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State of the Market, 2020

Posted by Ryan Rodenbeck on Friday, April 19th, 2019 at 12:08pm

This is a mix of surveys from local real estate agents and lenders to determine whether we’re going to see a housing bust in Austin from its real estate bubble. This is the question we’re asked most about.  We also include notes from Angelos Angelou, the foremost economist in Austin.  

Before we start this Austin real estate market economic forecast breakdown, I want to point out that Texas, and especially Austin, are expected to be the among the first economies in the US to recover. Residential real estate is very resilient, and this is not a recession that was caused by factors in housing like we saw in the last one considering that Austin was said to be in a real estate market bubble.

It’s questionable if we will see much, if any, depreciation in pricing of the medium housing values in Austin. If you’re looking to buy a home for 5 to 7 years, I don’t see any reason to wait. Any decline price value that might occur would likely be offset by the record low interest rates that we’re seeing now. It’s always a good idea to hold on to any property for at least 5 years.  

If you’re looking to buy a home for 1 to 3 years, you may want to consider waiting a few months to see if there is a decline in the real estate home values in Austin.  

Luxury Property

The perception is that there are limited jumbo loans available. That’s not exactly true. There are some available but the interest rate is 1.5 to 2 points higher than a conventional loan. It’s not. We’ve recently discovered that, so it means that if you are buying a home over $1M, the most you can get a loan for on a first lien is $510K and a second mortgage (at a higher interest rate) would be around $250K.  This means that, currently, any buyer looking for a home in the $1.5M or more would put at least $700K down. So the portion of buyers that are shopping in those price ranges is drastically lower.  I’d put that number at 20-25%.

Note: Since I started writing and researching for this article, I’ve discovered that Leaman Team has a jumbo product that is about ¾’s a point higher than conventional.  

This is a temporary issue. As the stock market climbs and investor confidence grows, jumbo mortgages start to come back. This is an opportunity for the smaller segment of buyers that are shopping in the higher price range. There is plenty of inventory of newly built, luxury homes and they want to get this inventory off their hands so they can start the next project that will be completed when the recovery begins and things start to creep back to normal.

After speaking with our own agents that list luxury homes as well as other colleagues outside of our organization, we have seen that the price point that is suffering most in luxury real estate is those over $1.3M. Homes priced over that amount are seeing a significant decrease in contracts.

The following are notes from Angelos Angelou who is the foremost economist in Austin. Below is the entire forecast that you can watch it its entirety.

Angelo says he doesn't see a full recovery this year. If he sees a 50% recovery by the end of this year, he’d be surprised. Possibly 80% recovery by the end of 2021.

Commercial real estate is going to be hit pretty hard. 

Housing starts are down 25% nationally and he expects to see that trickle down to the Austin Housing Market.

This will continue an inventory problem in the US as well as in Austin, though it is expected that to continue throughout the next several years.

 

US Economics

Retail sales declined by 8.7%

  • Previous record was 3.8% in November 2008

  • That same time

  • Clothing 50%

  • Furniture 27%

  • Restaurants 26.5%

  • Industrial production down 6.3%

  • Manufacturing 5.4%

  • Jobless claims 22 million

  • Housing starts down by 22.3% largest drop ever

Consumer index dropped to 71.

Outlook

  • GDP decline by 14% grow 12% in 2021

  • Job loss of 13M in 2020, gain of 12M in 2021

  • Unemployment 12-13% in 2020 and 7% in 2021

  • Retail sales will decline by 20% in 2020 increase 15% in 2021

Asset repricing causes fear of deflationary pressure on the economy.

Austin

  • He believes that 60 to 70% in leisure and hospitality and retail.

  • 250,000 jobs lost in leisure and hospitality. 

  • Expects the bottom in June and that we’ll see a 5% recovery every month thereafter.

Austin Real Estate

  • Single-family sales will be down to 35K

  • Starts 34K

Texas

  • We created 319,000 jobs in 2019.  Loss of 1.2M in 2020 and an increase of 450,000 jobs in 2021.

Two bright spots are that we’re a technology-based company.  

Limited population growth in Austin.  35K people this year and 45K next.

He said that when COVID is done we’ll see more people moving to Austin than ever before.  

Immigration accounts for 7% population growth in Austin so the administration’s decision to stop this is not good for our economy. Typically professionals don’t apply for unemployment so the 22M number is not representative of the correct number.

