This is our second breakdown of the Austin economy and in this newsletter, we are covering a lot of information. Huge credit to David Tandy, CEO of Gracy Title for compiling and presenting this excellent data.
First, let's talk about Trulia's "bubble watch" and why it's bogus. If Trulia were a real news agency, they wouldn't constantly contradict themselves, which they do regularly. Below are the conditions of a housing bubble, most of which Austin does not meet:
- Easy credit - No. We now have much more stringent financing conditions than we've had in previous years.
- Speculation - Do we have excessive or unhealthy investor activity? No.
- Slow job growth - No. Austin is consistently in the top 5 job markets year after year.
- Lax urban planning controls - No, not a problem for Austin.
- Constrained supply and high demand - Yes. This is the only indicator of a bubble that Austin is currently experiencing, but should soon ease as more rental inventory enters the market.
The best indicator for the future is to look at the history of any given market. If you bought at the peak of the last boom in Austin and kept that property, you should be doing just fine right now.
from Eldon Rude of 360 degree Real Estate Analytics
Trulia loves to sensationalize articles in order to get name recognition. Now that we've put that to rest, let's move on.
If you look at the graph below showing the most stable markets in the U.S. for the past 25 years, you'll see that Austin is #2 on the list. Do you think companies looking to start up or relocate look at things like this? Of course they do!
Population and Labor Market
Population growth in Austin has been on a steady rise since 1980 and we have not had one single blip in increase, not even at the height of the last recession. We have consistently added around 53,000 people net each year for the past 10 years!
And Austin's population growth is only going to go up from here. There is no indication in sight that the next 35 years are going to be any different. We are looking at more growth over the next four years than we have had in the last ten, especially when you factor in the international popularity of Austin.
The Urban Land Institute is a well respected data reporting agency that looks at the conditions of emerging markets and many top businesses pay close attention to their reports to determine which cities to move into. So what qualities do large corporations and startups look for when determining where to open a new business or relocate an existing business?
- The live/work/play environment. Does that describe Austin?
- Tight labor markets and the coming labor shortage - Jobs are chasing the knowledge worker.
- Disruptive influence of technology- Work from home, shared office spaces.
When looking at all the factors, Austin fits the bill to a "T".
Environmental Concerns for Relocating Companies
Austin is outside of any major risk areas. If you wipe out the colder parts of the country, that leaves very few "nice" areas and Austin happens to be one of them. This also plays a big role in job growth for Austin.
Another indicator of a healthy market? Millennials and where they want to live.
Millennials and Their Impact on an Economy
- Austin has more millennials per capita (24.6%) than any other city in the nation.
- That single statistic is the biggest decision maker for companies looking to relocate.
- Why have Millenials not bought homes yet? 33 year old's represent the peak age of millennials and when their careers began they saw the biggest recession of the time, which ended up making many financially conservative.
- Many have been carrying student loan debt for years.
- They are waiting a little later to get married, a little later to have kids.
- They are LATE BLOOMERS…
Millennials will eventually transition from renting and will move out of the city center to buy and start families. Austin has a pent up population of millennials who are waiting to buy, more than any other city in the nation. We have roughly 200,000 millennials (in Austin alone) that are about to enter the housing market. 80% of millennials own or plan to own a home.
The Austin Apartment Market and Its Effect on Inventory
- Occupancy dipped from 94% in 2014 to 93.6% in 2015. This is primarily due to a flood of new rental units that has recently hit the market.
- Rental Rates - In 2004, rates started at about 80 cents per square foot. In 2011 we were up to a dollar, and now we are at $1.30 a square foot. This is an average, not including inner city and the most desirable markets.
- If you look at a 4 mile radius of downtown Austin there are 5,800 units currently in the data pool. There are 23 high to mid-rise projects, with an average rent of $1.73 a square foot. Will development keep up? Probably not at its current rate as most developers don't want to be overbuilt in any one market. Development will certainly continue, but it's likely to stagger, especially when it comes to repeat developers.
Jobs and Unemployment
- Job growth in Austin for the past 12 months is at 3.6%. There are four other markets as hot as we are and those are San Diego, Nashville, Seattle and Charlotte.
- The hottest market at this time is San Jose, but their growth is so hot as to be unsustainable. Employers don't like a market this hot because it creates a bidding war for salaries between companies, driving costs up.
- 67 out of the past 70 months, Austin has had positive job growth.
- We are now at a 3.2% unemployment rate. Any less and we're in a tighter labor market and employers don't like that. We are currently at one of the lowest unemployment rates since before the early 2000 "dot-com" recession.
- U.S. unemployment rate is around 5.6%. You'll hear some politicians say that this is a "bogus' rate because it doesn't include people that have dropped out of the job search. There is some validity to that statement and if you counted those individuals the rate would likely be around 8 or 9%, however our rate of 3.2% is accurate.
- We've grown in every single job sector. Austin represents the state capital and the state government, yet jobs here aren't dependent on that single sector.
- Austin's median income is $54,104. High tech individual income is around $98,679.
Austin's Less Desireable Qualities
- If 53,000 new residents are moving to the area per year, housing shortages are going to be an issue. Austin needs 20,000 new households per year to keep up with demand.
- During 2008 - 2011 there was very little development, which is why we have had a shortage of housing over the past couple of years.
- We have numerous constraints on housing constructions from the City of Austin and so have not kept up with population growth.
- Because of these constraints and the lack of new builds, Austin does not have enough supply to keep up with the population. We will barely have enough new supply to keep up with population growth for 2015.
- Although not ideal, this tells you that home prices will continue to go up.
Concerns About Oil
Every time we've had a massive drop in oil prices we've had a massive crash. Why has this not happened this time around?
- Diversification. Houston's job growth is 2.4% for the past 12 months. Their unemployment rate is 4.2%. What most experts are saying is that Texas is MUCH more diversified and therefore better able to cope.
- Technology is improving at a rate that no one expected and the cost of fracking is coming down.
- We are producing more new technologies than any other country.
- In October 2014 Texas had 300,000 energy employees and we're probably going to drop to 150,000. What happened to those 150,000 people? They found other jobs! Other sectors are benefiting from these layoffs and absorbing these employees. We've already suffered the worst blow and we've survived.
OPEC, Syria, Saudi Arabia and Russia are still flooding the market. They are trying to punish and cripple us and it's NOT working. Every country that is flooding the market with cheap oil has played their hand and will probably start raising their prices and when they do, our economy is going to explode even more than it already has.
This concludes our newsletter and our Economic Status series for the time being. If you like what you read here, please forward to a friend. Ask them to email me to get signed up on the newsletter mailing list.
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Have a great weekend,