2025 Texas Real Estate Forecast | Spring Update

This update to our 2025 forecast focuses on high-level trends. However, due to the unprecedented number of economic and political factors in flux, we have decided not to change our original numerical forecast estimates. The margin of error would be so large that any projected changes would not be statistically different than our current estimates. The following is a summary of developments through the first quarter, which will determine how the rest of the year unfolds.

Geopolitics

Our forecast rests on geopolitical assumptions that influence economic conditions across the board. Here, we restate those assumptions and note the developments through April 2025.

Original Forecast: Long-term changes in federal tax, spending, and regulations are possible with profound impacts on business investment, workforce participation, inter-state migration, or even household formation/fertility.

Latest Development: Some movement on the federal budget. Stiffening opposition to the administration through district courts. Also, almost 4,500 (mostly private sector) cases citing the Supreme Court’s Loper Bright decision with implications for lower regulations.

Original Forecast: Short term executive orders, the Department of Government Efficiency (DOGE), and new agency leadership may influence trade flows, energy production, exports, and international immigration.

Latest Development: Many high-profile domestic and foreign companies announced manufacturing investment in the U.S., and southern border crossings are dramatically lower.

Original Forecast: Greater prospects for peace in Ukraine and Middle East. Selective, punitive trade policies are expected.

Latest Development: Active, ongoing negotiations between U.S. and Russia. The flurry of tariff and trade policy announcements are complicating investment decisions.

Original Forecast: Recession in 2025 is less likely as greater regulatory certainty and structural economic reforms boost business and household optimism. Inflation risks persist.

Latest Development: Major moves in stock and bond markets, but inflation has slowed, and job growth continues. Sentiment varies dramatically with a significant divide along partisan lines.

Macroeconomic Conditions

The onset of tariffs has initiated a wave of distortions, as consumers, businesses, and investors adjust their behavior in response to the escalating trade war. These shifts are expected to reduce gross domestic product (GDP), relative to the baseline forecast, by disrupting supply chains, driving up capital costs, and causing job losses in affected industries. The long-run impact will hinge on the duration and magnitude of the tariffs, with prolonged tariffs likely constraining GDP growth. While successful trade negotiations could unlock long-term gains, any benefits would be unlikely to emerge before the end of the year.

Housing

Year to date, home sales appear weaker than expected at a level slightly below the same period in 2024. Increasing mortgage rates and high home prices are weighing on buyer affordability, sidelining many potential buyers. Mortgage rates have risen sharply following escalating trade wars. We expect cautious buyer activity throughout the spring homebuying season and the pace of home sales to remain subdued, posing a downside risk to our forecast. On the supply side, inventory has improved significantly, putting downward pressure on home prices.

Oil and Gas

Crude oil price forecasts have fallen in recent months. The main drivers are signals of future oil production increases from OPEC+ on the supply side and a weaker economic outlook resulting from trade and geopolitical uncertainty on the demand side.