Will the banks be able to withstand the amount of bankruptcies from COVID and oil and gas? 

Interest rates will remain very low but we will have lost the benefit of a tool to manage the economy.  

How do we get out of this mess

  • An effective treatment from Coronavirus that will take away the fear and provide relief in the health care sector.

  • The most effective measure is the discovery of a vaccine.  That is 9 to 12 months, maybe longer. 

  • He said Texas will be one of the first to recover so long as the oil and gas issues are cured fast.  

  • Fed will buy loans from banks again, quantitative easing. 

  • Economy in decline from March to June and will begin to recover starting in July. 

 

State of the Market, 2019 Q3

Is Austin heading towards a recession?

In 2019, I went to two different Austin economic forecasts provided by title companies.  This report is based on the notes I took with some commentary from myself.  A very special thanks to David Tandy with Texas National Title and Mark Sprague with Independence Title for providing the data and commentary for these reports.

Austin’s Current Economy

Austin’s economy is still in a very healthy state.  The population of Austin’s greater MSA is right around two million people.  Our population growth was around 4% during the 70’s and 80’s and we’ve been hovering around 3% for the past two decades.  This year we’re looking at adding about 57,000 residents in the greater Austin MSA.

Stats about our population growth in Austin:

  • 56% of the migration is coming from Texas.  6.4% from California
  • 2001-2008 - 384K new residents

The Current State of Housing in Austin

In Austin, there were 384,000 new homes built from 2001 to 2008.  In that same time period, there were 101,000 people that moved to Austin.  Accounting for people that moved out of the city and calculating people that would rent apartments, there was a shortage of around 11,000 homes during that time period.

Then from 2009 to 2016, we almost completely stopped building homes.  There were 423,000 new people that moved to Austin and 73,000 new homes built, leaving a shortage of 41,000 homes that could have been absorbed by the market.

Job Growth in Austin

Since mid-2009, Austin has had an uninterrupted growth curb of around 3 to 4% in the past 8 years, closer to 4 in most years. One challenge we’ve had is our job growth is arguably TOO much.  In the last 12 months, job growth has been 2.8% which is a great number, as it keeps up with the population growth.  This is sustainable.  We are ranked number 12 in the top 50 fastest growing metro areas.  Many of the top 10 are ranked for the first time.

  • 39,200 jobs in 2013
  • 32,300 in 2016
  • 28,200 projected in 2017

Why the slowdown?  Rates will slow sales temporarily however the public realizes they are there to stay.  Home appreciation and sales will slow in those inner areas that have been the strongest in the last 5 years. Too much overpriced inventory. Homes under $500K will continue strong appreciation and sales.

This means that there are actually two different markets in Austin.  The “affordable” homes under $500,000 (some areas are under $300,000) and the “higher priced” homes.  Generally, over $500,000 outside the urban core is “higher priced”.  From Ben White to 183, the higher price range that’s slower to sell is above $700,000.  But the good news is that we’re still one of the most attractive cities in the nation for companies to start a business or move a business to and then recruit good talent.

What makes Austin unique

  • 5,800 high tech employers
  • 129,700 high tech jobs
  • 13.6% of all jobs are high tech compared to 6.7% nationally
  • These companies are choosing Austin over Dallas and Houston because of the ability to find good engineers and developers
  • 1.1% job growth for high tech jobs in 2016
  • Realtor.com ranked the 500 largest US cities and ranked Austin #1 in the nation for being a tech city
  • Savills ranked Austin #1 in the WORLD for being a tech company - Only four other cities in the US made the list.
  • Employers are seeking a well-educated work force
  • Austin ranked #7 for the most educated cities. 48.3% Bachelor or better and 17.4% advanced degree or better
  • UT and Texas State are focusing on advanced degrees

Austin Home Sales

From 2010-2016, the median price increased dramatically but the average price is almost the same because of the slowdown in luxury. There were 265 more sales in 2016 than the year before.

One of the factors in home sales is the population growth in Austin. There was an increase of 25.5% in population from 2010-2018 wherein it affects the increasing home prices and the narrowing inventory in real estate. Due to the influx of tech-jobs building out their campuses in the area such as Apple and Google, it attracts young professionals who are interested or are currently working in the tech industry. Home prices start to go up while the inventory is decreasing as with new residents moving in.

