Will newer Austin investors be able to exit at all? Ever?
Real Estate Investor · Williamson County, TX · Member since 2011 · 1k+ posts · 961 votes
Will newer Austin investors be able to exit at all? Ever?
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Scott TrenchPro Member
Rental Property Investor · Denver, CO · Member since 2014 · 2k+ posts · 6k+ votesI find it interesting when people talk about cities like Austin and my own Denver experiencing a "bubble." This scares me because it seems like I'm screwed if I invest, and even more screwed if I don't.
I don't know about Austin per se, but in Denver, people keep talking about home values and rents as a ratio to average and median incomes.
I think that this argument makes little sense. It's not the "Average" incomes that drive prices.
Instead, you have to look at all the people that want to live in a given area, and all of the inventory in that area. Then, it's the average income of the group of people that make the most and can therefore pay the most to live in that area, over the amount of available inventory.
You can talk about a bubble all day long, and you might just watch San Francisco happen all over again. Three decades in a row now people have been talking about overpriced San Francisco real estate, and for three decades investors have been laughing at them all the way to the bank. Average earners are simply forced out and have to share/bunk up or figure out how to make more money if they want to stay.
These are the questions that matter when it comes to determining if your city is a bubble:
Are more people going to move into your city over the next few decades?
Are those people going to make enough money to pay more for prime real estate in your city?
Is supply and new housing starts in the areas you wish to invest going to match demand?
Sorry, average and median incomes have nothing to do with your real estate prices. It's the supply and demand for property. If there are 10 properties on the market and everyone wants to be in those properties, then only the 10 richest people in your city matter as far as pricing is concerned. The rest are priced out. The good news for investors is that supply is pretty easy to predict in our cities with government regulation. The demand is what matters - and it seems to me that Denver is going to keep on growing and appreciating until quality wage earners and entrepreneurs stop moving here, or they turn on the faucet for new construction.
From what I've heard elsewhere and see on this thread, it seems that it's the same story for Austin.
26 Replies
- Investor · Chattanooga, TN · Member since 2012 · 227 posts · 114 votes10y
Its called a bubble and prices will not sustain themselves. May not crash today or tomorrow but they will. Sell and take the gains now. Just sayin....
- 10yDan BurstainBusiness MemberReal Estate Agent · Austin, TX · Member since 2014 · 361 posts · 331 votes
You say bubble, I say Austin the past 50 years. Happy to send you the chart over the past 50 years prices have gone up every year but 2. In those 2 years the price dipped, the following year it bounce back higher than the previous year. We are not Los Angeles, Phoenix, Las Vegas, etc. We back our appreciation with job growth. 44,000 new jobs last year and we are about to open a huge medical research center. Now, I hate the traffic, don't get me wrong. As a Realtor I prefer people invest her but not move here as I do spend some time on the road.
- Real Estate Investor · Williamson County, TX · Member since 2011 · 1k+ posts · 961 votes10y
And Williamson county is using Redfin or such to assess at sold prices...they know my last purchase price... (Texas is not an open records state...apparently so wealthier individuals with unusual custom homes can argue for lower property taxes...to add to their oversized mortgage interest deductions at tax time...to maximise tax write offs)
SO taxes on this property will be right around 5k at 2.5%, which may actually be low as the area is a MUD. So with25% down you'd have $750 mo at 30 years, $420 ttaxes and $75 insurance....out the gate....$1245.
