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Economist: Texas is not in a housing bubble

2016 and 2017 could be a game changer

Home prices in five Texas markets are well above their historical peak levels, but according to one Texas economist, this doesn't mean the state is in a bubble.

“We don’t think we are in a price bubble, but we are well aware that home prices have been increasing at almost twice their normal annual rate of increase for the last several years,” said James Gaines, research economist with the Real Estate Center at Texas A&M University.

A recent report from CoreLogic (CLGX) identified 14 of the top 100 markets in the U.S. as currently overvalued, with five from Texas.

"Home prices in five Texas markets are well above their historical peak levels partly due to strong job growth and to the absence of the severe boom-bust housing cycle that was seen elsewhere," CoreLogic reported. "Between 2006 and 2014, an oil and gas boom had fueled job and population growth in some markets, pushing home prices well above their sustainable levels in these markets.”

Gaines explained that yes, Texas had an oil and gas boom that brought jobs and people.

“When you bring people and jobs, that creates a heavy increase in the demand for housing, rental and owner,” he said.

However, now the state is experiencing a slow down in land development and construction because of the new restrictions on lending, he added.

“Over the last several years, the demand started going up much faster than the supply could keep pace with,” said Gaines. “For example, all of our housing markets are reporting significantly low volumes of homes being listed for sale relative to the demand. A normal market would have 6 months of inventory, while we are running at 3-month inventory.”

Gaines said, “Bottom line, we don’t think there is really a bubble.”

Texas never saw the same kind of volatility that happend in other markets when properties went up too much.

Looking ahead, he said while all of Texas will get through 2015, 2016 and 2017 will be rougher, with the market really feeling a hit in the first quarter or two of 2016.

“The demand for housing is still relatively strong, and even if it does fall, it will fall to a more balanced supply. When you have balance of supply and demand, it is long sustainability,” said Gaines.

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