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Austin Economic Forecast 2020

Posted by Ryan Rodenbeck on Friday, February 7th, 2020 at 12:00pm

Austin, Texas' economic growth is expected to continuously grow, as well as the rest of US, but it is also most like to fall short due to the city's recent track record. This report is based on Wells Fargo Securities Senior Economist & Director, Sarah House, Texas A&M Real Estate Center economist, Luis Torres, and other reliable sources stated below.

 

Austin's Economic Outlook

The economy in Austin still appears to remain strong despite cooling. A study by the National Association for Business Economics found that the U.S. economy will remain positive throughout the year 2020. Sarah House predicted that Austin's gross domestic product will climb by 5% next year. This was down from her past estimated range of 6% to 6.5%. Austin continues to be strong. House said that despite the moderate red-hot pace of the last couple of years, things will look very good and 2020 will be a very good year for the local economy. With the lengthiest U.S. economic expansion, which was a decade long, has been wobbling with growth in Gross Domestic Product (GDP) nationwide as it slipped to an annualized pace of 1.9% during the 3rd quarter from 2.9% through 2019.

Ongoing trade disputes with China and other countries are among the significant economic headwinds, though House predicted the U.S. expansion will continue in 2020. Economists have stated they expect the national economy to avoid a recession this 2020 on a relatively level. The main culprits that are taking off the shine in the strong local economy are the following are the tight labor market and the rising housing costs.

Luis Torres, an economist, stated that although Austin is growing, there will be a slightly slower tempo compared to the last few years whereas he called it a "more normal" type of growth. Despite Austin's unemployment rate being on its low for the past 20-years, it is seen to hinder the movement of job growth. House sad that these problems are "enviable" to have.

The population in Austin continues to grow whereas the current population in Austin had an increase of 3.43% this 2020 from 2019 based on the website Macrotrends. For 8 consecutive years, Austin has been one of the fastest-growing metropolitan areas in the nation based on the U.S. Census Bureau. The majority of migration comes from domestic with 82% starting from various metros in Texas such as Houston, Dallas, and San Antonio. This is followed by different states which include New York, Los Angeles, San Francisco, Riverside, and Miami, Florida. From 2010 to 2017, Austin received an average net gain of 31,300 people annually from different states in the U.S., 6,900 from abroad, and 16,700 from natural increase.

 

Job Growth in Austin

The Austin-area unemployment rate has been low for over 20-years with a figure of 2.6% in October 2019. Here are some summarized statistics of the job growth in Austin, Texas according to the Austin Chamber of Commerce:

- The Austin Metropolitan Area added 37,800 net new jobs -- 3.5% in 2020
- Austin is the 2nd fastest and best performing growing metro among the 50 largest metro areas.
- Other Texas metros such as Dallas gained 4.0%, San Antonio, 3.2%, and Houston, 2.8% which also made it to the top ten.
- Forbes listed Austin, Texas as #1 in the list of Best Cities for Future Job Growth
- Austin's unemployment rate as of the first of the month of 2020 is 2.6%, down from 2.7% in November.
- Private sector growth in Austin MSA is 3.9% while 1.4% in the government sector. This brings the overall growth rate to 3.5%.
- In November 2019, Austin has the 9th lowest rate of unemployment among the 50 largest metros in the United States.

In spite of the low unemployment rate in Austin, this brings to a slow movement of job growth in 2020. According to House, in comparison with the previous years, the slowdown has been widespread across different industries. The tight labor market and unemployment rate make it difficult for businesses to find workers said House.

In 2019, Austin are have gained more tech companies and startups in different industries are thriving. Austin is referred to as "Silicon Hills", tech is one of the biggest drivers of growth. In the same year, there is a major tech migration going on in the Austin area. Apple announced its expansion and building its campus with over 5,000 new jobs that will increase to 15,000 overtime. It is expected that Apple will be the largest employer in Austin in the following years. It can be seen over time that the city is evolving into a tech hub, from startups to large, established companies.

It seems like almost every other day, a new company announces either relocating to Austin or building a campus in the city. A number of companies that have moved to Austin are Zoho, a competitor of Microsoft Office which has left the Bay Area. Raje Vegesna, Zoho Chief Evangelist said that the quality of life, traffic, cost of living, and house prices have been crazy in the Bay Area; therefore they decided to get us and make Austin their new home and expand here, according to Crunchbase News. Katerra, a San Francisco-based construction tech, Procore, construction tech to expand their engineering presence in Austin, and Resideo Technologies, Inc. at East Austin, Honor, a home care services at the junction of healthcare and technology-based in California.

Apple Inc. announced its expansion in Austin as they started to start the construction of its new campus in the city in November 2019. “Building the Mac Pro, Apple’s most powerful device ever, in Austin is both a point of pride and a testament to the enduring power of American ingenuity,” said Tim Cook, Apple’s CEO. “With the construction of our new campus in Austin now underway, Apple is deepening our close bond with the city and the talented and diverse workforce that calls it home. Responsible for 2.4 million American jobs and counting, Apple is eager to write our next chapter here and to keep contributing to America’s innovation story.”

Apple has broken ground on its new $1 billion, a 3-million-square-foot campus which will be home to 5,000 employees with the capacity to grow to 15,000. The campus is expected to be finished by 2022.

In 2018, Austin Chamber of Commerce recorded 46 relocations to the Austin area which is equal to almost 9,500 new jobs in the Austin area.

