Prices in Austin don't make sense to me anymore

35 Replies

I started my real estate career in 2012 so I have never actually worked in a downturn or a slow market. Lucky me.  Just curious on others thoughts. I don't see how prices can keep going up. All the fundamentals are strong here in Austin. However all I can think about is school and what we learned about how markets are cyclical. Down turn has to be coming soon ? Or I am I the crazy one who is trying to talk about something that literally no one can predict? 

A widely regarded leading economic indicator for a region is airport statistics. They usually run about 2 and 1/2 months behind but so far 2019 is starting off as the best year ever. If you are truly concerned about the future of Austin's economy, check out the airport stats posted every month.

http://austintexas.gov/department/monthly-activity-reports-passenger-and-air-cargo-traffic

Yes, I’m totally with you, @Lexi Teifke ! I've been in/and/around real estate since 2001, beginning with new construction. I've seen the days of major refis, the 13 month recession in 2002-2003, more refis, financial crisis (which was just downright obvious all the crap happening), to the upswing and greediness again, now seeing more refis come up....more jacked up prices and a lot of "reduced" daily reports on MLS. Austin is in a very unique market. The good ole days of my hometown is far gone. In many ways I love the new things and major renovations, but in many ways I don't like it. I'm being extremely more cautious of where I want to put my money next. Things will eventually flat line in my opinion, just not right now. Too much movement going on in Austin. Affordable housing will continue to be a big issue. And when we have another downturn, I will be more than prepared.

As for the predictability of a down turn, I'm not sure how possible that is. In contrast I do agree with your perspective very much. In my opinion the bubble is slowly growing and will have no choice but to burst eventually. It's not a matter of 'if' but a matter of 'when' this will occur. 

I have the same concerns but, it will only make me tread my investment ventures more wisely and conservatively. 

You're definitely speaking truthful words. 

It would be easy for me to say that prices in Austin make no sense anymore!  I have been investing in Austin since 1990. Some of my first flips in Austin:

-Purchased condos off of Oltorf for under $5k

-Purchased a home in Allendale for $42000

And so on and so on. I wish I had them all back !!!

However the growth in the Austin area seems to support today’s prices. The last national downturn was more of just a slow down in Austin. While flips are hard to come by and margins are just too thin for me right now, I just do not see the bubble bursting anytime soon

My view has always been that rents must remain connected to wages, as people cannot sustainably pay more than x % of their income for rent. 

However, home prices technically do not have to stay connected to employment, as people can bring inherited wealth or wealth earned somewhere else and use it to buy here. For example, in London and Los Angeles overseas investors are buying properties just to stash money somewhere safe and they are ok with very low returns. So this pushes home prices there much higher than wages would suggest. 

I think we are seeing this effect in Austin somewhat as home prices have risen much faster than rents have. Thus buy and hold investing here is getting harder to maintain at least slightly positive cash flow. So what can buy and hold investors do? 

(A) looking to the surrounding areas rather than central Austin

(B) focus on big value add i.e. adding bedrooms bathrooms, etc 

(C) buy cash flow negative deals and hope that appreciation takes care of you (risky and not very scaleable) 

(D) other ideas? 

I am leaning toward (A). 

Try coming down to San Antonio, we get loads of Austin investors looking for better investments.

Originally posted by @Beau Fannon :

A widely regarded leading economic indicator for a region is airport statistics. They usually run about 2 and 1/2 months behind but so far 2019 is starting off as the best year ever. If you are truly concerned about the future of Austin's economy, check out the airport stats posted every month.

http://austintexas.gov/department/monthly-activity-reports-passenger-and-air-cargo-traffic

that will change some with the 737 Max being grounded this is a bigger problem than most outside the aviation community realize 

Originally posted by @Greg H. :

It would be easy for me to say that prices in Austin make no sense anymore!  I have been investing in Austin since 1990. Some of my first flips in Austin:

-Purchased condos off of Oltorf for under $5k

-Purchased a home in Allendale for $42000

And so on and so on. I wish I had them all back !!!

