60K gap between average buyer and median home price.
Matt StricklenPro Member
Investor · Austin TX · Member since 2020 · 227 posts · 152 votes"SmartAsset reports that the average Austin household can afford a home priced at $317,000.
However, the median home value in the area, ... is $378,300"
Where do we go from here?
faster rent growth?
bubble bursting ? ( unlikely)
$60K is only $240/month P&I on a 30-years 2.5% loan. The gap can probably be overcome by most families who are that close.
More importantly, averages never tell the full story. In almost any neighborhood there exist a price differential due to a property condition, sq.ft. size, bed/bath configuration, lot size, etc. So those who can't qualify would have to either buy a home that needs some work, or get a smaller home in the same area, or get a 3/1 instead of 3/2, or adjust their appetite and settle on buying in a lower priced sudivision.
I closed on a N. Austin fixer today for $154K. It needs a lot of work and it's only a 2/1. But I'm not paying anything close to what SmartAsset would suggest it should sell for.
$60K is only $240/month P&I on a 30-years 2.5% loan. The gap can probably be overcome by most families who are that close.
More importantly, averages never tell the full story. In almost any neighborhood there exist a price differential due to a property condition, sq.ft. size, bed/bath configuration, lot size, etc. So those who can't qualify would have to either buy a home that needs some work, or get a smaller home in the same area, or get a 3/1 instead of 3/2, or adjust their appetite and settle on buying in a lower priced sudivision.
I closed on a N. Austin fixer today for $154K. It needs a lot of work and it's only a 2/1. But I'm not paying anything close to what SmartAsset would suggest it should sell for.
@Alex G
Thanks for the thoughtful reply, and congrats on your newest acquisition, I’m sure many of us will be jealous that you are scoring Austin deals for 154K. That’s awesome!
I agree with you that there will be outliers who can make it work, and they will be able to use that same P&I calculation to talk themselves into it. But the short supply tells us there’s not a cheaper home that needs work for every buyer, and the demand from the buyers further constricts that tight supply. By definition, most people won’t be able to fit into that outlier picture, they will be closer to that average. And we should acknowledge that the 60K gap is a year’s salary or more for one of the people in a dual earner household, let alone for a single nurse or teacher trying to invest in a starter home. I think it’s a little out of balance, and not in any of our best interest, if a single teacher, or nurse, or cop can only qualify for something far below the median price ( and the supply is tighter below the median price versus above it) - and that’s why these averages are important- they don’t tell the whole story, but they tell what the average conditions in a market are and how that is going to work for or against the average earner. The rising tide should benefit all the ships in the harbor, but those professionals I mentioned, their salaries aren’t rising at the same rate the home prices are. There’s been an exodus of these folks from areas around San Fran, with some living in their cars to try and make it work until they just can’t anymore. I would hate to see that here. Good teachers, good nurses, good cops make for good neighborhoods.
$60K is only $240/month P&I on a 30-years 2.5% loan. The gap can probably be overcome by most families who are that close.
More importantly, averages never tell the full story. In almost any neighborhood there exist a price differential due to a property condition, sq.ft. size, bed/bath configuration, lot size, etc. So those who can't qualify would have to either buy a home that needs some work, or get a smaller home in the same area, or get a 3/1 instead of 3/2, or adjust their appetite and settle on buying in a lower priced sudivision.
I closed on a N. Austin fixer today for $154K. It needs a lot of work and it's only a 2/1. But I'm not paying anything close to what SmartAsset would suggest it should sell for.
@Matt Stricklen Starting prices for an entry level home in the Austin metro are at about 200-220K. One could find them right now in Round Rock, Leander, Manor and Del Valle - in the nearest suburbs. A $200,000 loan at 2.5% amounts to $790/month in P&I and roughly $1,300/month PITI.
80% of our metro renters are probably paying more than that in rent for single family homes. We are talking about somebody earning $4,000-$4,500/month. Perhaps, the limitation isn’t the income but credit ratings and funds saved for a down payment?
