The Texas real estate market is showing signs of cooling off, after two years of low rates and record activity that sent Austinites and other Texans' home values skyrocketing.
Today, higher interest rates are causing a drop in home sales, which means there are more options on the market for first-time home buyers than at any time since late 2020.
Texas Real Estate Source used data from the Texas Real Estate Research Center at Texas A&M University to find the 10 most affordable metros for first-time homebuyers in the state. In its calculations, Texas A&M based its first-time home price on 70% of the area median. It also applied a half-percentage-point higher interest rate to account for private mortgage insurance and a higher loan-to-value ratio for first-time buyers. Data is from the second quarter of 2022, and is based on making a down payment of 20%, and monthly payments at or below 25% of income.
Texas A&M's first-time homebuyer affordability index for Texas was 1.13 at the start of July 2022, the most recent period for which data is available. That means the median family income is 13% more than what's necessary to afford a typical starter home statewide.
The university's real estate research center has tracked a considerable decline in overall affordability in the Lone Star State for first time homebuyers since 2020. Just two years ago, the median household income in the state was 65% more than was necessary to purchase a first home assuming a down payment equal to 20% of the house's value.
Factors driving unaffordability include a push by the Federal Reserve bank to curb inflation by raising interest rates, and the fact that home prices remain at stubbornly high levels. The average rate for a 30-year fixed mortgage surpassed 6% in September – the highest seen since the 2008 housing crash.
Higher loan interest rates may also be discouraging homeowners from selling, seeing as the vast majority of homeowners in Texas have locked in rates well below what they are today. Those that are selling, have reportedly shown a willingness to cut listing prices in order to make a deal.
Affordability in Texas' most populous counties dipped below 1.0 for the first time in the second quarter of this year. The least affordable homes are found in Travis County, home of the capital city of Austin and numerous transplant-attracting tech companies. The monthly mortgage payment on the typical home sold in Travis County today is $2,356, up from $1,529 one year ago, according to National Association of Realtors data. North Texas' Collin County, where the typical home sold today commands a $1,985 monthly mortgage payment, follows closely behind.
The most affordable cities for first time homebuyers in Texas aren't in any of the most populous areas, but are found along the refinery-dotted Gulf Coast and West Texas.
Victoria's median family income is 50% more than required to purchase a starter home in the metro (First-time homebuyer affordability index: 1.5).
About 65,000 residents live in the inland city of Victoria, which sits north of the port town of Corpus Christi. Borne of a colony founded by a Mexican aristocrat, modern day Victoria is equidistant from the major metro areas of San Antonio, Houston and Corpus Christi. The typical monthly mortgage payment in Victoria County is $780, according to the NAR. In neighboring Harris County, the typical mortgage payment hovered around $780 last year, but has since risen to more than $1,100 per month.
Amarillo's median family income is 55% more than required to purchase a starter home in the metro (First-time homebuyer affordability index: 1.55).
The panhandle city of Amarillo remains on the better end of affordability for first time home buyers. Located just minutes from Palo Duro Canyon State Park's towering red rocks and the famous Cadillac Ranch public art installation, Amarillo is not far from the Texas-New Mexico state line, as well as some of the largest cattle ranches in the state.
The city spans the counties of Randall and Potter. In Potter County, monthly mortgage payments on a typical home purchased today are $573, up from $407 a year prior, according to NAR data.
Abilene's median family income is 59% more than required to purchase a starter home in the metro (First-time homebuyer affordability index: 1.59).
Located to the south of Amarillo in Texas Central Great Plains, Abilene is a major business and economic hub for the 19 farming and ranching counties surrounding the small city. The median household income in Abilene is around $52,000 annually, which is lower than the national average. Still, the typical home in Abilene is far more affordable than the national median home price, giving first time homebuyers in this city more options. The average monthly mortgage payment for a home purchased in Abilene today is $757, according to the NAR.
Texarkana's median family income is 59% more than required to purchase a starter home in the metro (First-time homebuyer affordability index: 1.59).