However the growth in the Austin area seems to support today’s prices. The last national downturn was more of just a slow down in Austin. While flips are hard to come by and margins are just too thin for me right now, I just do not see the bubble bursting anytime soon

residential houses don't have to follow investor norms.  MF does.. of course other wise no one would buy an apartment complex.

Look no further than SF and the peninsula.. were average price for a 2k sq ft home 50 years old on a 6k sq ft lot is better than 1.5 million investors don't buy those homeowners do.. by and large.. so Austin is from what I know of it ( never been there but been to Dallas San Antonio and Houston but in my mind its kind of the jewel in Texas I could be wrong.. and of course there is high end in each of the other cities but maybe there is not the oversupply like you can get in some of the other bigger cities were you have sprawl for ever.  

Originally posted by @Jay Hinrichs :

that will change some with the 737 Max being grounded this is a bigger problem than most outside the aviation community realize 

Huh? Boeing hasn't even delivered 400 of those jets yet and half of them went over seas. Austin Bergstrom gets over 16,000 flights per month. Even if every flight with a 737 Max was scheduled for Austin it wouldn't cause a blip in our air traffic. 

Originally posted by @Beau Fannon :
Originally posted by @Jay Hinrichs:

that will change some with the 737 Max being grounded this is a bigger problem than most outside the aviation community realize 

Huh? Boeing hasn't even delivered 400 of those jets yet and half of them went over seas. Austin Bergstrom gets over 16,000 flights per month. Even if every flight with a 737 Max was scheduled for Austin it wouldn't cause a blip in our air traffic. 

south west got the other half :) or something like that and I was thinking they could be a major carrier in your market.. 

flights tend to be seasonal as well.  just not so sure about busy relates to the real estate values / market.

I mean look at KATL one of the busiest in the world and value in that city dropped in half during the GFC.. yet flight did not.

Originally posted by @Greg H. :

 flips are hard to come by and margins are just too thin for me right now, I just do not see the bubble bursting anytime soon

Neither do I. Every neighborhood south of Oltorf is sitting on tons of equity. I'm talking 25-50% of the homes were purchased before 2000. I can hit 20 such homes in my neighborhood with a golfball. We're on the verge of a substantial generational wealth transfer here. 

Originally posted by @Jay Hinrichs :

south west got the other half :) or something like that and I was thinking they could be a major carrier in your market.. 

flights tend to be seasonal as well.  just not so sure about busy relates to the real estate values / market.

I mean look at KATL one of the busiest in the world and value in that city dropped in half during the GFC.. yet flight did not.

 No sir. Atlanta's airport saw month over month and year over year declines throughout the GFC clear into the beginning of 2014. Then they rebounded like a coiled spring. 

Originally posted by @Beau Fannon :
Originally posted by @Jay Hinrichs:

south west got the other half :) or something like that and I was thinking they could be a major carrier in your market.. 

flights tend to be seasonal as well.  just not so sure about busy relates to the real estate values / market.

I mean look at KATL one of the busiest in the world and value in that city dropped in half during the GFC.. yet flight did not.

 No sir. Atlanta's airport saw month over month and year over year declines throughout the GFC clear into the beginning of 2014. Then they rebounded like a coiled spring. 

 well I guess I did not get the memo when I was number 24 for take off and got through half the movie before we launched there at ATL.. 

but to be fair they had a runway closed.. but I will differ to your expertise in this matter that is one I had not heard before  IE a direct correlation to real estate values.. based on air traffic.

I think we can agree though Boeing got their ++++ in a ringer on this one..  Although frankly the Ethiopian crash how do you have a first officer with only 200 hours.. in a crisis that became single pilot and the 737 is not a single pilot plane..    I mean you have two covered toggle switchs right in the middle of the throttle quadrant to turn the system off..  And then hand fly..  there is no doubt that the over seas pilots lack the basic stick and rudder experience of many of our US based and trained pilots and rely on automation.. I mean the Oceana crash at SFO on clear blue and a 1000 and he hits the seawall..  I mean all you need to do is look out the window and see your glide slope is way low or the VASI are dead red..    Anyway enough about flying and back to your regularly schedule real estate forum.

