A strong economy and pressures from thousands of people moving to the state will accelerate Texas home prices in 2020.

But Dallas-area home cost gains could lag the statewide and national averages, economists expect.

Median home prices in Texas this year could grow at twice the rate of 2019 increases, according to the latest forecast from the Real Estate Center at Texas A&M University.

“Last year, for the first time in Texas history, we exceeded $100 billion in housing sales,” Real Estate Center chief economist Dr. James Gaines said. “We are looking for prices to increase this year probably between 5% and 6% after 3% last year.”

The Texas housing market heads into 2020 with a surge in activity.

“January and February have been really good,” Gaines said at a housing outlook session sponsored by the Real Estate Center and the Federal Reserve Bank of Dallas. “Generally these are not our best months of the year.”

The decade that ended in 2019 was the best on record for housing across the state, he said.

“Texas housing market has been so much stronger than the general market around the country,” Gaines said. “Every year since about 2015, we have been setting a record.

“We are projecting that this year we will increase sales somewhere between 5% and 6% — the market is very strong.”

Since houses in markets across Texas are hitting new highs for median prices, overall property sales volumes are expected to grow by more than 7% in 2020 to $104 billion in sales.

Texas home price growth has outpaced other states. (Real Estate Center at Texas A&M University)

“Home price growth in Texas way outpaces the states in the rest of the country,” Gaines said. “People in Texas are having to spend more to buy a house.

“It is getting more expensive relative to our income.”

Still, Gaines said, Texas’ major cities still have a home price advantage compared with many other major U.S. markets.

“Our competitive advantage — one reason people come to Texas — is you can afford to buy a house here,” he said. “Particularly if you are coming from one of the areas of the country with high-priced houses.”

He said that despite a strong rebound, Texas homebuilders still haven’t caught up with where single-family home production was before the Great Recession.

“We are building a lot, but we are still not building enough,” Gaines said.

In 2019, Dallas-Fort Worth and Houston were the top two single-family building markets in the country.

“There were more houses built in the D-FW area last year than in all but about five states,” Gaines said.

North Texas’ housing entered 2020 with a tailwind. Preowned home sales were up 12% from a year ago, and prices rose 8% in January from a year earlier.

January’s jump in home sales and higher prices is due in part to near record low home mortgage rates — currently about 3.5%.

“Gosh, long-term interest rates keep going down,” said Frank Nothaft, chief economist for CoreLogic. “And of course low rates are good for real estate.”

Nothaft said that this is the only time since World War II that both home mortgage rates and unemployment are both below 4%.

“Incomes are rising,” he said. “And mortgage rates are cheap to enable those home purchases.”

Texas was the top state for homebuilding last year. (Metrostudy Inc.)

The higher home demand will fuel rising property prices, he said.

“We are going to see a quickening of home price growth for the overall U.S. — up to about 4.5%,” Nothaft said. “Home prices slowed a bit last year in part because mortgage rates were much higher at the start of 2019.”

CoreLogic doesn’t anticipate that D-FW home prices will rise as fast as the rest of the country.

“We expect home prices to rise about 2% across the entire Dallas metro area in 2020,” Nothaft said.

North Texas home prices have shot up by more than 60% since the Great Recession, far outpacing wage growth.

“You are looking at affordability pressure in the market, especially when prices have gone up a lot,” Nothaft said.

CoreLogic estimates that there is about a 24% probability that home prices will fall in the Dallas area in the coming year.

But Nothaft isn’t overly worried about a price correction here.

“Dallas is in pretty good shape,” he said. “I don’t see a bubble here in the metro area.

“I have some concerns about L.A. and parts of Florida.”

Nothaft said the retreat of mortgage rates has cushioned the impact of higher home prices in North Texas.

“Home prices are up a lot in the Dallas area, but the mortgage rates are down even more,” Nothaft said. “When we adjust for inflation, the mortgage payment to buy the median-priced home in Dallas is actually a little lower than it was 20 years ago.”

“Lower-priced homes are appreciating more rapidly than higher-priced homes,” Nothaft said. “It’s true in the Dallas-Fort Worth area and just about every metro I look at across the country.

“On the higher-priced homes, that is where we see new construction adding to the supply — helping to moderate the price growth.”

Dallas-Fort Worth topped the country in new home construction last year, the third year in a row that builders in North Texas have outpaced the rest of the country.

Houston ranked second for single-family building.

“Texas is clearly the most active homebuilding state by a long shot — we are more than double California,” said Paige Shipp of housing analyst Metrostudy Inc.

Along with D-FW and Houston, Austin and San Antonio also made the list of last year’s top homebuilding markets.

“There is very strong new home construction happening in these markets,” Shipp said.