The median home price is $403,500 while the median income only reaches $50,681. Moreover, home appreciation has risen up to 27% in the last three years. Another unfavorable indicator is home costs: Currently in Collin County, home costs as a percentage of income are 60%, double the 30% rule of thumb.
Another report by Zillow reached similar conclusions at a national level. According to economist Nicole Bachaud, “Incomes are lagging further behind fast-rising mortgage costs, leading to the most significant affordability challenges in the past 15 years.” This is making rent a more affordable option, even though rent prices haven’t stopped rising since 2021. (In case you missed it, check out Local Profile’s previous coverage on renting.)
Some of you might already have done the math, but if you haven’t, that affordability challenge Bachaud is talking about is the 2007 crash. While concerns of a bubble were initially dismissed earlier last year, the Federal Reserve Bank of Dallas found worrisome signs.
According to the Fed’s research, the U.S. housing market shows signs of “exuberance," meaning that “house prices appear increasingly out of step with fundamentals.” Researchers say this could be explained by several factors: Higher house prices might have fueled FOMO (fear of missing out) among new investors, moving them to buy quickly and creating more aggressive speculation by existing investors.
As Local Profile previously reported, this is already happening in Texas where investors have bought 28% of the state’s homes. This increases the competition to buy properties, impacting the supply of homes available to purchase and driving prices higher.
Although there are concerns about this market behavior, the Zillow research pointed out that higher mortgage costs could lower the demand and result in a housing market rebalancing. And the Federal Reserve Bank of Dallas seems to agree. When comparing the current situation to the 2007-09 Global Financial Crisis they said, “Household balance sheets appear in better shape, and excessive borrowing doesn’t appear to be fueling the housing market boom.”
Most importantly, banks, policymakers and regulators are all better equipped to “assess in real time the significance of a housing boom” and are in a more informed position to take housing correction actions.
In the meantime, that does little to cushion the heavy load of Collin County’s high housing costs.