I wanted to clarify  Indonesian  African and Russian airlines.. and maybe a little Chinese.. are the riskier ones.. I would never get on a Russian built airplane.. I was going to go to Kamchatka to fish and they fly those old Russian helo's and who knows how much vodka your pilot has consumed. 

Originally posted by @Beau Fannon :
Originally posted by @Jay Hinrichs:

that will change some with the 737 Max being grounded this is a bigger problem than most outside the aviation community realize 

Huh? Boeing hasn't even delivered 400 of those jets yet and half of them went over seas. Austin Bergstrom gets over 16,000 flights per month. Even if every flight with a 737 Max was scheduled for Austin it wouldn't cause a blip in our air traffic. 

I believe SW has between 30-40, I dont know how many of those fly back and forth into Austin. 

Austin. May your bubble never burst.

Capital building is nice. Was pleasantly surprised Texas is not all tumbleweeds like the northerners envision it.

That honor goes to eastern Colorado.

Out of all the greatness of the capital building, I think I liked this little detail the best.

Originally posted by @Bart H. :
Originally posted by @Beau Fannon:
Originally posted by @Jay Hinrichs:

that will change some with the 737 Max being grounded this is a bigger problem than most outside the aviation community realize 

Huh? Boeing hasn't even delivered 400 of those jets yet and half of them went over seas. Austin Bergstrom gets over 16,000 flights per month. Even if every flight with a 737 Max was scheduled for Austin it wouldn't cause a blip in our air traffic. 

I believe SW has between 30-40, I dont know how many of those fly back and forth into Austin. 

yes SW was one of the major buyers and will be one affected.. thats 6k seats a day that just went missing.  

Originally posted by @Merritt S. :

Austin. May your bubble never burst.

Capital building is nice. Was pleasantly surprised Texas is not all tumbleweeds like the northerners envision it.

That honor goes to eastern Colorado.

Out of all the greatness of the capital building, I think I liked this little detail the best.

 Merritt are you still in town? I've got in laws from Milwaukee visiting right now. We could get y'all together.

Originally posted by @Beau Fannon :

 Merritt are you still in town? I've got in laws from Milwaukee visiting right now. We could get y'all together.

 Well there you go bringing up my favorite part about Texas, which is the people that live there.

So, if I'm allowed to have a bit of fun with this...

Texas won't forget, and neither will I let my daughter when she goes to college and comes home with commie ideas - lol.

...and it gets better...

But getting back to real estate, seems like Texas has a ton of opportunity. Seemed to me that San Antonio place was ripe...I dunno. The Riverwalk sure is a neat thing. All good for peeps who dig the heat. We prefer the Shire up here...

The above is this guys back yard, below is his house...

@Lexi, you're not crazy, never hurts to at least question what everyone else is thinking.  But of course impossible to predict!

While not specific to real estate, this article from the Chronicle is related and may be if interest.

https://www.austinchronicle.com/news/2019-03-08/the-next-austin-bust/

Was just walking around the Texas State Capitol building yesterday. Yes, dont anyone forget that it's taller than the US Capitol!

@Lexi Teifke Every time I think the sky is falling and I get nervous, I look at the data.  According to the latest data the unemployment is ridiculously low at 2.73% metro wide. The employment base is expanding at a 3.69% basis. Everywhere you look one sees unemployment signs. Heck, I drove by Baby Acapulco's on riverside and they are advertising on their sign out front..not the specials of the day but help wanted. Good grief. Apple coming into the city is adding steroids to an already expanding city. I am a believer in the city prospects for long term growth.  

@Aaron Gordy @Lexi Teifke We should recruit this thread to collectively checkout the Baby A's help wanted sign and to drink some margaritas while verifying it

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