Texas might as well be called the United States of Texas because of the broad range of real estate markets throughout the state. Sure, oil is a big deal throughout the place, but exploring for it, pumping it, processing it, and financing it happen in different local markets, and then there are entirely separate industries that are more important in some spots.
Houston is the most difficult market to understand right now, partly because we don’t yet know the long-term effects of the flood. Houston has been a magnet for immigrants (from abroad and from other states) partly because of inexpensive housing. If housing construction just resumes in flood-prone areas, that attraction will continue and we won’t see New Orleans-style effects on population growth. The potential for future flooding might even encourage more people to rent a house rather than buy one. Already, more than 40% of Houstonians are renters.
Even before the flood, however, the Houston economy was running in slow motion, ironically a victim of the shale oil boom. While lower-priced oil is good for the large local oil processing industry, it also depresses worldwide demand for new exploration and oil field expertise, of which Houston is capital.
While Dallas is also affected by the lower price of oil because it’s a source of financing for much of the industry, the local economy remains strong because it provides business services and financing for the much larger part of the Texas economy that has nothing to do with oil.
The biggest consideration if you consider an investment in the Dallas area is that home prices–which were largely unaffected by the 2008 crash–have recently been climbing 10% a year. Although the market isn’t yet seriously over-priced, it’s on the way. I expect prices to keep rising for several years–this is not the peak of the market–but an unsustainable boom is a good possibility after that. If you want to buy here, buy now. This is probably the most resilient market in the state, with long-term growth almost assured. With home prices already high (for Texas), renting will become even more popular. Half the population already lives in rentals.
Fort-Worth, the younger less-loved sibling of Dallas, may be the better long-term bargain in this area. Home prices also have been rising 10% a year, but they’re lower than in Dallas and the market is not nearly over-priced. Yet job growth and population growth have pretty much been the same.
The most difficult among the large Texas markets right now is Austin, a victim of its own success. Not that you shouldn’t invest there, but that home prices right now are high and will eventually peak in a boom & bust. Rapid population growth almost doubled home prices in the last 10 years, and the growth of the population itself has created a large number of jobs. The growing tech and tourist industries have boosted an economy that was mainly government/university and slow growth. But higher housing costs by themselves will dampen growth. With home prices high, you’ll do best to subdivide a large home into rental units. The rental market is sure to increase.
San Antonio, like Fort Worth, is one of the best bets in Texas. Population growth has been good but not too strong to overwhelm the real estate market, job growth is very good and tourism is more important than oil. The large military presence is a long-term risk because it can shrink rapidly. Home prices are in balance with local income and with rents; single-family homes can be rented out without modification and the rental market is large (40%).
Among the smaller markets, only a few have the combination of growth and good demand for housing (rising home prices) that make investing in single-family rentals an easy decision. College Station and Killeen top the list, with Tyler a possibility.
The Permian Basin shale oil markets (Lubbock, Midland, Odessa) are for pure speculators only–and the boom may already be over. The border markets, El Paso, Laredo, McAllen and Brownsville have greater economic uncertainty in the current political climate, and a low-income renter population that usually translates into higher management costs.
The United States of Texas is a microcosm of what’s happening in the rest of the U.S.–more of the growth, population and real estate opportunity getting concentrated in fewer, larger markets.