by Mark Sprague, Independence Title’s Director of Information Capital
The most common question I get is “When are we going to return to normal?” My response to you is: “What is normal? Define normal.” If you think the last five years represent a “normal” that will return, you will be disappointed. The last five years were outlier years. There was not enough inventory, and historic low mortgage interest rates. (It was a once-in-a-generation moment caused by a catastrophic economic event, one that caused an equity boom for millions of Americans, but don’t count on it happening again anytime soon.)
The average annual appreciation over the last 50 years in the Texas metros has been between 3% and 3.5% annually, not double-digit appreciation (historically caused by extenuating circumstances, such as lack of inventory, low rates, no-money-down loans, affordability, etc.).
So, what is normal? Historically, six months of residential inventory is the line of demarcation between a “seller’s market” and a “buyer’s market.” Generally, if homes have been selling above their asking price, there’s a good chance you’re in a seller’s market. If they’ve been selling below their asking price, signs point to a buyer’s market.
In a buyer’s market, sellers will often reduce their asking prices as market realities come into focus. When looking at current listings, review the price history — buyers obviously have more negotiating power when sellers are coming off their earlier expectations.
In 2020 and into early 2024, the Texas metros were sellers’ markets. In those years, Texas metros saw a dramatic increase in home sales, 4 to 6 times the historical norms of 2015 to 2019. (My question is, were that many people ready to move to Texas? Seems so.)
However, in 2024, the Texas housing market began showing signs of slowing down compared to the rapid pace of previous years, but investor activity (cash) remained notable. This trend was influenced by rising interest rates, which made mortgages more expensive and cooled buyer demand, leading to longer days on the market and a shift towards a more balanced market. However, appreciating values has continued, just at a much slower pace.
In 2024 through 2025, the Texas metros have been inching closer to being buyers’ markets, with most homes selling within 2% to 3% of the last list price.
What should we expect the housing market to do in 2025/26?
Expect a return to pre-2020, with slower appreciation than the last five years in the Texas metros. In Texas, the average number of days a home spends on the market has generally decreased over the past decade. A report from Texas REALTORS® shows that the average days on market (DOM) in Texas decreased from 93 days in 2011 to 55 days in 2020. However, more recent data indicates a potential increase in DOM in some Texas metros, such as Austin, where the median days on market in July 2025 was 60 days, up from 56 days in June. The number of sales and prices stayed about the same during this period. From 2025 to 2026, look for a return to historical norms.
What about affordability?
When talking about residential real estate, affordability is always a major issue. What issues are contributing to those housing costs, and where can we expect to see costs increase this year?
First, consumers have always had to “drive till they qualify.” Historically, that meant that most first-time buyers drove to the outskirts of the cities where they worked. But starting in about mid-2020, prices really exploded for about 18+/-months with not enough inventory, neither lots nor housing. So we know what happened then — many buyers had to drive even further into surrounding counties. Since then, prices have slowed in the entry-level home market.
At the same time, mortgage rates more than doubled as the economy improved. So, consumers could buy more house 3-to-4 years ago with the same income. Also, the costs of building — building materials and labor — have gone up with little sign of abating. Costs went up 45%+ for new entry-level homes over the last 5 years. We haven’t seen a lot of relief on that front. So new homes now cost about 45% more than they would have if they were built a few years ago, with the same amount of wood, the same amount of copper wiring, shingles, windows, etc. That’s much higher than the increase that we saw in single-family rents or apartment rents. If you were looking to buy, as you saw values and rates increase, you purchased or decided to wait. As you have waited, values continue to appreciate, although more slowly. Good news on new production homes: production builders’ incentives, rate buydowns, closing costs incentives, etc., are helping buyers with affordability.
What do you think’s going to happen in 2025?
After 2024 (a neutral-to-slight appreciation year when sales and home prices stayed about the same), we expect a little bit of price increase in 2025 into 2026. But homes still need to be priced correctly, closer to the median/middle of the market for a timely sale.
The Texas residential markets are beginning to stabilize.
The real estate market in 2025 is expected to experience a period of stabilization and modest growth. Home prices are likely to grow at a slower, more sustainable pace compared to the rapid increases seen in recent years. Prices should remain relatively flat or see minor price increases on a national basis. After rising more than 50% over the last five years, prices may finally stabilize in 2025.
Price correctly.
While real estate values could finally slow, it doesn’t look like they’ll drop in 2025. Homes are selling within 95% to 98% of the median list price in Texas metros.
Mortgage Rates will stabilize.
Late 2025, financial indicators are pointing to a 1/8 to a 1/4-percent drop or rise at most. Rates will stabilize as markets look to inflation indicators. The range for the 30-year fixed mortgage rates has been close to the 6.5% to 7.5% range recently. While the lowest rates in the past year have dipped slightly below 6.5% (such as the 6.08% seen in September 2024), rates have mostly hovered around 6.5% to 7.5%. It’s important to remember that these are average rates, and the rate you receive will depend on various factors like your credit score, down payment, and lender.
The Rental Market gains strength.
After a historic number of new home starts from 2020 to 2022 and now a historic low number of starts, rent values are stabilizing with limited concessions. Everyone is reporting that their renters are in strong financial shape (normalizing delinquency, high retention, low rent-to-income ratios), a good reminder that rental affordability is a bifurcated issue. Rent-to-income ratios are mostly around 20%, and Equity Residential noted that move-outs due to rent increases remain below historical norms. What to expect:
- Inflation and job creation will continue to drive prices.
- Global and US inflation has continued with a steady but uneven decline, while growth has generally remained resilient, allowing for eventual central bank rate cuts.
- The US economic outlook is stable with a moderate growth slowdown expected, but no recession.
Where are we headed?
Looking to the fundamentals –the drivers of real estate markets – we’re optimistic. Based on the key metrics of population and economic growth, Texas is going to continue to out-compete the rest of the country/globe for a while. So that’s where I’d start if you were doing a five-year forecast. Some things to watch:
- Mortgage rates dropped to their lowest since April as investors increased the chances of a September Fed rate cut. Rates are still above 6.5%, but it is a welcome relief for buyers.
- Tariffs jumped to an average of 18.3% (7–8 times higher than in January), adding uncertainty despite boosting customs revenue.
- Consumer sentiment edged higher, driven by easing worries about job losses, though overall attitudes toward purchasing remain cautious.
- Active listings of homes for sale increased by 30.5% in 2024. Values are mostly flat or slightly higher. Again, price listings correctly!
- Price premiums for new homes are at a historic low.
Every market is local. Values and appreciation vary by neighborhood based on different economic, educational, corporate, convenience, and historical factors. Realtors are the front line of communication with consumers, helping them understand their local markets, especially in today’s changing economy.
If you have any questions or concerns, please get in touch with your Independence Title Business Development Representative.
