Rising Mortgages Squeeze Affordability

COLLEGE STATION, Texas – (By Dale King, Realty News Report) – Despite recent boosts in mortgage interest rates, the housing market in Texas remains generally affordable, according to an index real estate researchers at the Texas Real Estate Research Center.

However, mortgage levels that began soaring throughout Texas and the United States in early 2022 — and are still on the rise — are creating small, but noticeable cutbacks in housing affordability statewide, posits a new report from the Texas Real Estate Research Center (TRERC), which is located in College Station near the campus of Texas A&M University.

“A popular metric developed by TRERC and deployed by industry groups depicts a decline in housing affordability across the state in the second quarter [of 2022],” says Dr. Clare Losey, TRERC assistant research economist.

“The Texas Housing Affordability Index (THAI), which measures the relationship between median family income and the amount of revenue needed to purchase a median-priced home in a particular locale, showed widespread declines last quarter, largely precipitated by the significant uptick in mortgage interest rates,” she added.

Last week, Freddie Mac reported the nation’s average 30-year fixed-rate mortgage was 5.22 percent, up from 2.87 percent a year earlier.

The Houston Metropolitan Statistical Area (Houston-The Woodlands-Sugar Land) has maintained affordability, according to the TRERC index, as are the other counties where Houston has a foothold: Harris, Brazoria, Galveston, Montgomery and Fort Bend. Most of the Lone Star State’s larger metros appear unlikely to descent into the pit of too-expansive homes.

The index shows the state of Texas, overall, is safely ensconced in the affordability level.

The TAMU affordability index is explained this way:

A higher THAI [score] indicates relatively greater affordability. A ratio of 1.00 means the median family income (MFI) is exactly sufficient to purchase the median-priced home. A THAI above 1.00 means the MFI exceeds the required income to purchase a median-priced home. Conversely, a THAI below 1.00 indicates the MFI is not sufficient to purchase the median-priced home. The THAI provides a tool for planners, practitioners and other folks in the real estate industry to compare affordability over time and across regions.

Right now, the only Texas MSA with an affordability problem is the Austin-Round Rock-Georgetown region. Its latest THAI declined from 1.32 in the first quarter to .96 in the second.

“This indicates that a family earning the median income made 4 percent less than would have been necessary to qualify for a loan for a median-priced home,” said Losey. “The THAI also fell to less than 1 for Collin, Kerr and Travis counties.”

Those areas have little to do with Houston. Travis County is in the Austin MSA; Collin County is part of the Dallas/Fort Worth MSA while Kerr County is a small area in south-central Texas.

“Wichita Falls and Odessa led the state in affordability, a factor of the smaller gap between home prices and median family income in the two MSAs,” says the report.

Affordability could be a problem for some regions with Houston ties. Fort Bend County – in the Houston MSA and location of Sugar Land – is a few hairs above 1 – sitting one spot on top of the Dallas-Plano-Irving MSA, which is even closer to 1.

Two notches above Fort Bend is Montgomery County, another unit of the Houston MSA. The city of Spring is situated partly in Montgomery and partly in Harris.

A few notches above that is the state of Texas at 1.22. Three notches higher is Galveston County, on the Gulf Coast. That county also falls partly in the Houston MSA.

Much of Houston is in Harris County, which comes in with a THAI of 1.4. Lots of other regions are found above Harris – such as Corpus Christi, Laredo, Victoria and Amarillo – before the report gets to Brazoria County, another Houston MSA member and home to such cities as Pearland, Alvin and Angleton, the county seat.

One will also find Texarkana, Abilene and Lubbock just above before the list ends a few names later with Odessa and Wichita Falls, considered tops in the ranks of affordable homes.

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