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DeedQuest ReviewMarket Snapshot As the capitol of the great state of Texas and home to the largest university in the United States, Austin is a vibrant and bustling urban center that nevertheless retains a small-town charm. Situated in the central Texas hill country, the city takes pride in its decidedly un-Texan reputation as a hip, quirky, lively, and culturally and politically diverse metropolis. This reputation, together with a solid economic foundation, has attracted a diverse population of students, politicians, high-tech workers and entrepreneurs, artists and musicians, and a growing population of retirees. But despite being one of the fastest growing U.S. cities since 1996, Austin failed to participate in the real estate bubble of 2000-2005 (this was also the case for Texas as a whole). While much of the country saw double-digit appreciation, Austin’s annual appreciation so a precipitous drop in 2001, then lagged inflation for the next few years. Experts attributed the soft market to the tech bust, overbuilding, and a correction after a 1998-2000 boom that far outpaced national trends. But since 2005 – while markets in most of the country have started to correct – Austin’s market has recovered with year-over-year appreciation above 8% for the past several quarters. Does this mean that Austin is finally getting its shot at bubble growth and infamy? No one knows for sure: Austin has proved more vulnerable to market swings than its diverse and usually robust economy would suggest. But this much we know: Austin is in the crosshairs of investors looking for a safe haven. With a relatively wealthy population capable of supporting high rents, and real estate prices that are extraordinarily low when compared to cities with similar amenities and economies, Austin could be a place to find properties with significant upside potential and – gasp – solid cash flow. Housing MarketStarting in 1997, Austin experienced a five-year real estate boom that saw house values accelerate well above national averages. But in 2001, just as the national real estate market started to surge, Austin's good fortune came to an abrupt and dramatic end.
A building boom was partially to blame. At the 2001 peak, over 8000 multi-family building permits were issued. This number dropped by 70% by 2003 as developers halted new building. Single-family building permits also declined, but the damage was already done: from the peak in 2001 to the bottom in 2003, median home prices in Austin dropped up to 30% in some places, while housing inventory piled up to a staggering seven-month supply. But in 2006, while builders nationwide were cutting production and dumping their overstock, the number of issued permits in Austin recovered to 2001 levels, indicating that builders, at least, were satisfied that the excess had been absorbed and the market demand was strong enough to justify renewed building. Meanwhile, the inventory glut had recovered at the end of 2006 to a three-month supply, and median prices were up 13% since the bottom. In general, price gains were solid from 2003-2006, but after an especially rapid appreciation in 2005 and early 2006, appreciation rates showed signs of stabilizing in the last quarter of 2006. As of this writing, it appears that Austin may finally be feeling some of the pain from the national real estate downturn: we see longer sale cycles, 41% of list prices being reduced, and price appreciation slowing. Stay tuned!
Rental MarketIf overbuilding contributed to Austin's market woes in the early part of this decade, the bust in the city's technology sector made it far worse. While the size of the population didn't decline, it grew at a far slower rate than builders anticipated. As fewer techies migrated to the city and many left is search of work, population growth slowed from 5.5% in 2001 to just 2.2% in 2003.
The rental market suffered. Average apartment rents dropped 17%, while vacancy rates shot up from 4% to 11%. A recovering economy has reversed this trend, but the numbers have yet to rebound to their 2000/2001 levels. Even so, the trend is definitely upwards as of mid-2007. UPDATE, 01/24/2008: Rents appear to be trending downward, showing a decrease of anywhere from 2% to as much as 8% in the past six months. Decreasing rents are unusual in the market today, as they are usually associated with strong home sales and home values. We'll keep an eye on this.
Local EconomyAustin has a truly diverse local economy which, in theory, should provide it an enviable amount of stability as strong economic sectors carry the weight of any weaker ones. Austin's has a huge and stable student population, thanks to the University of Texas, which is the largest university in the U.S. Austin is also the state capitol, making the local, state, and federal governments the largest employers in the city.
Austin has a strong high-tech industry thanks in large part to Michael Dell, whose Dell Computers is the third largest employer in the area and was responsible for turning Austin (and its suburb of Round Rock) in a major high-tech hub. Retail is strong to accommodate a wealthy populace, and tourism is healthy as visitors come for the music festivals and extraordinary cuisine. Finally, Austin was recently rated the second-best big city for retirement by Money magazine due to the city's high quality health care (thanks in part to the university), climate, and cultural amenities. So far, however, we have yet to see Austin become a major retirement center. Its over 65 population lags the state average, but this could change as baby boomers who desire more urban amenities begin to retire.
PeopleAustin residents are wealthier, better educated, and more diverse than their fellow Texans. They have slightly fewer children and are more likely to work in white-collar jobs than the average Texan or American.
Austin's population was one of the fastest growing in the U.S. in the past ten years, growing over 41% from 1996-2006. Population growth forecasts have Austin growing and extraordinary 52% from 2000-20, a solid 17% more than the state of Texas, which itself is expected to grow faster than the U.S. population as a whole. Austin The city also gained more wealth from 1996-2006 than any other city during that period, thanks in part to the high-tech boom. Today, the average Austin resident earns 22% more than his fellow Texan, yet enjoys one of the best housing affordability indexes in the nation. What does that mean? It means that Austin residents have been getting a bargain on housing and can afford to pay more. And this, together with strong population forecasts, bodes well for near and long-term housing prices.
