New Article: Austin Tx Is Most Over Valued RE Market
Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
New Article: Austin Tx Is Most Over Valued RE Market
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Investor · Austin, TX · Member since 2013 · 452 posts · 309 votes
12yYou can't just look at the percentage that the prices increased in value and say it's over-valued without looking at the reasons for the rise in prices.
I do think that we've had a crazy couple of years in the Austin market, with prices going through the roof, and I do think we'll see a correction, but not a catastrophic one. Since the late 80s, Austin has been pretty solid. Just like in LA and SF, if you are in it for the long haul, your chances are pretty good for success.
In the short run, I think prices will hold steady and maybe have a small dip (10% or so?). This will happen when inventory for the houses in the neighborhoods that people really want to be in increases enough to provide some competition and longer days on market.
We saw a little of this around the end of summer, when there is a natural slowing of home sales, but from what I'm seeing we're already picking up again.
Over the long haul though? I think we're going to continue to see a rise in prices.
- We're a city that young folks want to move to from more expensive markets like LA, SF, NYC, and DC. To them, our housing is affordable because they've often made money on the sale of a house in those areas.
- Companies that hire young people continue to move significant parts of their operations to Austin and open Austin offices.
- Our population is expected to double by 2020. That's a lot of people buying or renting houses. The current estimate is that 110 people move to Austin every day.
- Austin has been a desirable market for a very long time. I moved here in 1989 and since then, there have been very few opportunities to get a bargain in the more highly desirable areas.
So what can really hurt us?
- Of course, a national crash, especially one that makes mortgages hard to get like we saw in 2009.
- Our property taxes. They're high at about 2.4% and our home values are always going up. That means on a $500,000 home, you're paying about $13k a year in property taxes.
- Traffic. As of yet, we have no solution for a problem that keeps getting worse and worse. This combined with a pathetic public transportation system is a really bad thing.
- Water. We've been in a pretty bad drought for a few years. This has to be figured out.
So what am I doing? I'm staying put. I'm not being naive and thinking that the money machine that we've seen over the last few years will continue to run. That's just foolish. I am still picking up projects and doing deals. The biggest problem I'm seeing right now is that investors are getting cocky. They think that the increase that we've seen over the last 3 years will keep repeating itself. I'm conservative with my projections by nature, so I don't count on that when I buy. It's getting harder to find the properties on the front end, but that's okay. I'll wait until the price is right.
40 Replies
- 11yDan BurstainBusiness MemberReal Estate Agent · Austin, TX · Member since 2014 · 361 posts · 331 votes
If you look at the job makeup of Austin and where companies are coming in to the Austin area, they are not going downtown. They are not going central. They are going to the outskirts and suburbs. Apple's facility is nowhere near downtown and is very close to Cedar Park which has some great rental options at 1% with high probability of appreciation. I have lived in Austin for the past 8 years and 4 years back in the late 80's as well. I invest here and am a Realtor here and am very happy with where things are going. For those interested in investing in Austin, ping me as I give a 1% discount to BP members. As for downtown and central Austin, I do agree it would be very hard to cash flow there.
- Cupertino, CA · Member since 2014 · 18 posts · 4 votes11y
Thanks @Dan Burstain . I'm also placing my appreciation bet on Cedar Park.
In 2013 and 2014, Cedar Park was the 4th fastest growing city in the country,
and the city have approved a new Comprehensive Plan for how Cedar Park will look and feel in the next 20 years. A nice video is available here:
http://www.cedarparktexas.gov/index.aspx?page=32&r...
- Austin, TX · Member since 2013 · 24 posts · 7 votes11y
There is a stats somewhere indicating that 150 come daily to Austin and its neighboring towns, out of those numbers, 130 people stay. Additionally, the job market is enticing for many major companies. People that do migrate to Austin and the suburbs have careers that is why the values have gone up. Quality of life is great, schools are great, groceries are affordable, et al. Why wouldn't you want to live and invest here? Apartment prices have increased in the past years so there is a demand for SFH.
Please remember that Trulia is Not a real estate company. If I remember the article, they never discussed job growth--just kept referring to some numbers retrieved--which as many of us know in real estate, Trulia does not provide accurate numbers. That is why many brokerage firms removed syndication due to Trulia's inaccuracy. I wouldn't rely on this article. - Investor · Westminster, CO · Member since 2009 · 1k+ posts · 1k+ votes11y
http://www.forbes.com/sites/erincarlyle/2015/01/09...
LOL, BEST place to invest in Real Estate in 2015 per Forbes Magazine, Austin, TX.
Haha
- Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes11y
There's no question Texas is on fire, so I could believe this. That being said, these lists seem to come out all of the time (highest appreciation, best rental value, fastest growing, etc.) and they all seem to be different. Given the inconsistency, I don't put too much trust into them anymore.
