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Texas Rental Market

Texas Rental Market 2021

Of all the demographic and economic shifts taking place in the last 5 years, the housing trends across Texas might be the most noticeable.

As the charts and data below reveal, Texas is increasingly seen in the eyes of buyers, investors and renters as a place of growth and opportunity.

Home builders in the Lone Star State try to keep up to demand in Austin, Dallas, Arlington, Irving, Plano, Fort Worth, San Antonio, Houston, Lubbock, Corpus Christi, Laredo, and El Paso.

Despite a respite in rent prices last month, growth is making TX cities some of the hottest housing markets in the US. However, reality is conspiring to dry up homes for sale for the growing hoards of investors and renters.

Demographics, taxation, pandemic flight, oil revenue, technology, inviting climate and city character have driven the push to Texas.  Will President Biden’s open border crisis and oil drilling prohibition be enough to shake newcomer’s belief in Texas? Will the exodus from tax heavy California cease?

Is More Economic Diversification in Texas’ Future?

The Democrat’s anti-oil measures are already causing some pain, yet global demand for oil will rocket this year and next 5 years. There is talk about economic diversification, but some hurdles exist.

Overall, the State’s oil revenues are predicted to grow even with new drilling cut off.  This should strengthen the case for property investors and property management companies.

Global Oil demand next 5 years. Screenshot courtesy of Statista.

Oil rig counts may plummet yet Dallas, Fort Worth, San Antonio, Plano, Houston, and Austin should enjoy steady growth.  The drawdown in oil revenue will encourage Texas to focus on tourism and technology to give the state greater strength in future. The rising tech center of Austin in particular is in intense demand from buyers and renters, and is a big center for property management.

Sales Forecasted to Grow Despite Slowdown in New Home Construction

According to the Texas Real Estate Research Center, amid rising lumber prices and utility outages across the state, total Texas housing starts fell 6.2% in February. Single-family private construction starts decreased 13.3% in real terms after flattening in January. While 6 months inventory in the norm, Texas has decreased to 1.5% months of supply (Austin is .5% and Dallas is 1.0%).

Texas home sales are forecast to rise 12.1% in March (due to the recovery from the recent winter storm in February). Single family home sales in Houston and San Antonio are predicted to improve about 17% and 13.2%.

TAMU edu also notes that Texas median home prices rose 13.2% year over year (YOY) in February to $280,400.  A lack of affordably priced homes means sales in the luxury category is skewing average prices upward.  Austin and Dallas have seen their luxury home market share increase by more than 10% from last February, and the median home prices there jumped a record 22.4% and 16.9% annually to $398,700 and $344,500 respectively.

Given home prices are increasingly unaffordable, the tens of thousands of newcomers to the state are forced to rent, yet the rental market too is very constrained. It’s a builder and investor friendly state, with lots of land, so we’d have to believe construction could eventually meet demand.

So this brings us to the subject of investing in rental property in Texas.  Is it the best investment possible given the trends just mentioned? More property investors are investing far from where they live, so you can bet plenty of investors are eyeing properties in Dallas, Austin, Houston, Fort Worth and along the coast.

LifeStyle a Big Factor

The weather in Texas is dry and warm, which draws similarities to California but is perhaps more comfortable than Florida. And since Texas has a lower cost of living, it’s comfortable financially too. Some of the cities have charm and character (San Antonio and Austin) and this is no minor factor in why companies wish to come here, and tech workers too. They often prefer Austin.

Austin Texas

Austin, located in hilly countryside near the Colorado River offers ideal recreational opportunities making it an easy transition for tech workers from the Bay area of California.

We looked at New Jersey, Atlanta and various other places, including Dallas, on the shortlist. When it came to Austin it was like a romantic feeling, like this is our place. We love the quirkiness of it. We love the kind of friendliness,” said Co-founder Darina Garland. — from report on Kvue.com

Why Invest in Texas Rental Property?

  1. no income tax in Texas
  2. landlord friendly environment – law is on the side of property owners and investors
  3. strong economic growth- Dallas Fed’s Texas employment forecast predicts 2021 growth of 6.6%
  4. recession proof cities
  5. strong influx of new residents – the state crossed the 29 million resident market for a gain of 4 million residents, or 16%, in the past decade (2 million new residents are Hispanic).
  6. key mega-sized tech companies moving to Texas (Tesla, Samsung, Oracle, Google) and 45 other companies are relocating here
  7. plenty of smaller sizes cities where work from home renters are moving to where single detached family homes are being built
Texas Job Growth by major Metro.