There is also an increase in Millenials buying homes. From David Tandy, homeownership among the age of 35 and below rose from 36% to 36.5%, while ages 35 to 44 increased from 58.9% to 61.1% last year.

Home values are up 12% in dollar value sold this year over last.  The average price in Austin is up 7.7% and median price increased 6.1%

2019 Austin Real Estate Sales So Far

From January to June of 2015 there were 9,000 home sales.  In that same time period of 2016 there were 10,000, and from January to June of 2017 there were 7,892 home sales.  That being said, there is a 22% decrease in listings from 2016 to 2017, so the market has seemed fairly hot the first two-quarters of the year.

So where is the slow down?  Some of the hottest markets in the past will see very slow appreciation in the coming months and years.  Homes in 78704 and 78702 will likely slow to a crawl.  Luxury properties are definitely slow.  Take Lakeway, for instance.  If you have 12 homes on the market that are priced over $1M dollars, you have a 4 year supply, according to Mark Sprague. A “normal” supply of inventory is usually calculated as 5 or 6 months.  Any zip code with inventory over 6 months supply is considered a buyer’s market.  There are some zip codes in Austin with over 6 month supply, but not many.

Both of the speakers at these economic forecasts predict a recession within the next 2 years.  We’re in the 4th quarter of an economic cycle.  That being said, there are two very important factors to consider when thinking about how this will affect home prices in Austin.  Number one, the last recession was a housing crisis.  This is not likely to occur again.  I’ve been hearing the words “Bond Bubble” recently and there will be a big surplus of commercial real estate retail centers due to many going out of business.  Number two factor is that we’re in Austin, Texas.  Every economic problem that Austin has is worse in any other major metropolitan - traffic, affordability, etc.  We’re in a wonderful place to be in for a recession.  And with recessions, come opportunities.

As for the beginning of the 3rd quarter of 2019 according to the Central Texas Housing Market Report from the Austin Board of REALTORS®, the Austin-area home sales set an all-time high for any July on record as sales last month increased 11.7% to 3,439 home sales. Home sales within the City remained flat due to limited housing inventory despite the said record.

“It’s a sellers’ market right now. Even though there is an increase in new listings, the inventory remains to be low. Homes located within the city limits are spending less than one month on the market on average.” Kevin P. Scanlan, 2019 president of the Austin Board of REALTORS®, said. Increasing home prices have resulted in few sales over time and Austin’s limited housing inventory. Nevertheless, Austin is still one of the most-sought cities to live in the U.S.

People are still moving to Austin in greater numbers compared to leaving. This has been true for a very long time and will continue in the future, Mark Sprague said.

 

Negative factors that could impact our economy

  • Student debt will have a significant impact.  The average student was $37K in debt. Stats show that this is delaying their home buying for about 3 years
  • Oil prices - 2017 projected to be between $50-57 a barrel, however, the Dallas Fed projects an increase in surplus later this year
  • Online shopping has reached a tipping point, which will lead to closings of many retail centers across the U.S.

One thing that affects how our city will grow and attract new businesses are local politics. The Austin City Council is different than previous councils.  They are not as business-minded and don’t seem to understand economics.  The biggest thing we can do is to ask our city council “what are you doing to create jobs?” instead of “what are you going to do about businesses opening in X neighborhood?”.  If they continue to show aggression to potential and existing businesses with their eye on Austin, we could see businesses start to look elsewhere.  And right now, our growth has slowed to a very manageable pace. We’ve gone from being in the top 10 cities in population growth to the top 20, and that’s fine.  But it's time to start looking at the politics that prevent us from slipping into a slot further down the list.

From a personal standpoint, I believe that selling, buying and investing in real estate should be looked at very carefully and can depend on where you live in the city, what price range you are moving to, and whether you are moving up or down in home value and size.  We study the market throughout the year in order to advise you how to accomplish all of your goals and when you should start putting a plan into effect to accomplish these goals.  Visit our blog about the Economic Forecast for 2019 where we tackle more information from the North Austin Growth Summit. If you have any questions, please feel free to reach out and I’ll be happy to answer them. Stay updated with information about the Austin Real Estate Market Bubble by signing up on our page or send us a message to receive news and updates about the Austin Real Estate Market.

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