Why Texas Could Become Epicenter of America’s Housing Downturn - Newsweek

Texas is set to become the epicenter of America’s housing downturn, as the state faces such a significant inventory glut that many of its markets are likely to see dramatic price declines, according to analysts.

The massive population boom faced by the state between 2020 and 2024, when U.S. Census Bureau data shows it gained over 2.1 million new residents, spurred an unprecedented surge in new home construction in Texas, made easier by regulatory relief and lower costs.

This would generally be considered good news for buyers, as the nation is facing a chronic shortage of affordable homes, estimated anywhere between 1.5 million and 10 million.

But by the time this new inventory flooded the Texas market, everything had changed. Domestic migration to the state had slowed down, held back by return-to-office orders; and higher borrowing costs and skyrocketing home values had pushed many would-be buyers to the sidelines.

"High mortgage rates and still-high home prices have dampened demand and allowed homes to stack up on the market, and now the pressure on prices is downward," Joel Berner, senior economist at Realtor.com, told Newsweek.

While for Berner this is a natural "correction" of the Texas housing market, for Trevor Bacon, founder and CEO of housing data and analytics company Parcl Labs, it is a sign of a potential darker turn for the state.

"Texas is dealing with a supply glut that was largely built for a very different demand and affordability environment," he told Newsweek.

"Demand peaked in 2021 when mortgage rates were still around 3 percent, yet roughly 75 percent of the stock added across Dallas, Houston, Austin and San Antonio since 2020 came after that peak," he said.

"Today, there is simply too much housing at prices and financing costs buyers aren’t willing or able to absorb," he added.

That is why Parcl Labs believes that Texas may become the weakest major housing market in the country. "The market now has to rebalance with mortgage rates near 7 percent, and price appears to be the primary lever left," Bacon said.

What is happening in Texas can be boiled down to a simple economic concept: an imbalance in supply and demand.

Housing inventory on the state’s market is now roughly twice as high as monthly sales, according to Parcl Labs data, with supply accumulating faster than demand can absorb it.

To show just how much some Texas markets have built over the past few years, Bacon mentions that Dallas, San Antonio, Austin and Houston alone have accounted for roughly 15 percent of all new housing stock added nationally since 2020.

And while these cities continue being attractive to newcomers, with fewer Americans moving across the country and dwindling demand, sellers in Texas have been increasingly forced to slash prices to encourage buyers.

Roughly 48 percent of listings in the state have undergone a price cut, up from 40 percent in April, according to Parcl Labs. Even with these discounts, demand remains weak. In July, home sales were down 4 percent year-over-year, the company reported.

The result has been a significant price correction in Texas—though not as dramatic as that of another state, Florida.

"Since the peak, which we will define as August of 2022 for comparison, Texas has seen for-sale inventory grow by 76.2 percent and prices fall by 9.2 percent," Berner said, citing Realtor.com data.

In Florida, another state that built aggressively during the pandemic, "inventory has grown by a bit more (77.6 percent) and prices have fallen a bit more (-12.6 percent)," according to Berner. "In both states, as well as much of the Sun Belt, strong new construction activity has bolstered the inventory recovery and put downward pressure on prices."

But several Texas metros are still experiencing rapid inventory growth, including Midland, Waco, and Tyler, where the number of homes for sale is up over 25 percent compared to last August, Berner said.

The larger metros are still seeing inventory grow quickly as well: Houston (+15.3 percent), San Antonio (+14.0 percent), Austin (+11.4 percent) and Dallas-Fort Worth (+7.1 percent).

"Even with solid population growth, that is a tremendous amount of supply to absorb," Bacon said.

"At the same time, seller stress is accelerating. Price cuts and markdowns are rising, builders are cutting even more aggressively, and demand still hasn’t meaningfully responded. That’s why we think there is more downside that has yet to be reflected in prices."

Florida experienced pain last year but appears to be through the worst of it, according to Bacon. "Texas has a larger supply problem. Over the past five years, Texas added roughly 50 percent more housing than Florida, or about 200,000 more units in nominal terms," he said.

Texas’ popularity as a destination for Americans moving across state lines is "absolutely helping to keep prices from falling even faster," Berner said, "but the affordability pressures keeping current Texans from buying homes are a bigger drag."

Incoming homebuyers can help to clear the existing glut, "but we need to see a major change to affordability to make a major dent in the inventory of homes for sale," he added.

If Texas follows a similar path to Florida, Bacon and his colleagues think a meaningful amount of the current inventory will need to clear next summer at lower prices.

"From there, the market can reset and resume healthier trends off a more normalized base. On the upshot, supply growth over the last year is now below 1 percent, suggesting rational economics are starting to prevail," he said.

Realtors on the ground in Texas agree, showing mild optimism for the future. "Step back eight years, and this market looks recognizable. What happened in between was a shortage, then a scramble to catch up," Texas REALTORS Chairman Jennifer Wauhob told Newsweek. "We’re on the other side of both now, but expectations reset slower than data does."

The "irony" of the Texas market’s weakness is that "this is ultimately good for affordability," Bacon said.

"Texas is a buyer’s market, and as sellers compete for limited demand, lower prices should help bring affordability and supply-demand back into balance."

But buyers are struggling to take advantage of it, as borrowing costs have risen to 7 percent since late February, when they had briefly dipped below 6 percent, and home prices remain much higher than they were before the pandemic.

Builders are also starting to take notice of the current dynamics putting them at a loss. While still active in Texas, the pace of homebuilding is starting to slow, Berner said.

"Total permits issued for new homes in Texas fell by 7.4 percent from 2024 to 2025, including an 11.7 percent drop in single-family home permits."

Texas still leads all states for the number of permits being issued, but a step back by homebuilders could undermine the advantages obtained by buyers in negotiations with sellers.

According to Bacon, a lot of the challenges Texas is facing are specific to the state. "It overbuilt into a very difficult rate environment for housing transactions, with affordability near historic lows," he said.

"The rest of the country faces some of the same affordability challenges, but Texas simply has far more inventory to work through. That makes its adjustment more acute."

Texas, however, is one of the largest housing markets in the country, with roughly 12 million homes. It is "large enough that a major slowdown would appear in the national statistics for things like home prices, home inventory, and home construction," Berner said.

It likely would not be Texas alone to "drag the national housing market down," he said. Other states experiencing the same problems—high rates, weak demand, excessive supply—like Florida, would probably lend a hand.