- Investor · San Marcos, TX · Member since 2015 · 272 posts · 360 votes10y
Austin does have a great job market that is helping to pull housing prices higher, but it also has a tremendous amount of investing activity. Austin will never be a San Diego, Denver, or San Francisco but it will be a strong housing market for a long time to come. If Texas instituted a state tax and lowered property taxes closer to national averages then Austin, and Dallas would surpass those Cali cities. I don't think we are near a bubble in Austin. I do think that it will reach an equilibrium soon. The investment activity has sucked up inventory and pushed new home building in the suburbs again. The Austin interior market will cool off and closer suburbs will start catching up. This model has happened in numerous major cities. We will get to see Austin be reborn and watch as its population eventually rivals Dallas, Houston, and San Antonio. Austin is the city that everyone else in Texas wanted to live in, and now that it has a growing job market it is growing up. Personally I think that the I35 corridor will be the major business corridor in the United States in the next couple of decades. It will supplant California as the birthplace of innovation and industry. It has everything that California has port cities, access to the panama canal, energy, coastal access, highway access, and access to cheap foreign labor. Texas also has one of the best business environments in the U.S. and is consistently adding population. California has legislated themselves into future irrelevancy. In fifty years it will be the next Detroit. You will have Northern Cali, San Francisco area, and San Diego. The rest of the state will be blight and poverty. They no longer have any natural fresh water supplies, they have a middle class that is fleeing, and most importantly the ideal of the "Golden State" is changing. Perception is everything and the younger generations are no longer in love with the idea that California is the birthplace of dreams. The kids today hear the news playing in the background when their parents are watching TV and they hear about the opportunities in Texas and the like. Why buy a home in Cali for 900K when you can buy it Austin for 500K and have the experience of a youthful and energetic city? I was born in California and I was raised there. I have seen it change from the 80's, 90's, and 2000's. There is nothing special about it anymore and that is really the last value that the state had. There is a time when the state will be on the line for more entitlement payments then they have money, and they will ask for the other states to bail them out. All golden cities have deteriorated and are valued for what they were, not what they are. SoCal is no different. It is not immune to the world changing and evolving, and it is itself prepared itself for the change that is required for communities to adapt to new economies. Even Hollywood is becoming a relic. The TV that I watch is no longer produced in Hollywood, the last vestige in entertainment "movies" are also looking elsewhere to cut costs, in an market that is striving to adapt to consumer needs and relevancy. As Hollywood goes, so goes Cali.
If you read all of that you must be a glutton for punishment lol.
- Agent/Investor · Murphy, TX · Member since 2013 · 542 posts · 304 votes10y
The county is probably pulling the data from the MLS, deed, or deed of trust if you financed it. If I pay cash for a property, I always have the title company use the old "$10.00 and other good and valuable consideration" on the deed. Need to make the guys in the assessor's office work for their money.
- Real Estate Investor · Williamson County, TX · Member since 2011 · 1k+ posts · 961 votes10y
Nope. Last purchase was cash and the WCAD sent someone to the door asking to be let inside....to look around....after years of me protesting that recent solds had stainless and granite vs my plain jane rentals to which they always replied that property interiors could not be used for appraisals. The appraiser quoted to the dollar what was paid for the property. i would welcome open records....everyone pay their fair share.
As far as Leland's post goes, I just hope the apartment community keeps up so renters have options....the property tax rates follow prices and force rents up which compells renters to get off the fence and buy....driving prices just a little higher. Can't go on forever. But they seem to be building as fast as they can and I am told all the available land to Georgetown is under wraps and is somewhere in the development process.
- Rockwall, TX · Member since 2014 · 380 posts · 211 votes10y
Austin is a bit more like San Francisco than DFW as there are topographic challenges to territorial expansion. Still, I don't understand why Georgetown is more desirable than Buda (ok, I actually do) and why the whole area isn't Austantonio. Still, with the worlds greatest racing facility, I understand why Austin is such a desirable place. That is the only reason, right?
- 10yScott TrenchPro MemberRental Property Investor · Denver, CO · Member since 2014 · 2k+ posts · 6k+ votes
I find it interesting when people talk about cities like Austin and my own Denver experiencing a "bubble." This scares me because it seems like I'm screwed if I invest, and even more screwed if I don't.
I don't know about Austin per se, but in Denver, people keep talking about home values and rents as a ratio to average and median incomes.
I think that this argument makes little sense. It's not the "Average" incomes that drive prices.
Instead, you have to look at all the people that want to live in a given area, and all of the inventory in that area. Then, it's the average income of the group of people that make the most and can therefore pay the most to live in that area, over the amount of available inventory.
You can talk about a bubble all day long, and you might just watch San Francisco happen all over again. Three decades in a row now people have been talking about overpriced San Francisco real estate, and for three decades investors have been laughing at them all the way to the bank. Average earners are simply forced out and have to share/bunk up or figure out how to make more money if they want to stay.
These are the questions that matter when it comes to determining if your city is a bubble:
Are more people going to move into your city over the next few decades?
Are those people going to make enough money to pay more for prime real estate in your city?
Is supply and new housing starts in the areas you wish to invest going to match demand?
