
By almost any measure, Texas homes are more affordable than in the United States overall. But the gap is narrowing, said a residential expert with the Real Estate Center at Texas A&M University.
“Texas’ median home price remains at a comparative advantage relative to the U.S. median,” said Research Economist James Gaines. “However, the gap between the two has narrowed substantially in the past couple of years.”
Gaines uses the relationship between household income and housing prices to compute the Texas Housing Affordability Index (THAI) at the Center, part of Mays Business School. The THAI suggests the state’s housing has been consistently more affordable than that of the United States.
Changes in the median home price and interest rates are the two main reasons affordability has increased, Gaines explains. “The national median home price declined 25 percent between 2006 and 2011, while the Texas median increased a modest 4 percent,” he says.

Texas major markets are among the most affordable metropolitan areas in the country. “Texas’ 2011 THAI was 21 percent more than the 2005-11 average,” Gaines said. “Meanwhile, the national index was nearly 56 percent above average.”
Gaines said 2012 will be even better at the national level if interest rates and the median price remain stable. Texas affordability, however, may decline as prices rise faster than incomes in some areas.
In January 1991, a Texas buyer needed an annual income of $49,023 to qualify to buy a $150,000 home with a 30-year, 80 percent loan at the existing 9.64 percent interest rate. The monthly mortgage for such a loan was $1,021.31. To buy the same home today at the current 4 percent rate, a buyer needs only $37,351 in annual income. The monthly mortgage would be $572.90.

“The home purchasing power of a dollar in income increases dramatically as interest rates fall,” said Gaines. “With an 80 percent loan at 10 percent interest, $1 of income buys about $3 of housing. At 7 percent, it buys $4 of housing. At 4 percent, it buys nearly $5.50.”
In the previous example, a buyer with the $49,023 income could only buy a $150,000 house at the 10 percent rate but can afford a $270,000 house at the current 4 percent rate!
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