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If you are thinking of investing in Texas Real Estate the two prime questions to consider are is it going to be a worthy long-term investment against inflation and is the Texas housing bubble growing too fast to be sustainable?

The answer here requires a little explanation of the underlying issues involved so let?s begin with inflation. Inflation is the upward pressure on costs and wages. These two are intimately linked because increased costs in house building factor in the increased cost of labour. Because an increase in wages affects, through a seep-effect, every other aspect of the pricing economy, it translates into higher house prices and also higher rents.

If you are thinking of investing in Texas Real Estate the two prime questions to consider are is it going to be a worthy long-term investment against inflation and is the Texas housing bubble growing too fast to be sustainable?

The answer here requires a little explanation of the underlying issues involved so let?s begin with inflation. Inflation is the upward pressure on costs and wages. These two are intimately linked because increased costs in house building factor in the increased cost of labour. Because an increase in wages affects, through a seep-effect, every other aspect of the pricing economy, it translates into higher house prices and also higher rents.

This also affects interest rates as mortgage lenders and rental landlords take inflation into account when calculating what to charge as interest on mortgages and prices on rentals.

Inflation can be beneficial as long as the value of a house is not outstripped in growth rate by the level of inflation in the area. Suppose, for example, that inflation is running at 3% and your house is growing in value at 2%, that increases the value of your property investment in a way which is sustainable and makes it affordable, even though it keeps growing in value, a growth in the value of your home above the level of inflation by a slim margin is even better news because it means that the housing market is not overheating with speculative buyers out to make a quick buck and the steady rise continues to make homes affordable while adding to their value.

Were the trend to be reversed however you end up having? a house which has a paper value that far outstrips what the market is prepared to pay for it or, indeed, what prospective buyers or prospective tenants can afford to pay. All of which means that the moment we get into a situation like this there is likely to be falling demand, a mounting supply and a price correction on the way, which often leads to house prices crashing. This is usually true when the increase in property values exceeds the inflation index by more than 2 percent points.

This leads us very neatly into the second part of this discussion which is the ?bubble?. A bubble by definition happens when the demand for houses in a particular area leads to higher and higher prices as the supply drops which eventually leads to unsustainable growth in the housing market and an inevitably sharp correction.

Is this the situation in Texas?

The Texas housing market so far
When making any kind of prediction realtors and stock brokers are quick to point out that past performance is no indicator of future performance so the same goes here. But to launch into any kind of house buying either as a second home, rental, investment or even as a new home in Texas without doing any research is clearly foolhardy.

Figures released by the Office of Federal Housing Enterprise Oversight,?and the Federal Housing Finance Board,?looking at house prices in Texas between 1978 and 2005 showed that there has been a steady, sustainable increase which has seen the value of the average residential home in Texas move from below $50,000 in 1978 to over $190,000 in 2005.
A similar growth curve in terms of percentages has happened in other Texas properties, from Texas ranches with a lot of hunting land, both in hill county and lake properties and fishing land near livers and large lakes.

It is exactly this steady growth that makes Texas unique. Unlike other parts of the continental United States where house prices have risen sharply and then have had to drop, land and property values in Texas have continued to remain affordable.

Texas property value growth on track
A look at the figures released by both the Office of Federal Housing Enterprise Oversight?and the Federal Housing Finance Board, http://www.fhfb.gov/ indicates that after all the variables driving prices up are factored in Texas property values have risen by a sustainable 1.1 per cent above the index of inflation.

For investors in Texas property as well as house buyers and those looking to purchase hunting properties with fishing or hunting rights the outlook is bright indeed. The steady growth evidenced so far indicates that unlike the rest of the country Texas property prices are on a sustainable growth curve that will continue to deliver value for house owners, investors, home buyers and new property buyers for years to come.

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