Tying with Abilene in this ranking is Texarkana – one of a handful of U.S. cities that span multiple states. The Arkansas state legislature makes a special exception for Texarkana in their tax code, exempting residents from having to pay income tax, in hopes of keeping Texarkanans from moving to the state income-tax free Texan west side.
Texarkana lies within Bowie County, where the typical mortgage payment on a home runs $607 per month, according to the NAR.
Lubbock's median family income is 66% more than required to purchase a starter home in the metro (First-time homebuyer affordability index: 1.66).
Lubbock is home to a quarter of a million people as well as Texas Tech, one of the largest universities in the state. Lubbock serves as a gateway to the Permian Basin to the south, where the oil and gas industry dominates.
The median household income is $53,425 per year, and a typical monthly mortgage payment in Lubbock for a home purchased today is $914, according to the NAR. The Texas A&M Real Estate Research Center's affordability score for first time home buyers in Lubbock has fallen from 2.02 in 2020.
San Angelo's median family income is 71% more than required to purchase a starter home in the metro (First-time homebuyer affordability index: 1.71).
San Angelo is located southwest of Abilene, and is an economic center for many employers in the West Texas oil and gas industry. San Angelo's Shannon Medical Center also serves as a health care hub for the surrounding central West Texas region. The city boasts a median household income of $55,682 and the median monthly mortgage payment for a home is $819 per month, according to NAR data.
Beaumont-Port Arthur's median family income is 74% more than required to purchase a starter home in the metro (First-time homebuyer affordability index: 1.74).
Beaumont-Port Arthur is Texas leading oil, gas and chemical refinery hub on the Gulf of Mexico. The metro area consists of the cities of Beaumont and Port Arthur which are located about a 25 minute drive from each other. Its close proximity to Louisiana means the region's culture and cuisine represents a melting pot of both Texana and Cajun cultural influences.
The city has a median household income of $37,794, far lower than the national median household income. But housing in the Beaumont-Port Arthur region is relatively cheap compared to major metro areas including its neighbor to the southwest, Houston.
Midland's median family income is 74% more than required to purchase a starter home in the metro (First-time homebuyer affordability index: 1.74).
Tying with Beaumont and Port Arthur is Midland, a West Texas city synonymous with dusty plains and oil derricks. The oil boomtown's surrounding region boasts a much higher median income than West Texas cities like Abilene. The median household income in Midland County is $83,616 and the typical monthly mortgage payment on a home purchased today is $1,212 per month, according to the NAR.
Midland is often associated with its neighboring city, Odessa, which ranks even more affordable for first time home buyers.
Odessa's median family income is 91% more than required to purchase a starter home in the metro (First-time homebuyer affordability index: 1.91).
Odessa is located 30 minutes southwest of Midland in the plains of West Texas, and its economy is similarly driven by the country's largest oil and gas drillers. After its oil, Odessa is perhaps best known for its high school football teams, and as the home of presidents George H.W. Bush, and George W. Bush, as well as First Lady Barbara Bush. Between 2010-2020 the city's population grew at the fastest rate recorded since the 1950s, and now boasts a population of more than 114,000 residents.
The median household income in Odessa is lower than Midland at $63,829 annually. The typical monthly mortgage payment on a home in Odessa, however, is much lower than Midland, at $785, according to the NAR.
Wichita Falls's median family income is 95% more than required to purchase a starter home in the metro (First-time homebuyer affordability index: 1.95).
Wichita Falls is the most affordable city in Texas for first time home buyers. The city is a nearly two hour drive from the next major metropolitan area – Dallas-Fort Worth. It's named for the waterfall that once naturally occurred along the Wichita River fed by the larger Red River which forms Texas' boundary with Oklahoma. Sheppard Air Force Base is one of the far north Texas region's largest employers.
The typical household in Wichita Falls earns nearly double the income necessary to afford a starter home. The typical monthly mortgage payment in Wichita Falls is $662, and the median household income is $47,335.
This story originally appeared on Texas Real Estate Source and was produced and distributed in partnership with Stacker Studio.