The Incredible Shrinking Dollar in Austin
Affordability — especially when it comes to homes — has become a Texas-sized issue in Austin
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| East Austin Home (photo credit: Nick Simonite) |
Think of Austin’s booming residential real estate situation like one of those head-scratching problems from middle school algebra. If Austin grows by 137 people every day and only builds housing to accommodate half of those newcomers, and if Austin residents continue to see their income growth lag behind other major cities, how long will it be before most residents are priced out of the local market?
Exact figures fluctuate by a few percentage points from one study to the next, but by most measures, home prices in Austin have grown by about 10 percent annually since the real estate market recovered in 2011.That sort of increase isn’t record-breaking — the annual U.S. jump in home prices stands at about 12 percent — but Austin homes didn’t lose notable value during the recession, so while other cities are getting back to pre-recession levels, Austin is trudging higher.
The median single-family home price in Austin stands between $235,000 and $240,000, up 13 percent from a year ago and a 40 percent increase in value since 2008. Over that same five-year span, incomes in the Austin area have only grown by 15 percent, according to the Bizjournals’ On Numbers Economic Index.
With the median annual income in the Austin area standing at about $55,000 — enough to qualify for a loan of just under $200,000 — and not keeping pace with housing prices, more Austinites are finding that latching onto the age-old American dream is increasingly out of reach.
“There’s that old saying and it’s still true, that you drive until you qualify,” said Charles Heimsath, president of Austin-based Capitol Market Research. “The reason price is escalating is because of the inability of developers to get new lots on the ground to build. Lenders are now tentatively getting back into the business of lot development.”
A recent study found that about 6,500 new lots had been added to the Austin market in 2013 as of Oct. 1. That’s a slight increase over the 6,000 that would be typical in a year, Heimsath said, suggesting housing supply could start to grow from its record tightness of only a 2.7 month supply available. A healthy home supply is about six months.
It’s bad — but not California bad
The good news, relatively speaking, is that the availability of land in the surrounding area means it would be almost impossible for Austin housing prices to resemble those of San Francisco, where earlier this year the median home price topped $1 million. Still, the growing gap between prices and area incomes is becoming a concern for real estate professionals and economists. According to real estate research firm Metrostudy, Austin is alone among Texas’ major cities in having home prices that outstrip loan eligibility.
The median home price in Dallas is $202,300 and the median income of $60,383 qualifies for a loan of $210,792. The median home price in Houston is $187,800 and the median income of $55,000 qualifies for a loan equal to that median price. Citing figures that 38,000 low-income households are unable to afford housing in the city, the Austin Board of Realtors threw its support behind the Nov. 5 affordable housing bond measure that passed.
That will yield about $65 million for affordable housing, but most expect it will act as little more than a speed bump to surging home prices in the market — especially since, in some cases, it will take years for new units to come onto the market. But if interest rates climb and stay above 4 percent as many expect, price increases could cool off to around 9 percent annually in the coming years.
Will work for food
Jonathan Boatwright, co-founder of Realty Austin, said many would-be buyers have to stay in apartments or rental homes while they wait and see if the market turns back in their favor. That means either housing supply starts to meaningfully catch up to demand, which no one sees happening soon, or job candidate demands “push employers to pay higher wages.”
That also isn’t likely, said Yoany Torres, a senior staffing consultant at L.K. Jordan & Associates who transferred to Austin from Houston this year and was struck by the willingness of Austin’s job candidates to work for wages lower than in her former market despite the higher cost of living.
Torres said there’s no fixed number on the disparity since incomes in different industries can fluctuate wildly, but she said hourly middle-class jobs in manufacturing and clerical work typically pay 25 percent less in Austin than in Houston. The main reason for that discount, she said, is that Austin has a large population of artists, musicians, designers and more who are willing to take a stable hourly job for less money as an alternative to the erratic incomes of their creative pursuits.
“(Candidates) here are more educated and lots who come in have degrees but aren’t demanding the pay you’d normally see with that, so they’re willing to work for $12 an hour,” Torres said.“I was surprised when I got here and started seeing the job orders and what employers wanted for qualifications compared to what they are willing to pay. But a lot of the candidates here are coming off of jobs waiting tables or they’re involved in things like theater and the arts, and they just wanted anything that was more stable. It’s a different culture.”
How it got this way
It took a while for Austin’s housing market to emerge from the 2008 housing crisis and recession, but when it did, sales went into overdrive almost overnight. And they’ve stayed there ever since.
Tom Thornton, a broker associate with Realty Austin, said he and other Realtors saw sales pick up “almost like someone flipped a switch” around Thanksgiving 2011, with buyers acting on years of pent-up demand thanks to low interest rates and prices that were lower than they should have been for a fast-growing city.
“Things were flat through most of 2011, and then in Q4 sales just went bonkers and they’ve been strong ever since,” he said. “Lots of people had been sitting on the fence and because of low interest rates and the improvement in the economy a lot of people who had been renting their properties started to sell.”
The extreme seller’s market that’s resulted ever since — coupled with a prolonged lag in new home construction and the addition of an estimated 137 new residents to the Austin area every day — has caused home prices to climb at a rate some think might not be sustainable, or at least healthy for the core city’s demographic makeup.
“I’ve never experienced this rapid of a price increase in Austin before,” Boatwright said. “The changes in income tax (rates) in California are causing a lot of people to move here from there, and building is just starting to pick back up. There’s lots of single-family on the outskirts, there’s thousands of apartments coming online but the condo developments are about 18 to 24 months away from delivering what’s needed.”
Labels: affordability, austin real estate market, economic growth, housing market, job growth, population growth
posted by Violet Crown Realty @ 3:27 PM
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