Moderating Home Prices in Texas Could Signal Trend in Sun Belt Region

In Sun Belt states, where housing premiums are among the highest in the nation, some metropolitan areas in Texas are beginning to offer home buyers some relief and could signal an overall trend toward slowing home prices across the region.

“The housing market in Texas could be well on its way to moderating and offering buyers a better buying opportunity than other measured metros in the Sun Belt states based on historical pricing trends,” said Ken H. Johnson, real estate economist in Florida Atlantic University’s College of Business. Researchers from FAU and Florida International University co-produce a monthly index of housing premiums and discounts in the 100 most populated metropolitan areas across the country.

A typical home in El Paso is 24.2 percent overvalued compared to its historical average, followed by Dallas at 22.17 percent, McAllen at 19.15 percent, Houston at 16.02 percent, Austin at 12.46 percent and San Antonio at 11.49 percent. That compares with housing premiums of more than 30 percent elsewhere in the Sun Belt region. Seventeen out of the 20 most overvalued measured markets in the country are within Sun Belt states.

“Austin stands out as an ideal option as rents are trading at a discount in the area and the housing premium is only slightly above its long-term average,” said Johnson. “Rents are often a leading indicator of where home prices will go. Other areas such as San Antonio and Dallas have rents trading at a discount, so it’s likely prices will moderate further in those cities as well.”

Meanwhile, Atlanta continues to top the list of overvalued markets, with a typical home in the market overvalued by nearly 41 percent, the study found. Following Atlanta are Detroit; Cape Coral, Florida; and Las Vegas.

“These markets have led the nation in terms of housing premiums for the best part of a year,” Eli Beracha, director of FIU’s Hollo School of Real Estate. “However, rental rates in these cities are mostly beginning to moderate as well but remain behind the Texas markets. It is quite likely we are seeing the beginning of slowing home prices in the Sun Belt states, though time will tell.”

The index is created by looking at the difference in actual average home price in a city and comparing it to the long-term home pricing trend for the same city to calculate how overvalued or undervalued housing markets are using publicly available data from Zillow.