Who Should Be Buying a Home in Texas Right Now?

Texas is still a buyer’s market, and that makes right now a real opportunity for the right buyers. We aren’t back where we want to be, but conditions have been steadily improving, and sellers across the state are negotiating in a way we haven’t seen in years.

Here’s the clearest sign. Weekly mortgage applications are running under 190,000, which is extremely low. Fewer buyers means you have your pick of homes and real room to negotiate on price, repairs and closing costs.

In our latest Beyond the Rate episode, Will and I walk through the types of buyers who can take the most advantage of this market, and what each of them should be thinking about.

1. First-time homebuyers

First-time buyers are the low-hanging fruit. They have no baggage from the 2020 market, when buyers had to overbid just to get an offer accepted. Today you can negotiate a good deal on the home itself.

Our advice is to focus on the house, not the rate. We start with the monthly payment you’re comfortable with and reverse-engineer a price range from there. If you’re approved up to $300,000 and can land a home at $280,000, that’s the kind of opportunity to look for.

2. Move-up buyers

Move-up buyers are the group we think is being overlooked. These are homeowners who bought five, six or seven years ago and are ready for a bigger home because income has grown, they’ve gotten married, or the family has outgrown the space.

Yes, the new payment may be much higher. If your current payment is $1,800 and the new one is twice that, you have options. One is to rent out your current home. At $2,400 a month, you might clear $300 to $400 after setting aside money for maintenance and repairs, which helps offset the higher rate on the second property.

This isn’t aimed at homeowners with a 3% rate who are happy where they are. It’s for people who are genuinely ready to move. For them, it’s important to be realistic: today’s rates are a more normal environment, while 2020 and 2021 were very abnormal. Getting back to those levels is very unlikely, and the circumstances that produced them (a global pandemic) aren’t something anyone should hope for.

3. Market-savvy buyers

These are the buyers who recognize the opportunity, and they’re some of our favorite clients. When someone brings up the 10-year Treasury yield in a first conversation, we know we’re about to have a great discussion.

They understand the rate environment, but they also see the deal available on the house itself, often a 5% to 10% discount on the acquisition price. They buy with a payment they’re comfortable with today. Then we set a realistic rate trigger together, and if rates fall to that level, that’s when we pull the trigger on a refinance.

The key is that they aren’t dependent on a refinance. They’ve worked the lower price into their acquisition cost and treat any future rate drop as a bonus. We don’t recommend a strategy of buying now and simply hoping for a refinance, but a planned one is a different story.

4. Second-home and vacation-home buyers

If you want a beach house or bay house on the Texas coast, this is an excellent time to make offers. Many vacation properties are run as businesses, and owners who can’t make the numbers work as short-term rentals have to sell. That means more inventory than usual in those neighborhoods.

Builders on the coast are in a similar spot. Many aren’t high-volume builders, building closer to 20 or 30 homes a year than 100, so a single home sitting for six months hurts their cash flow. We’ve closed deals in Galveston with market-savvy buyers who toured a number of homes, narrowed it to four or five, and then started making offers.

The Hill Country is worth a look as well. Many homes there perform well as short-term rentals because they’re an easy one-and-a-half to two-hour drive for people who want to get out of town, so a second home there can also serve as an investment.

What if I have to sell my home first?

The fair question for move-up buyers is that they become sellers too, in a buyer’s market. Say your current home is worth $300,000 and you take a 10% haircut, netting $270,000. If you’re moving up to a $500,000 to $600,000 home, you can negotiate a similar 10% discount on that purchase. The discount you give up on the sale is more than made up on the purchase, so moving up should still be a net positive.

Another option is to hold your current home as a rental and push the sale out a year or two, which gives you the chance to capture a better price later.

Should I wait for rates to come down?

Waiting is an understandable instinct, but it’s easier to time the market when you already own the home. History shows that each time the average 30-year fixed rate has moved close to 6% over the last three years, mortgage applications spiked into the upper 300,000s and as high as 400,000 per week. Last week there were about 188,000. For comparison, the low in fall 2023, when rates reached 7.7%, was 161,000.

In other words, if you wait for 6%, you’ll be competing with roughly double the number of active buyers. That likely means paying full list price and getting little or no help from sellers. Today, sellers may be contributing toward closing costs. If closing costs run $8,000 and the seller pays them, that’s $8,000 less out of your pocket.

Then compare that to the cost of a refinance later. For our clients, a refinance costs next to nothing out of pocket, far less than the concessions and discounts you can capture now by buying.

The purchase price helps again at refinance time. If you bought at a discount and the market improves, you may have more equity than you started with. A 5% down payment could look like 10% equity, which can help you get rid of mortgage insurance sooner. And every $10,000 you don’t borrow lowers your payment by about $60 a month.

The approach we take with clients is to buy when you’re ready, willing and able at today’s price and payment, set a rate target (our reasonable floor is around 6%), and refinance when we hit it. Studies have also shown that people who buy when they’re ready tend to come out ahead of those who wait two years.

The bottom line

This market rewards buyers who are ready and prepared. If you’re a first-time buyer, a move-up buyer, a market-savvy buyer or looking for a second home, there’s a good chance right now is an opportunity.

• Buy the house and the payment, not the rate. Plan to refinance if rates fall.
• Negotiate. A 5% to 10% discount and seller-paid closing costs are realistic in this market.
• Waiting for lower rates usually means more competition and fewer concessions.

If you’re not sure where you fit, we’ll look at the data together and build a plan around your budget and goals. Listen to the full conversation on the Beyond the Rate podcast.