Sorry, average and median incomes have nothing to do with your real estate prices. It's the supply and demand for property. If there are 10 properties on the market and everyone wants to be in those properties, then only the 10 richest people in your city matter as far as pricing is concerned. The rest are priced out. The good news for investors is that supply is pretty easy to predict in our cities with government regulation. The demand is what matters - and it seems to me that Denver is going to keep on growing and appreciating until quality wage earners and entrepreneurs stop moving here, or they turn on the faucet for new construction.
From what I've heard elsewhere and see on this thread, it seems that it's the same story for Austin.
I recently moved to Austin from the San Francisco Bay Area and there are some social similarities and the tech scene connection, but I don't agree that territorial expansion is very limited here. You have the hills on the west side of town which can and are being built upon. The hills aren't exactly the pacific coast rim mountains and they aren't protected government land like in the Bay Area. Then you have Lake travis which isn't as limiting as the Pacific Ocean or the San Francisco Bay. That limited area combined with high salaries and the executives and high-level managers primary residences keeps real estate elevated. In Austin, new construction seems to continue to be built further from downtown which will gradually slow and may eventually come back closer to the center as other cities have shown.
Growth in Austin will be steady and sustainable in my opinion. The massive appreciation returns that the Bay Area sees probably may never be available here.
Great post Scott. I agree that Denver and Austin are very similar. Those were the two cities we researched before moving. The only item that kept us away from Denver was that my wife doesn't like winters with snow. Haha! I told her Denver is a very mild winter but she wasn't having it :-).
Originally posted by @Dan Burstain:
You say bubble, I say Austin the past 50 years. Happy to send you the chart over the past 50 years prices have gone up every year but 2. In those 2 years the price dipped, the following year it bounce back higher than the previous year. We are not Los Angeles, Phoenix, Las Vegas, etc. We back our appreciation with job growth. 44,000 new jobs last year and we are about to open a huge medical research center. Now, I hate the traffic, don't get me wrong. As a Realtor I prefer people invest her but not move here as I do spend some time on the road.
Dan, myself and others would not mind seeing this chart that you speak of.
- Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes10y
My crystal ball is broken, but I think prices will do fine for the next few years in Austin. Austin doesn't experience wild swings in prices like other markets do. As was mentioned above the way property taxes work here help to temper this to a degree.
As a developer I stopped buying land about a year ago. The economics are fundamentally different now than they were over the previous 5 years. There may still be room for things to appreciate, but I have made my money and am choosing to invest in hard money loans and other people's projects. When there is another pullback I will try to buy land again. Things are pretty expensive right now and there is a lot of dumb money chasing land where I used to buy it.
Having lived in Silicon Valley (SF Bay Area) I can attest that REI values can be irrational.
Pure supply & demand (greedy Capitalism) controls RE.
We bought in Cupertino (home of Apple ) '93 for 37k a tract 3/2. One year later, the same house next door sold for 64k and prices have escalated every since. We sold in '93 for 305k and today the same house is selling > 1mill.
There's all kinds of (social, ecological, edu) reasons why this is so, but in this area it is a given.
In prime RE areas, the exit plan is not the issue, but the price of entry is a nightmare.
- Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes10y
Originally posted by @Jeff B.:
Having lived in Silicon Valley (SF Bay Area) I can attest that REI values can be irrational.
Pure supply & demand (greedy Capitalism) controls RE.
We bought in Cupertino (home of Apple ) '93 for 37k a tract 3/2. One year later, the same house next door sold for 64k and prices have escalated every since. We sold in '93 for 305k and today the same house is selling > 1mill.
There's all kinds of (social, ecological, edu) reasons why this is so, but in this area it is a given.
In prime RE areas, the exit plan is not the issue, but the price of entry is a nightmare.
Most East Bay homes were selling for close to $200,000 in 93. (($400,00 in 00's and $800,000 in the teens) Not an expert on Cupertino but surely you mean 73 or 83 for a $37,000 3/2.
- Real Estate Investor · Williamson County, TX · Member since 2011 · 1k+ posts · 961 votes10y
Roy, I didn't mean to imply Georgetown was more desirable than Buda, in fact Hays county is predicted to grow faster than Williamson over the next decade or two.
Looking at the last 20 years on the chart here - https://research.stlouisfed.org/fred2/series/ATNHP...
