COLLEGE STATION, Texas – Is there a housing price bubble in Texas that is about to burst? Researchers at the Real Estate Center at Texas A&M University are standing by the position they took a few years ago – no bubble here. A new study by a Center researcher has the numbers to back them up.

While the housing appreciation bubble may burst in some markets in the country, Texans need not worry.

Homeowners have seen their property grow in value, but not to the extreme, and Center researchers continue to say homeowners and real estate professionals need not worry about the bottom falling out. A worst case scenario would be a flattening out of home prices.

From 1999 to 2004, the average price of existing homes sold in Texas rose 24 percent to $164,400, and the median price rose 28 percent to $129,600.

Dr. M.A. Anari, a research economist with the Center, devised two measures to help determine if Texas home prices were dangerously high. These ratios are similar to the price-to-earnings ratios of stocks, which investors use to determine if a stock is overpriced.

Anari studied home price-to-rent ratios in Texas markets and in other areas of the country. These were compared to the growth rate of home prices. He found that there is a maximum home price-to-rent ratio that depends on the local economy. When this number is exceeded, home prices generally fall.

Current home price-to-rent ratios for all Texas metro areas are below the maximum ratios. So the risk of a price bubble in the state’s residential market is very low.

For example, if the price-to-rent ratio in Austin exceeded 24, it would be a signal of future price declines. But Austin’s price-to-rent ratio was 20 in 2003 and fell to 18.1 in 2004, so a steep decline Austin home prices is not likely.

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