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Economic Forecast 2020

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.

 

 

 

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