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Austin Economic Forecast 2021

Posted by Ryan Rodenbeck on Monday, March 1st, 2021 at 12:00pm

The following are notes taken from the presentation given by David Tandy with Texas National Title for the 2021 Austin Real Estate Market Update.

Why are people moving to Austin?

2020 Tech Town Index Ratings

  1. Austin, TX
  2. Dallas, TX
  3. Raleigh, NC
  4. San Jose, CA
  5. Charlotte, NC
  6. Seattle, WA
  7. San Francisco, CA
  8. Atlanta, GO
  9. Huntsville, AL
  10. Denver, CO


Influx of people that are moving to Austin has grown exponentially each year. An estimated 47K new people moving here per year and there were 68K tech industry job postings, which shows a very strong job market in Austin. The median salary for tech industry jobs in Austin is $87,880.

 

Several companies have set up an R&D lab or an innovation center in and around Austin. They are critical because they hire only the top talent. Army Futures Command is leading a $30B initiative to transform the military and we’ll see other countries coming here because of that.

Other companies that are starting these are Home Depot, Comcast, Conde Nest, Walmart, and Shell, just to name a few. This will make it a competitive job market.

The drop in COVID was dramatic, especially for the leisure and hospitality industry but we’ve rebounded to within 1% of where we were before COVID. Austin has done as well, if not better than any job market in the country. We’re down now to 5.7% unemployment rate. Between 4 and 5 percent is considered full employment. The leisure and hospitality industry is still impacted by the pandemic, but the other industries are making up the losses from those industries.

The state where people are migrating to Austin the most is California.

 

Top Reasons why Californians are moving to Austin

  • 13k tax rate personal
  • 8.8% corporate tax rate
  • They considered a tax rate of 16.8% (up from 13.3%). This got voted down but it's likely they will continue to attempt
  • Another wealth tax was proposed that would look at the wealth of a person and would follow them to other states for another ten years. Again, this was voted down, but if you’re in California, you have to consider what the state is trying to do.

San Francisco is one of the primary places people are moving to Austin from.

Class A office space is almost double in San Francisco.

Texas has been the number one state-ranked as a favorable business environment for the past 10 years.

Slant 3D is moving to offices here and they are the largest 3D printed manufacturers in the world

We’re not just seeing computer or data jobs but also manufacturing jobs.

 

Housing Inventory in Austin

  • Coming out of the recession we were in the 6000 range for the amount of new building permits and that has risen to 21,375 in 2020. We have continually been behind on building single-family houses in the Austin area.  The last four years, we’ve been slightly behind, but not too bad. 

  • Between 2010 and 2016 we were so short in building new homes in Austin to keep up with migration, that even though we’ve almost kept up in the past 4 years, we have years of building that need to be made up for.  

  • During COVID, we saw a reluctance for people to list their homes due to the pandemic.  As vaccinations get distributed, we should start seeing more listings come on the market.  

  • The median home value in Austin increased by $55K dollars.

  • Over the course of 2020, the number of new listings dropped so dramatically compared to previous years. We now have less than 2 weeks of inventory.

  • Luxury homes boomed tremendously last year as well.

 

Big Drivers of Jobs and Population Growth on the Austin Market

  • We already had the announcement of Tesla and Apple. 

  • Now Samsung wants to start a $17B dollar expansion in north Austin that will put us on the cutting edge of manufacturing for the next 15 to 20 years.

  • The Apple development is still in process and is not complete so it has not even started to impact the job market.  That will change within the next 12 to 20 months.

  • Tesla predicts that their factory will be complete by the end of this year.

  • BAE systems is a 24 Billion dollar company and it shows how Austin is an epicenter for aerospace and defense industry.  They are moving many of their other offices to Austin and will be adding 1,400 jobs.  

 

 

Tech Companies Moving to Austin

In 2020, Austin has gained more tech companies and startups in different industries. Austin is referred to as "Silicon Hills" with tech being one of the biggest drivers of growth. In the same year, there is a major tech migration going on in the Austin area. In 2019, 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. Elon Musk teases of moving his headquarters to Austin after his announcement of opening a Tesla Gigafactory in Austin and Oracle announced relocating its headquarters from Silicon Valley to Austin, Texas.