Major employers in the area employing 6,000 and more include Apple, Austin Independent School District, Dell Technologies, IBM Corp., Round Rock ISD, St. David's HealthCare Partnership, and the University of Texas - Austin. Companies employing 2,000 to 5,999 employees are Austin Community College, Facebook, Indeed, Oracle Corp., Texas State University-San Marcos, and Whole Foods Market. Aside from the tech industry, real estate, medical, financial, business, and marketing contributes to the positive economic health of the city.

 

Austin Real Estate Market: Continues to be the Hottest, Issues with Affordability

The Austin Real Estate Market was on the track for another record-breaking home sales. Austin-Round Rock MSA is still experiencing a high demand for homes based on the stats from the Austin Board of REALTORS ® (ABoR). Austin MSA will still be the housing market will KEEP RISING in 2020. 2019's real estate market was at its competitive state where homes were sold 1% below the listing price and go on pending for 23 days. While homes that are hot in the market go into pending in less than a week!

Torres stated that Austin is one of the strongest markets and the real estate market is also doing well. Real estate will continue to stay strong with new housing permits to increase more than 10% this 2020 especially with single-family homes that drive the Austin economy. Although strong, there is a downside to the local economy and the real estate market: affordability.

Travis Country - Housing is expensive relative to average wages earned. Homeowners in the county pay roughly 45% of their wages on mortgage, taxes, and insurance.

Williamson County - Homeowners pay 41%

Hays County - One of the most unaffordable areas with about 52% of annualized wages is needed to buy a home.

These statistics are based on ATTOM Data Solution, a real estate database provider.

According to the website ApartmentList.com, the rents in Austin is on its highest for the sixth year. Rents for a one-bedroom apartment in Austin have doubled since its post-recession lows in 2011. Renters than eventually move into homeownership due to the low-interest rates on mortgages, an increase in new housing permits, and changing zones to Austin. If people have the ability to buy a new home, buy now. Economists expect home values to rise in the following years therefore, the longer you wait, the more likely you will pay for a higher price!

Mortgage rates will remain low based on the Mortgage Bankers Association, they predicted that it will remain low throughout mid-2021 at around 3.7%.

This 2020, millennials, born 1981-1996, will dominate the market to where they will outnumber Generation X and Baby Boomers. A large number of millennials will turn 30 while the oldest will turn 39. This is the age where family changes tend to drive home-buying decisions, says Realtor.com Chief Economist, Danielle Hale. Millennials are also the highest percentage of moving to Austin with a rate of 27.2%. The said generation flocks to the area due to quality of life, convenient work access, hundreds of dining and shopping options. David Tandy stated that homeownership among the ages of 35 and below rose from 36% to 36.5% in 2019.

One of the real estate trends in Austin for 2020 which we stated above, single-family homes will dominate the Austin housing market. 2019 was a good year for the Austin real estate market which was dominated by single-family homes and this will be carried on this 2020 as this type of housing will continue to rise. For investors that are considering investing in Austin properties, single-family homes bring the best rate of return compared to Airbnb rentals and condos. Because of that, the ROI for rentals in the city will be high. Rentals in Austin generates an average rental income of $2,090 and a cap rate of 0.7% when it comes to investing in traditional rentals. Airbnb activities or rentals will most likely slow down due to the imposed measures of the City of Austin. Airbnb also imposed an ordinance where non-owner occupied single-family homes and duplexes in residential Austin neighborhoods will not be allowed on April 2022.

 

Revisit the Rankings 2019

Austin has dominated various rankings throughout 2019. Here are some of the following lists where Austin has ranked for:

- Austin ranked as #1 in the 5 Major Cities in the U.S. with the Hottest Real Estate Markets - (Realty Biz News, October 2019)
- Austin Area - One of the Best Affordable Places to Live in Texas, primarily in Cedar Park - (Culturemap, September 2019)
- Austin ranked #1 in the U.S. for the Growth of Million-Dollar Businesses - (Austin Business Journal, September 2019)
- Austin ranked #2 on the Best City for Young Professionals - (Austin Business Journal, August 2019)
- Austin ranked #1 on the U.S market for Real Estate Investment - (Austin Business Journal, September 2019)
- Austin is the 2nd Big Top Startup Ecosystems in the World - (Built in Austin, May 2019)
- Austin is the Hottest Labor Market in the U.S. According to WSJ Analysis of the 53 Largest Metros Based on 5 Labor Market Metrics (Wall Street Journal, March 2019)
- Austin Ranked #4 Best Metro Area for STEM Professionals in the U.S. (WalletHub, January 2019)
- Austin Ranked #6 Best State Capitals to Live In – 2019 Edition (Kake.com, September 2019)
- Austin-Area High Schools Ranked Among Best in Texas by U.S. News (KVUE, April 2019)
- Austin Ranked 4th on Top Cyber cities based on tech economic impact as a percent of the local economy (23.5%) (CompTIA, March 2019)

 

Negative Factors That Could Impact the Local Economy 2020

- The tight labor market and low unemployment rates - make it difficult for businesses to fill positions.
- Housing: Permitting and constructing could slow down due to affordability

As we have talked about it on this blog, affordability remains to be an issue this 2020 for homebuyers. Travis, Williamson, and Hays County average wage earners are paying 41%-52% of annualized wages to buy a home. ATTOM's methodology stated that residents should not pay more than 28% of their wages on housing. 

With the low unemployment rate, this makes it quite difficult for businesses to find workers. This explains the slow movement of growth in 2020. Despite the possible negative effects of these issues, it predicted that the local and national economy will continue to look very good in 2020. With plenty of people flocking to Austin which has reached a total of almost 55,000 since 2017, these relocations are expected to fill in the gaps in housing and businesses.

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