2020 will be a challenging year for investors, with uncertainty about the economy, the political situation, and international developments. Still, more people than ever are renting, and that means investors mainly need to be cautious about where and how they invest.
A big advantage for investors in Texas is that people are still moving there. In 2018, 85,000 people moved to Texas from other states, for a total population increase of 380,000. Compare that with New York, where 180,000 moved out and California, which lost 160,000.
One reason people move to Texas is because of jobs: 235,000 new ones in 2019. Another is that housing is still affordable. With the exception of Austin, home prices in the big markets are under $300,000 and in the smaller markets they’re mainly under $200,000.
Throughout the country, jobs are becoming more and more concentrated in big markets and that’s true in Texas as well. Our data table lists the five big markets first, then the rest in alphabetical order. Note that the big markets are also those with the highest rate of job growth.
I want to explain two key metrics in our table. Home Price to Income Price shows by how much actual home prices are higher then the “income” price, a calculated number closely related to local income that tells us if and by how much a market is over-priced. It’s not a precise measure, but above 20%, you’re in over-priced territory. The Price/Rent ratio is just the average home price divided by the average annual rent; it helps decide what kinds of investment are most likely to succeed.
Dallas. Although the Dallas market is a bit over-priced, the Price/Rent ratio of 21 is low enough to allow straight single-family rentals. Subdividing and apartments may be safer long-term bets because the rate at which home prices are increasing—4% in the past 12 months—is slowing down. In 2017, it was 12%.
The price dynamics suggest we’re close to the peak of the market, so if you were thinking of selling a Dallas property, do it now. The risk of an actual fall in prices isn’t very high because job growth is strong—over-priced markets can come to a soft landing—but a national economic slowdown would change that. Dallas is the financial and business services center of Texas and very entwined with national growth.
Within the Dallas market, investors in rental property have less risk in areas with a lot of renters, like Addison, Irving, Grand Prairie and Denton, and the 75204, 75220 and 75287 zip codes of Dallas itself.