Every new year brings lots of change to Austin. Over the last 12 months, we broke a lot of records in pricing and activity in the real estate market and our city made a lot of Top 10 lists in various national publications. For these and many other reasons, we are anticipating an exciting and fast-paced 2016.

Interest Rates

The big news for mortgages in late 2015 was that the Federal Reserve decided to raise interest rates by a whopping .25%: this won’t affect interest rates (much), but is an indication by the Fed that more rate increases are on the horizon.

As a result, we believe that many buyers who had previously been on the fence will be motivated to purchase in 2016 to ensure they are able to take advantage of record-low interest rates before they are gone.  

We also believe that the Fed’s actions will create pressure for sellers to take advantage of the hot Austin market in 2016 before rising interest rates (and falling oil prices, see below) eventually cause the market to slow (but not stop).  

Population Growth

Continued population growth seems to be a foregone conclusion in Austin. The biggest news in 2015 was that the population in the greater Austin area passed the 2M mark. Austin has also been named as one of the most desirable places for millennials to live, and is a popular destination for people from all over the nation to visit and move to. The upcoming opening of the UT Medical School in Austin is just one example of growth in our city that will have a significant impact on the central Austin real estate market: The high-income job opportunities and population growth that the new medical school will drive, despite the imminent possibility of higher mortgage interest rates, will continue to have a positive effect on the strength of the real estate market.  

Market Trends

Last quarter’s oil price trends cast a bleak outlook for real estate prices statewide, but there is strong evidence to suggest that Austin will be shielded from many of these effects. The highly skilled and diverse labor market in Austin, the strong (and continuing) trend of population growth, and low inventory in the area help to maintain a robust outlook on the real estate market, despite the pressures created by lower oil prices.  

Though the immediate outlook in Austin is largely positive, I am convinced that sellers will need to act in Spring of 2016 to take advantage of the remaining boom in the area, especially above the $400,000 price point. Rising interest rates through 2016 will mean that people will not qualify to borrow as much, and the downward pressures created by the contraction of the oil and gas industry will certainly begin to have an effect on prices buyers will be able to pay, regardless of how hot the market is. For example, according to this article, every percentage point increase in rates represents roughly a 12% loss in purchasing power for buyers (see graph below) -- which means that it’s a smart move to list sooner rather than later.  

 

Investment Outlook

Southeast Austin has been an “up and coming” neighborhood for the past 5-7 years that is home to many college-age individuals, but the area has become the target of high-dollar investment from technology companies who have identified Austin as a “hot” city for attracting talented millennials. Recently, Oracle announced the expansion of its cloud services team in the form of a 560,000 square foot complex off of East Riverside in Austin. The resulting transformation of these older, run-down neighborhoods into walkable, forward thinking, trendy neighborhoods that attract the best young talent from all over the world creates a unique environment in the Austin real estate market.  

As a result, we think there is currently a huge potential upside for investment property in east Austin, specifically focused on transforming houses and duplexes in Austin to appeal to millennial tastes. According to this Forbes article, Austin has been named the best housing market to invest in for 2015. We believe this is especially true in the duplex market.

Contact us

If you found this article useful, please do us a favor and forward it on to someone who you think will benefit from it. We would be happy to help them or get them added to our distribution list. If you are thinking of buying or selling your home this season, get in touch with us today so we can put the market to work for you. The selling season is upon us!