For example, I recently had 2 sisters renting a home in Leander from me for $1700/month. They were both nurses making in excess of $4,000 a month and each could individually afford to buy this home from me based on their own respective income. They both had good credit. They moved out and ended up renting separate houses due to changes in their personal circumstances (boyfriends, etc.)
I suspect the folks from SmartAsset also don’t take into account people who sell their home and have cash for a larger DP to reduce the amount of money they have to borrow, ie, to reduce the reliance on the size of their income in relation to price they are paying.
The average household size in the US in 2019 was 2.53 people. I don't know about you, but if I ever say .54 of a person, I'd call the cops. The flaw of averages is at work here. One number doesn't a conclusion make.
The calculation in the reports are for comparative purposes, among different cities, not absolute ones that can be used to make conclusions about the relative health of a market. For that we have supply and demand.
@Alex G.@Matt Stricklen hey Fellas. I will chime in here too. There are programs in place for first time home buyers to move into a home for zero down especially in rural areas with the usda loan. Yeah one can and should move to the suburbs to get a chunk of the austin metro ownership as its in their best interest. I have noticed anecdotally that folks would rather live close to work and rent rather than deal with the commute. That has changed a bit with covid 19 and many folks working from home.
It's always interesting to me that folks lump teachers police and other civil service workers together. The teachers and the cops have some of the strongest unions in place. My sister is a teacher. She complains about her pay but then she reaches out to the union board to voice her concerns which usually has an impact. That is a good thing, imo.
One of the main reasons why housing prices are so high in the city is the very outdated 1980's dazed and confused era zoning policies and the slow moving government process for development. Recently, I had reached out to the city for a task that would require a civil engineer. It should have been a simple task as there are precedents in place at multiple places with similar lot characteristics. That task is really a 2 month process to work through with the city's slow as molasses tendencies. That adds on 2 months of interest payments. Developers/builders will pass along those costs to the consumer. Those delays cost the end user which is the consumer that may be a teacher, fireman, etc. So who really loses with the city processes? The consumer. Who wins? The permit expeditors.
@Account ClosedThe tulip housing bubble burst is nowhere near on the horizon in Austin. Commercial is a different story. The office and the hospitality market is feeling the pain. The Renaissance Hotel in Austin just sold for 70 mil which is a 30 mil haircut as they were asking for 100 mil. OUCH!!! That has to hurt.
Hello,
I'm a first-time landlord, so take everything I say with a grain of salt.
There is a big difference between newer southern cities and the older coastal areas like San Fransico. For example, Houston, Dallas, and San Antonio are all large sprawling metro areas that continue to expand into vast areas of underdeveloped Texas land. This has helped to keep housing affordable for the people willing to drive. In my humble opinion, Austin is a bit of an exception just because traffic is so awful. Every major highway is either suffering from gridlock or is a tolled road. Those toll roads really act just like a mountain or river, dividing the city and limiting transit. Middle-class people are really going to adjust their behavior due to those tolls. Because of this, Austin has artificially created a denser population than the other big cities in Texas.
I expect businesses will eventually start migrating more of their offices into the suburbs, and that will offer more jobs and balance the city's ever-increasing housing prices. Once there are more and more jobs in these suburbs, the people will follow. I think it's smart to look 20 years into the future and think about what the city will look like. As the metro area is expected to grow by close to 2 million people, those far-flung outer cities will become new suburbs offering affordable living.
I happen to live on Hwy 183 in Leander. The housing out here is still somewhat affordable, and with the toll road set to expand, I imagine this area will attract a lot more buyers looking for affordable housing. There is also Buda, Kyle, Hutto, etc...
Just a quick note - I live minutes from the last stop on the Austin Metro Rail and minutes from Hwy 183. It's a 1-hour commute to downtown Austin. My neighbor has goats in his backyard. So there is still lots of land around Austin for new housing.
@Michael Browning. I am also in Austin. I am new to real estate investing and interested in forming a local group to better understand the Austin market and BiggerPockets/realestate investing methodologies. I sent you a connection request. Please let me know if this interests you. Thanks - Trey Carrico
It's not been my experience that a teacher's salary has ever got her the median home ownership. They usually either rent an apartment/house, or partner with someone that can help buy a modest home.