a Texas home, the price per square foot often remains lower than in other states with less available land.
The larger-than-average home size in Texas affords potential homeowners more bang for their buck, making the Lone Star State an attractive option for homebuyers desiring spaces that offer quality, size, and affordability.
Demystifying the Real Estate Process in Texas
Let’s dive into the world of real estate in Texas to debunk why it’s so affordable to own a home in the Lone Star State. One of the main reasons it’s relatively cheap to buy a house in Texas is related to the simplicity of the transaction process. In fact, this ease of purchasing can partially be accredited to the role of property agents and the straightforward procedures of housing transactions.
The role of property agents
Real estate agents in Texas play a significant role in streamlining the home buying process. They act as not just facilitators, but advisors and negotiators, making it profoundly less stressful for would-be homeowners. They guide buyers through the complex home buying process, from finding a home to closing the deal, and even answering questions after the sale has been finalized.
The vast majority of real estate agents have deep roots in their respective regions, giving them a thorough understanding of local market trends, property values, and available listings. This knowledge comes as a relief for buyers who are often overwhelmed by the multifaceted real estate industry.
Procedure of housing transactions
The procedure of housing transactions in Texas is straightforward and less formal than in some states. It starts with the signing of a purchase agreement for the property, a document that outlines the terms and conditions of the sale. If the buyer needs a mortgage, application for loan processing is completed in this phase too. Appraisal and inspection come next, to validate the condition and value of the property.
On for a closing meeting, which is rather informal and can sometimes even be held at the seller’s kitchen table. All involved parties gather, including the buyer, seller, real estate agents, and sometimes a notary. At this meeting, documents are signed, the property title is transferred, and funds are exchanged. The whole process completes when the buyer officially records the deed at the county courthouse, typically done electronically nowadays.
Notably, Texas’ streamlined real estate procedures and the mediation of experienced property agents contribute to relatively lower closing costs. And this, in turn, makes the process of owning a home in Texas cost-efficient and affordable.
Texas’ Alluring Homeowner Benefits
Many aspiring homeowners find Texas an alluring destination due to its affordable housing options. As surprising as this might sound, there are various factors supporting this affordability, including some unique to the state itself.
Homestead Exemption: A Unique Texas Perk
Texas is among the few states that offer a Homestead Exemption, a legal provision that helps homeowners save on their property taxes. This unique advantage is one of the main reasons why buying a house in Texas could be less expensive than in many other places.
The laws surround the homestead exemption in Texas are quite generous, allowing homeowners to exempt up to $25,000 of their home’s value from school district taxes. For homeowners who are over the age of 65 or disabled, another $10,000 can be exempted from the school taxes. This helps to lower the costs of homeownership significantly.
|Standard Homestead Exemption
|Additional Exemption (over 65 or disabled)
Low Interest Rates: A Boost for Buyers
Another factor contributing to the affordability of homes in Texas is the low interest rates on mortgages. As historical data suggests, Texas typically offers competitive, if not lower, mortgage rates compared to the national average. This makes the cost of borrowing money for a home in Texas lower than many other US states.
To illustrate, as of mid-2021, the average 30-year fixed mortgage rate in Texas was approximately 2.90% compared to the national average of about 3.0%. These small distinctions in interest rates can add up over years, making a significant difference in the overall cost of home buying.
|30-year fixed rate (Mid-2021)
These lower interest rates don’t just mean lower monthly payments – they also mean that buyers can afford a more expensive home due to the lower cost of borrowing. And with the relatively low property prices in many parts of Texas, this makes homeownership an even more alluring prospect in the Lone Star state.
Case Study: Comparative Analysis with Other States
When we compare the housing markets of different states, we can recognize why Texas homes are generally less expensive. Two states with contrasting scenes are California, known for its soaring prices, and Texas, renowned for its cheaper properties. Let’s delve into this comparison to understand better.
California vs. Texas: A Tale of two extremes
In California, the median home value stands at approximately $712,430, whereas, in Texas, this figure is notably less, averaging around $242,400. While both states offer attractive amenities and quality living standards, each is governed by different real estate market dynamics.
The high cost of living in California stems from factors such as stringent building regulations, which limit the number of new houses, and high demand due to its popularity as being the hub of several high-paying industries. On the flip side, Texas maintains a lower cost of living, resulting from more relaxed zoning laws and ampler construction, leading to an increased supply of homes.
|Median Home Value
Midwest Vs Texas: A Middle Ground Comparison
To further contextualize, let’s turn to states in the Midwest, known for having some of the country’s most modest-priced homes. Even in this comparison, Texas homes still tend to be cheaper. For example, the median home value in Illinois is estimated at $209,100 and $180,000 in Kansas. However, remember that certain parts of Texas, especially metropolitan areas like Austin, may have higher prices. Nevertheless, on average, the Texas real estate market remains one of the more affordable ones across the country.
|Median Home Value
All in all, when it comes to buying a house in Texas, you can enjoy quality living at a more affordable price. This increased affordable housing availability is a critical factor contributing to Texas’ continued popularity among potential homeowners.
A Future Perspective: Will Texas Always be Cheap?
Many individuals are speculating about the future of the Texas real estate market. Will it always provide cheap houses? This section seeks to address the future projections about real estate pricing in Texas using a variety of lenses.
Growth Trends and Market Predictions
According to the Texas A&M Real Estate Research Center, Texas’s estimated population growth rate from 2010 to 2040 is about 52%. This growth projection surpasses the national average by 20+
Effects of Population Increase
Influx of people into Texas is expected to have significant implications on the real estate sector. Ordinarily, it would be worrisome if prices were to skyrocket, as that would imply that fewer people could afford houses. However, Texas seems to suppleness this increase in population with an equally aggressive housing development project. For instance, in 2020, Texas issued 114,000 building permits—more than any other state—according to the Texas A&M Real Estate Research Center.
Changing Economic Factors
Other economic factors that may affect real estate prices include employment rates, income levels, and the general performance of the economy. Let’s look at these factors in Texas:
- Employment rate: Texas has a low unemployment rate. In most parts of Texas, it’s lower than the national average, which implies that more people can afford to buy homes.
- Income levels: The state ranks among the top in the country for median household income. As such, potential homeowners are in an ideal position to purchase homes.
- Economic performance: Texas boasts a diverse economy, not over-reliant on one industry. This has helped cushion it against massive economic shakeups, consequently maintaining moderate real estate prices.
While future predictions in the real estate industry are never set in stone, most signs at present indicate that Texas will remain an affordable destination for homebuyers in the foreseeable future, owing to its robust population growth, thriving employment and economic sectors, and sustained construction efforts.