- Real Estate Agent · Pompano Beach, FL · Member since 2015 · 249 posts · 73 votes11y
Yea i think South Florida will be on top soon. Just looking at some of the closed sales in some areas down here the numbers just do not make sense. I saw a property in a high crime, low income area go for close to $180,000. I am no Nostradamus but I can see a correction coming soon!
- Commercial Real Estate Broker · Tampa, FL · Member since 2014 · 216 posts · 86 votes11y
@Rod Desinord, foreign money has really driven the S Fla market. That foreign capital has other objectives than ROI. It is tough for rational investors to compete with that dynamic.
- Real Estate Investor · West Palm Beach, FL · Member since 2015 · 11 posts · 3 votes11y
@Rod Desinord - I know what you mean. It's gotten pretty out of hand down here. Seems like good deals on the MLS are few and far between in this market.
- Investor · San Antonio, TX · Member since 2015 · 34 posts · 24 votes11y
I found this thread and article interesting. I am new to the Austin market as I am coming from investing in CA and AZ. I have recently refocused and concentrated efforts in Texas and specially Central Texas.
Austin is a "weird" city for many reasons. First off you have the average price in Austin is nearly double the other major cities in Texas (Houston, San Antonio and Dallas-Fort Worth). However if you look at the concentration of those price points you will realize that it means nothing. You have tremendous growth in prices but also employment sectors in the donut circle of 'burbs around the city (Round Rock, Pflugerville, Manor, Buda, and Steiner etc). As traffic and affordability is a concern I have even seen some companies relocating out to Drip (Dripping Springs). The biggest driving factor of these prices is JOBS, specifically a huge influx of new high paying, medical and tech jobs. Yes interest rates help but interest rates play less of a factor in pricing in Austin than it does in other equivalent cities as their property taxes keep prices down to what it would be in another city. So when interest rates go up affordability will be challenged in those cities with an average price of 500k-1M more so than Austin with an average price of 220k.
Other parts of Austin are experiencing insane price increases because of their location to downtown. Such as the 78704 (South Austin) area with prices pushing 20-30% increase YoY, as well as up and coming areas like 78702 (East Austin) with 15-20% YoY increase. Austinites who grew up in the city used to not go past I-35 as it was a rough area, but if you are moving from out of the area and you don't know what the rough area is you just look at a map and see a house that is half the price of other areas and you can walk/bike/uber to 6th st it will be on your list. Include the new Dell medical center and med school located right on the border of East Austin and you will see an area that has tremendous growth potential for doctors, nurses and other support staff that don't want to face the traffic. Also coming from CA (Austin your traffic is weak). ;-)
So if any Austin realtors, wholesalers investor or any others that have any deals I am actively buying and building in the Austin area. I am also doing flips in SA, Houston, and Austin but looking for more sources for teardowns, buildable lots especially the A/B potential. Preference is 78702 but will look at most anything in the close proximity to downtown. Contact me here or shoot me an email [email protected]
- Investor · Corpus Christi, TX · Member since 2012 · 2k+ posts · 1k+ votes11y
Don't need an article to tell me the prices are not based on sound fundamentals...but I've been through this before both in 2000 and 2008...same song, different verse. We are at the top or darn near it, and the next correction will be ugly for the speculators (not to be confused with investors). I look forward to the opportunities that will present themselves when it happens.
- Investor · San Antonio, TX · Member since 2015 · 34 posts · 24 votes11y
Originally posted by @Guy Gimenez:
Don't need an article to tell me the prices are not based on sound fundamentals...but I've been through this before both in 2000 and 2008...same song, different verse. We are at the top or darn near it, and the next correction will be ugly for the speculators (not to be confused with investors). I look forward to the opportunities that will present themselves when it happens.
I actually disagree with the fact that the market in Austin isn't based on fundamentals. So in CA, AZ, NV and other areas there was a lack of fundamentals to sustain the increase in prices. So in 2004-2007 in Maricopa AZ a way off place south east of the Phoenix was experiencing HUGE price swing just based on speculation of the market. People buying and holding or just locking up new builds with a deposit and then selling at 50-75k when the house was finished being built. No new jobs, no people were actually moving there.
Where in Austin and Texas in general actually is the opposite. They have new Jobs, which brings in new people, which then increases demand, and then when supplies are limited equates to a price run up. I study every metropolitan area of 1M or more in the US and based on fundamentals of: Jobs (unemployment), Population Growth, Affordability, and Demographics. All Texas cities (Houston, San Antonio, Austin and Dallas) rank in the top 6 of those list when compiled. You have awesome population increase, you have great affordability. Most Austin people don't realize how affordable the city is when you are comparing it to other cities. For instance SF, LA, Seattle, Chicago, NYC, and Miami to name a few. Then it just becomes a math problem on the increase in property taxes vs the state income tax of other states. So I pay 9-10% state income tax in CA. I relocate to TX my property tax is more but I save a grip not paying CA income tax.
