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KERA's One Crisis Away project focuses on North Texans living on the financial edge.

Collin County is DFW's least affordable area for homebuyers. Denton County isn't far behind

A for-sale sign outside of a brick home that says "coming soon"
LM Otero
/
AP
With higher interest rates and home prices significantly above pre-pandemic levels, first-time buyers face even greater challenges.

Texas is still mostly affordable for middle-income homebuyers, but affordability is declining. It’s a long-term trend, but new data shows an even sharper decline in home affordability since the beginning of the year.

Middle-income homebuyers can no longer comfortably afford to buy typical home in four Texas submarkets in Dallas-Fort Worth, Austin and San Antonio areas. That includes Collin County in North Texas, and middle-income Denton County families are on the verge of joining their ranks.

While other areas in North Texas remain fairly affordable, they’re less affordable than they were a year ago, according to the latest data from the Texas Housing Affordability Index, which is updated quarterly by the Texas Real Estate Research Center at Texas A&M University.

“Potential homebuyers earning the median family income are just barely scraping by in making it into the arena of homeownership,” said researcher Clare Losey.

Home affordability in Texas has been declining for years, as family earnings have not kept pace with home prices driven up by a short housing supply that is in high demand due to a booming population. The latest data reflects a particularly steep drop in affordability over the course of 2022, as increasing mortgage rates have made it more expensive to finance a home purchase.

“That’s really affected not only the cost of the borrowing, but also the ability of potential borrowers to meet the qualifying standards to obtain a mortgage loan,” Losey said.

But Losey points out that home affordability is still greater in Texas than it is in other big states like California and Florida, with pockets of greater affordability in smaller markets like Lubbock and Abilene.

Priced out

To measure housing affordability, researchers at the research center pore through data from dozens of local housing markets to compare family earnings to the prices of homes. The Housing Affordability Index compares the median family income — that’s the income of families smack-dab in the middle of the income spread — to the cost of a typical (median) home in the same area.

In Collin County, a family earning the median income of $97,400 can’t buy a $583,000 home — the median home price in the area — with a 20% down payment and keep their monthly housing bill below 25% of their earnings. If that family could only afford to put 10% down, their monthly home payments would exceed 30%, the upper limit of what experts say a family should spend on housing costs.

In most of the Texas submarkets tracked by the index, though, a median-income family with a 20% down payment comfortably afford to buy a median-priced home, putting 25% of their income toward housing. There are four regions, like Collin County, that are the exception.

With a 10% down payment, seven submarkets are no longer comfortably affordable to middle-income residents, all in the state’s four largest metro areas. With just 5% down, the number jumps to 10.

Losey said the data shows homeownership becoming more difficult to obtain largely due to a growing mismatch between incomes and home prices. Both are going up, but earnings aren’t growing nearly as fast as home values.

“Since the Great Recession, but particularly since the COVID 19 pandemic began, home prices have increased pretty significantly across Texas,” Losey said. “Without a compensatory increase in incomes, that means that the gap between home prices and income is going to widen, which has meant that it's more difficult for a family earning the median family income to qualify for a mortgage loan on the median priced home.”

Losey says first-time homebuyers face even greater burdens, often buying homes with a smaller down payment, making homeownership more expensive in the long run and increasing monthly mortgage payments.

“All in all, it's typically more difficult for first time homebuyer to qualify for a mortgage loan,” Losey said. “But especially in these circumstances in which we're seeing elevated home prices and higher interest rates, it's going to be even more difficult for first time borrowers, first time buyers to qualify for a mortgage loan.”

Over the past decade, Losey says would-be homeowners have been pushed out of the market, unable to buy into the American Dream as affordability declines. Now, she says, first-time homebuyers are even less likely to be able to buy homes.

Uncertainty ahead

There are some indications that the housing market is returning to something that looks a little more normal. There more homes hitting the market in major markets like Dallas-Fort Worth, which slowed price growth from June to July. But median home values remain more than $100,000 above pre-pandemic levels.

Increased mortgage interest rates, driven largely by the Federal Reserve’s efforts to curb inflation, have likely helped cool the market. Those rates declined recently, making it slightly less expensive to finance a home now than a couple months ago, and it may indicate that lenders expect a recession.

Yet further inflation-fighting action from the Fed could send rates back up later this year.

“I think the word of the day, as always, but especially now, is uncertainty,” Losey said. “There are a lot of questions about how high mortgage interest rates will go … so we're on this wild ride and just in uncharted territory.”

Barring a major recession, Losey said it seems unlikely that Texas will reverse its long-term trend toward less affordable housing. That’s because Dallas-Fort Worth is projected to grow faster than most cities, packing in even more residents to one of the largest metro areas in the nation. And each of those new people will have to live somewhere.

“Construction activity is not keeping pace with the rate of increase in the number of households,” Losey said. “So that alone suggests that affordability will likely continue to decline even if there is some sort of short-term alleviation due to a recession or activity slowing down like we're seeing right now. But overall, I would expect affordability to continue to decline.”

Got a tip? Christopher Connelly is KERA's One Crisis Away Reporter, exploring life on the financial edge. Email Christopher at cconnelly@kera.org. You can follow Christopher on Twitter @hithisischris.

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Christopher Connelly is a reporter covering issues related to financial instability and poverty for KERA’s One Crisis Away series. In 2015, he joined KERA to report on Fort Worth and Tarrant County. From Fort Worth, he also focused on politics and criminal justice stories.