Noteworthy NeighborhoodsDowntownAvg. Price: $500K | High demand, new construction and infill opportunities Downtown Austin has seen a revival in years past that is astonishing. The amount of construction is astounding. New condo high-rises, luxury loft conversions, and new office and retail spaces are quickly filling in what was once South Congress (SoCo) Avg. Price: $400K | High demand, some remaining opportunities South Congress Avenue defines an older, dense, and recently gentrified neighborhood that is a favorite of artists and younger professionals because of its central location and hip local culture. Price increases here have been among the most impressive in the city as older homes have been bought, restored, and sometimes flipped. As of 2007, real opportunities in this neighborhood are hard to find, but South Congress is an example of what to look for in other emerging neighborhoods. French Place/Cherrywood Avg. Price: $290K | High appreciation; rehabbing opportunities This dynamic, centrally located neighborhood just east of downtown looks a lot like the SoCo area five years ago. Thanks to its central location, tree-lined streets, and affordability, this older neighborhood has entered a period of brisk, if uneven and sometimes spotty gentrification as young families, artists, and university professors rehab homes. With average prices still below $300K as of late 2006, this neighborhood is worth investigating if you are an investor looking to ride the trend of rising prices as the overall neighborhood continues to improve, or if you are handy with a hammer. Bouldin Creek Avg. Price: $375K | High appreciation; rehabbing opportunities Near downtown and next to the ultra-hip neighborhood of SoCo, Bouldin Creek also takes pride in its funky, older, urban neighborhood that is known for its, independent bookstores and cafes, artist culture, and unique character. Like French Place and SoCo, Bouldin Creek fights to maintain its identity against renewed interest in the neighborhood. Its central location, oversized lots, and tree-lined streets have lead to a revival that has raised prices dramatically and engendered a boom in rehabbing and infill construction. Travis Heights Avg. Price: $390K | High demand; some remainingrehabbing opportunities Just south of Town Lake and east of SoCo, Travis Heights is a highly desirable established neighborhood that has seen significant improvement over the past decade. Older bungalows have been rehabbed, dilapidated homes have been torn down and rebuilt in modern styles. The neighborhoods transformation is largely complete, but it should remain a highly sought-after location due to its proximity to downtown, fine dining and culture, and other amenities. East Austin Avg. Price: $235K | Transitional neighborhood; high appreciation; rehabbing opportunities East Austin has seen a dramatic transformation in recent years as urban pioneers consisting of mostly young professionals, artists, and grad students ventured into this poorer, rougher neighborhood in search of affordable, centrally-located opportunities. The result has been a very spotty but definitive improvement as older homes are rehabbed or rebuilt into desirable homes, and abandoned industrial properties are converted to chic lofts. The city is committed to supporting the continue revitalization of the neighborhood. Opportunities abound for the investor who is willing to face the challenges and risks of working in a transitional neighborhood. UT/West Austin Avg. Price: $250K | High demand; high density/multi-family opportunities; new construction opportunities The area adjacent to the University of Texas campus is the de facto student area, but it has recently become popular with professionals and even families. This area has seen significant development in recent years, mostly in the form of high-rise condo units and multi-family structures. Research NotesVacancy as of 2007 (Source: Real Estate Center at Texas A&M University)Median Home Prices: Real Estate Center at Texas A&M University Job Growth 2006 is for MSA: Source Texas Workforce Commission and Real Estate Center at Texas A&M University Avg. Rent per Square Foot current as of 2006 (Source: Real Estate Center at Texas A&M University)    Additional ResourcesCity Website: County Website: State Website: Local Chamber of Commerce: Local News Sources: Wikipedia Entry: Need more? Member ReviewsMember Reviews from 1 Member(s)Learn from market insiders and other investors who are familiar with this real estate market, but remember: the opinions below are just that. Always do your own research and due diligence before investing in a market. The average member ratings are shown above. If you are familiar with this market, please share your knowledge!
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Market ActionThe Market Action Index (MAI) illustrates the balance between supply and demand using a statistical function of the current rate of sale versus current inventory. An MAI value greater than 30 typically indicates a "Seller's Market" (a.k.a. "Hot Market") because demand is high enough to quickly gobble up available supply. A hot market will typically cause prices to rise. MAI values below 30 indicate a "Buyer's Market" (a.k.a. "Cold Market") where the inventory of already-listed homes is sufficient to last several months at the current rate of sales. A cold market will typically cause prices to fall.  Median PriceThe median home price is the threshold which divides the real estate market into two equal halves, in reference to pricing. One half of all homes in the market were sold at a price above the median home price, while the other half were sold below that price. The median price of 101 sold homes would be that price which is lower than 50 of the prices and also higher than 50 of them. The median home price is one of the most common measurements used to compare real estate prices in different markets, areas, and periods. It is said to be less biased than the average since it is not as heavily influenced by the top 2% of homes sold, which may artificially skew prices higher.  Average List PriceThe average home price, or mean price , is the sum of prices of all homes sold in a certain area in a certain period, divided by the number of properties sold in the same area in that period. Average prices can be quite variable than median prices because they are disproportionately skewed by very high and very low prices. For this reason, median prices are favored by the real estate industry. Indeed, the average price can be quite different than the median price for the same sample group. For instance, if you are doing a sold properties report and the homes are very evenly distributed, the median and average might be very similar. However, if the homes sold were weighted more to one end or the other of the price spectrum, then the median and average could be quite different.  InventoryPut simply, the number of residential properties for sale in a given market. Rising inventory is usually interpreted as a sign a slowing market as complementation among listed properties puts downward pressure on prices. In fast growing areas where there is an abundance of new building, however, rising inventory may be temporary. Cross referencing the inventory chart with the median price chart can provide an illuminating picture of an area's housing market.  DOM (Days On Market)The days-on-market figure is a measure of how long it takes to sell the average home in a market. Together with other factors, DOM is used as a barometer of market health and an inidicator of housing demand. Areas with very short DOM figures are often experiencing very brick markets, much as the San Francisco Bay Area did in recent years when DOMs approached the single digits in areas. Very long DOM figures are seen as indicators of a slowing market, as properties languish on the market without buyers.  MapMap |
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