I see a lot of great fundamentals in Austin and Texas as a whole. Way more than I see in most cities of the US. The market in Austin has some legs to it for at least a few years.
Also for you rental people yes Austin doesn't make much sense in Austin proper but there are deals to be had in the those outlying areas or there are outside of the box ideas like AirBnB rentals in the downtown area that can generate HUGE returns.
Cheers,
Jake
- Houston, TX · Member since 2013 · 483 posts · 189 votes11y
I will chime in for my 2 cents as well and disagree with the article. I just went to Austin for the Motor GP event last weekend and i have to say it is an amazing city. I don't think the city over value at all.
Yea, to comment on your post. we stayed using airbnb over the weekend. and the best part is that there was somebody that rent my house over the weekend in Houston so the cost of travel kinda even out :d
- Investor · Corpus Christi, TX · Member since 2012 · 2k+ posts · 1k+ votes11y
Detroit once had lots of jobs and net inflow of residents. Using jobs as the sole indicator of the validity of a market is a mistake as jobs can and have disappeared just as fast as they arrived. Don't believe me? Just look at what the drop in oil prices is did to "jobs" overnight. Thousands laid off and they never saw it coming. Yes, real estate is local. But the economy is global.
I'm not hear to argue as I'm not speaking from theory, but from experience. I love the fact that many will continue to believe the good times can't possibly end and I've seen plenty of investors get caught up in the frenzy because they liked and city. Heck, I like the new Corvette...but I wouldn't buy one as an investment.
Please folks...keep believing that Austin is not overvalued. I will be there to pick up the pieces once reality sets in (as we did back in 2009/2010)...and unfortunately reality always seems to rear its head to the surprise of many.
- Investor · San Antonio, TX · Member since 2015 · 34 posts · 24 votes11y
Originally posted by @Guy Gimenez:
Detroit once had lots of jobs and net inflow of residents. Using jobs as the sole indicator of the validity of a market is a mistake as jobs can and have disappeared just as fast as they arrived. Don't believe me? Just look at what the drop in oil prices is did to "jobs" overnight. Thousands laid off and they never saw it coming. Yes, real estate is local. But the economy is global.
I'm not hear to argue as I'm not speaking from theory, but from experience. I love the fact that many will continue to believe the good times can't possibly end and I've seen plenty of investors get caught up in the frenzy because they liked and city. Heck, I like the new Corvette...but I wouldn't buy one as an investment.
Please folks...keep believing that Austin is not overvalued. I will be there to pick up the pieces once reality sets in (as we did back in 2009/2010)...and unfortunately reality always seems to rear its head to the surprise of many.
What you just said further validates my point. Yes Detroit did once have jobs and was quite the market to invest in, just as Pittsburgh did with the steel industry and other markets throughout time. What I am saying is jobs are a key factor, but that is also why I factor in affordability and population and demographics. If it was simply jobs I'd be investing in N. Dakota.
Demographics breaks down what the jobs are, who they are what exposure they have to different market conditions. So the oil industry effects Houston and DFW way more than it effects Austin or SA.
I am not saying I have a crystal ball and can predict the future but I have been investing for a fair amount of years and I am looking at the macro view of the global and US economy and how that equates to real estate prices especially on a local level of Central Texas.
So just cause Austin is a good market now doesn't mean in 18 months or 2 years that it still will be a good market. I however think Austin will be a good market for 2-3+ years based on jobs, population, affordability, and demographics.
Do you know who the #1 employer is in Austin?
Most people guess, Dell or Samsung but the reality is the State of Texas has 70k people that they employ, then factor in city government and schools and you have well over 100k employed by the Government. So I don't see the Government cutting back on jobs say ever. Then next are major cohorts of employers are medical and then tech. Medical is not being reduced anytime especially with the new Dell Med Center and the Med school there at UT. So that leaves Tech as the biggest risk of losing jobs and that is possible with a stock market collapse but people are still using computers and Google even if the stock market tanks. So that is what I mean about demographics and why Texas is strong. Very few places in the US show anywhere near those numbers of key factors.
Just cause prices are up doesn't mean things are ready to pop and see an 1980s, 1990s, 2000 or 2008. I am not seeing the rampant craziness in Austin that I did see in CA and AZ on 04-07 at least not yet.
Cheers,
Jake
- Investor · Corpus Christi, TX · Member since 2012 · 2k+ posts · 1k+ votes11y
Hmmm....Detroit makes your point? OK, guess I'll have to bow out on a statement like that.
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