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.

Tesla Inc.

Elon Musk announced in July 2020 that he was opening his Tesla Gigafactory in Austin. The new Gigafactory is located in eastern Travis County at Del Valle. It is one of the world's largest and most advanced plants that will bring an estimated $1 billion in capital investment to the region. The Tesla Gigafactory has planned to hire 5,000 people to staff its new facility.

Oracle Corporation

In December 2020, it was announced that software giant, Oracle, the second-largest software company in the world, will be moving its headquarters to Austin, Texas from Redwood Shores, California. Oracle said in a written statement that they are implementing a more flexible employee work location policy and these moves best position Oracle for growth and provide their personnel with more flexibility about where and how they work. Oracle did not provide a timeline for the formal move nor said how many jobs it will bring to Austin, however, it's a big win for Austin's tech community and development.

Even if Oracle doesn't move hundreds of their words to Austin immediately, the company will concentrate its hiring future in Austin, says Austin economist, Angelos Angelou.

Oracle's current workforce in Austin is estimated at about 2,500 people.

Apple Inc.

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, 3-million-square-foot campus that will be home to 5,000 employees with the capacity to grow to 15,000. The campus is expected to be finished by 2022.

 

With businesses relocating and building new facilities in Austin this year, it's expected that these developments will create 10,000 jobs. This will help offset the hit from the pandemic to the businesses that are dependent on leisure and hospitality. 

In 2019 and early 2020, 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.

 

The Elon Musk Impact on Austin

  • Tesla is talking about building a battery plant, a lithium plant.  The Boring Company is already located in Austin.  

  • Aerospace is another company that is in talks of moving to Austin.  

  • Starlink, a worldwide, low-cost high-speed ISP company, would very likely move to Austin.  

  • Solar City - Energy capture and storage systems.

Looking at the map of the Tesla plane and the surrounding areas, there is another 200,000 acres of land that is owned by Tesla, which leads you to believe that Tesla has a lot of plans about Austin that haven’t been announced yet.

 

Austin's Economic Outlook

Austin, Texas' economic growth is expected to continuously grow, as well as the rest of the US, but it is also most like to fall short due to the city's recent track record. This is based on the report from 2020's Wells Fargo Securities Senior Economist & Director, Sarah House, Texas A&M Real Estate Center economist, Luis Torres, and other reliable sources stated below.

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. This was down from the past estimated range of 6% to 6.5%. Austin continues to be strong. 

Economist Luis Torres 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% last 2020 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.

 

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). 

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% in 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 rent in Austin is at its highest for the sixth year. Rents for a one-bedroom apartment in Austin have doubled since its post-recession lows in 2011. Renters then 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, which predicted that it will remain low throughout mid-2021 at around 3.7%.

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 from last year which we stated above, single-family homes will dominate the Austin housing market. 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.

 

Negative Factors That Has Impacted the Local Economy 2020

Over the past year, Austin's tourism and hospitality industry has been significantly impacted by COVID-19. An estimate of 26.9% of job loss was recorded in leisure and hospitality by June according to the Austin Chamber of Commerce. The cancellation of large events such as SXSW and ACL alone accounts for roughly $621 million loss. Earlier on the said year, the Austin-Bergstrom International Airport passenger number was down about 90%, however, in the past months, it is undergoing a moderate recovery and is expected to be down before the year ends. Hotel occupancy was only at 20.6% in April and 44.4% in June 2020.

 

Long-Term Impacts of COVID on Austin

 

  • New Homes - different space size, and work from home amenities.

  • Resale Homes - will be remolded to have the same features

  • Small businesses have been crushed

  • Multi family - Evictions and moratoriums have had some issues due to this. (As vaccinations get distributed we’ll see the leasing rebound)

 

Stay updated with the latest economic outlooks, pricing trends, housing trends, and the state of the market in Austin by subscribing to our newsletters. If you have any questions, please feel free to reach out to us and we'll be glad to answer!

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