The average price of homes in Texas rose 6.1% in 2005, 5.6% in 2006 and 4.5% in 2007. The median price of homes sold in Texas rose 5.1% in 2005, 4.6% in 2006, and 3% in 2007. These are all very moderate numbers that don't look anything like a bubble, according to the Texas A&M University's Real Estate Center.
House values are determined by rents. Stock price-to-earnings ratios can be helpful when determining house price rents ratios. Monitoring these ratios can yield a normal price to rent ratio for an area, which in turn can suggest whether a housing bubble can occur.
The research center at Texas A&M computed the house to price rent ratios for the United States as a whole, Texas as a whole, and various Texas metropolitan areas. They discover that the P/R ratio for the U.S. was 24.5%, while that of Texas as a whole was 16.8%, again 69.1% of the national average. These numbers indicate that Texas as a whole is not headed toward a bubble.
Home Price/Rent Ratios 2006
United States--Median House Price $185,200--Annual Rent $7,632--Ratio 24.3
Texas--Median House Price $114,000--Annual Rent $6,768--Ratio 16.8
Austin--Median House Price $164,100--Annual Rent $8,100--Ratio 21.2
Dallas--Median House Price $141,100--Annual Rent $7,536--Ratio 18.7
Houston--Median House Price $129,800--Annual Rent $7,236--Ratio 17.9
The mean-reverting nature of home prices and rents actually indicates that even higer home prices and rents can be expected in the relatively near future in Texas.
What does this mean to you?
If you're tying to sell your home this is great news, because it means your home values are not going to plummet in response to a bubble any time soon.
If you're in the market for a new home in Austin or Texas, it means that this may be a good time to buy, since the market still has room for appreciation.
If you'd like to view the full article by the Texas A&M Real Estate Center click here: http://recenter.tamu.edu/pdf/1854.pdf
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