Texas Job Growth by major Metro. Screenshot courtesy of dallasfed.org

 

Texas Oil and Gas Industry Growth.

Texas Oil and Gas Industry Growth. Screenshot courtesy of dallasfed.org

 

Texas Service and Retail Sector Growth.

Texas Service and Retail Sector Growth. Screenshot courtesy of dallasfed.org

Speculative Investment Will Help

Of course, any speculative investment in Texas’ housing market will raise prices. And speculative investment is also the oil that lubricates new housing solutions. Investors will ensure rental housing gets built whether single family houses or multifamily units. Texas is blessed with more land than cities such as San Francisco, Los Angeles, Seattle, Miami, or San Diego and this helps paint a brighter picture for growth in 2021 and 2022.

Will the trends continue to create endless rental property income potential and high rental yields? Let’s take a look at the possibilities.

Tech and Oil Driving Growth in 2021

Austin’s growth is most notable of recent, as migration of tech businesses away from California has accelerated the trend to that city. Given Texas’ more favorable tax situation, and the rising tax burden in other debt ridden states, it’s only a matter of time before more businesses and workers arrive in the lone star state.

Texas fortunes are boosted by the rising price of oil and other energy products. The state’s financial position is solid and as the world recovery progresses, the demand for oil will only grow. Oil revenues will be significant and will draw more migrant workers from other states. WTI oil price is consistently above $60 a barrel which bodes well for the state.

Oil and gas aren’t the only factor in Texas amazing outlook. Farming, ranching, tourism and soon automotive manufacturing as EV giant Tesla is building a Gigafactory in Texas which will open at the end of 2021.

Rent Prices in Texas

As this chart courtesy of Zumper shows, 10 large Texas cities are in the top 100 highest rent ranks which indicates strong demand for rentals. Laredo posted the largest month to month gain in rent price while Arlington has risen the most over the last 12 months. As the pandemic eases, we would expect demand for one bedroom and two bedroom apartments to return, and with that prices should rise in TX cities.

1 Bedroom2 Bedrooms
City in TexasPriceM/M %Y/Y %PriceM/M %Y/Y %
Dallas, TX$1,260-1.60%1.60%$1,700-1.70%1.80%
Austin, TX$1,180-1.70%-7.10%$1,5500.00%0.60%
Plano, TX$1,170-3.30%1.70%$1,560-3.70%3.30%
Houston, TX$1,080-1.80%-1.80%$1,370-2.10%4.60%
Fort Worth, TX$1,020-3.80%-1.00%$1,350-3.60%5.50%
Arlington, TX$9402.20%10.60%$1,2201.70%9.90%
Laredo, TX$7505.60%-5.10%$940-1.10%2.20%
Irving, TX$1,100-2.70%-0.90%$1,5204.80%4.80%
El Paso, TX$690-1.40%3.00%$840-3.40%5.00%
Lubbock, TX$640-1.50%1.60%$8500.00%0.00%

 

AAOA conducted their list of top single family rental yields and Wichita Fall, TX, Lubbock TX, and Austin-Round Rock, TX were at the top of the list.

Rent Yields (Gross Rent Multipliers in Select Texas Cities)

Texas may not have the highest GRM’s in the nation but  cities are in the top 100 nationwide.  Texas home prices are still more affordable than homes in New Jersey, Boston, New York, San Diego, San Francisco, Los Angeles, or Seattle. This info chart below shows the GRM for Texas cities (courtesy of Zillow).

Median Home PriceMedian RentGRMYear over Year Home Price Change
Year over Year Rent Price Change
Austin, TX$422,984$1,51523.2717.65%-0.46%
Dallas-Fort Worth, TX$283,123$1,573159.93%2.54%
San Antonio, TX$228,975$1,33014.358.68%2.31%
San Antonio, TX$228,975$1,33014.358.68%2.31%
Houston, TX$237,566$1,45613.68.50%0.55%
El Paso, TX$153,599$1,15711.0611.79%6.73%

 

More Rental Housing Info: Software for Property Managers | Free Property Management Software | Landlord Software | Houses for Rent |  Simple Landlord Software | HOA Software | Property Management Apps | Real Estate Apps | Leasing Apps | Virtual Leasing | Landlord Apps Apple | Rent Collection | Property Management Company

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