1. Prices had a steep rise from 1998-2001, then almost sideways from 01-04
2. Again steep rise from 04-07, then almost sideways 07-11
So it seems like a 3-4 year 'rise and rest' cycle. Prices have risen steeply from 12-15. So we might be in or near resting phase until fundamentals catch up causing reversion to mean.
- Investor · Austin, TX · Member since 2015 · 222 posts · 58 votes10y
Originally posted by @Alan Lane:
I agree with Dan and I think with Leland but I don't have half a day to finish reading his post:)
Ha, I concur.
- Real Estate Investor · Williamson County, TX · Member since 2011 · 1k+ posts · 961 votes10y
Hersh, thanks for the chart. I have been here for abot 30 years and remember the soft RE market around the S&L Crisis/oil/recession in the late 1980's. My sister bought a Resolution Trust property at a great price. The 1998-2001 Austin RE boom ended with the dot.com crash and it took Austin 3-4 years to begin to participate in the low interest rate inspired national rally in RE(if thats what it was).....whether due to being tech heavy or being in Texas with restrictive home equity lending practices...or just a lot of land. I remember driving down certain streets lined with duplexes where every 3rd door was for lease. The last downturn hit the whole nation but, as the chart suggests, Austin had not run up much so again didn't appear to be too adversely affected. Prices are sticky on the way down. The neighborhoods I bought in went from having about 20 active properties on the MLS to about 3, if that, at any given time. The banks and short sales were aggressively priced back then, ....of course, in hind sight, everything was a pretty good deal. :-)...or today's prices are a little crazy. Not sure which.
- Investor · Round Rock, TX · Member since 2013 · 42 posts · 34 votes10y
Here's the thing with Austin real estate: True or false? When people visit Austin they want to move here.
If you believe it is true, there will continue to be demand for housing and thus when interest rates increase we will only stagnate, but not lose value. If you believe it is false, then perhaps there will be a loss of value.
Now Brushy Creek.....if you're in Austin and wan't to raise a family in a fairy tale of a community and want a house for $250k or less, that's the place.
- Richard Redding I concur, my wife absolutely loves where we stay in Cedar Hill, and I want to move to the country but she says the only place she would ever consider moving is the Austin area around Lakeway. I made the mistake of bringing her to a conference at the resort and she absolutely fell in love with the area. So yes, it's a beautiful place to live, high paying jobs are plentiful, and housing is scarce so values will continue to rise over time.
Rod Hanks Insurance4.9158 Reviews - 10yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Leland Barrow being born and raised in Santa Clara county Cupertino and Palo Alto.. during the insane run up... I can agree with some of what your saying about CA.
I don't believe at 200k and close to Apple job site is anywhere near a bubble...
up here in Orygone we get a huge influx of CA folks actually the number one in migration state in the country ... form CA... and its for the basic same reasons.. housing 1/2 to 1/4 of prime bay area. high tech jobs and lifestyle .
what you will find and we find it in Orygone is people then go back to CA because they can't stand the weather.. here its rain and a lot of gloomy gus days. In your area heat thunderstorms humidity etc. I could no way live there personally...
Also the 900k home all in will cost about the same as a 500k home in Texas because of the insance property tax's.. but then you have to mitigate that with no income tax...
so we see it all has trade offs.. Orygone has NO sales tax buying that 125k Tesla or that 500k airplane or that 2 million dollar motor home saves you quite a bit. property tax's about same as CA.. but income tax's just as high.. trade offs.
CA is not out of water it has always had drought and flood cycles.. its normal for the area. just like I remember a few years back flying into DFW and the reservoirs were just about empty.. as well as I remember Acute water shortages a few years back in Atlanta..
But as you guys correctly point out if you have high pay tech jobs and such like your enjoying and you can still buy a decent home in area that is not the hood for 200k you still have a way to go up.
just because it does not make the 1% rule on a rental return has little to do with were values will go for home owners..
- 10yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Bryan Hancock on a sidebar that is exactly how I started my HML company in Oregon ... I was big at courthouse steps... profits were thinner and thinner I made more money lending to those buying them with 50 times less work .. .. right now though new co.. in my markets I play in is still very good and frankly getting better.. but I do have to buy the dirt and develop it.. spot lots are tough
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