Austin Real Estate Appreciation

Austin Real Estate Appreciation

We’ve heard and read a lot about Austin’s hot real estate market lately. Usually we see a broad overview presented in a news story or article showing number of sales, average and median prices, days on market, etc. Lately, this has all been good news for sellers and owners, as median and average home prices are moving up in the Austin area.

The problem, however, with looking at all-inclusive stats for the overall real estate market in Austin is that it doesn’t truly represent the appreciation for existing homes over time, and it doesn’t distinguish between the different submarkets that the Austin MLS represents.

If you are purchasing a home in Austin today, and plan on living in it or holding it as investment for 5 or 10 years, you’ll be selling what will then be considered an “older home”. By “older”, I mean it won’t be less than 5 years old, which is what most of our buyers consider to be a “newer home”.

I took a look at typical homes that sell in the Austin area – homes in a specific age and size range – to see what the appreciation has been on these over the past 7+ years. I selected homes that are 1600 to 2200 square feet in size, at least a 3 bedroom, 2 bath with a 2 car garage, and built from 1990 to 1995. This represents a true “bread and butter” home in Austin, and removes new homes from the equation. Let’s see what the numbers say about appreciation for these existing homes.

Austin Real Estate Appreciation Graph

Here is a breakdown of appreciation for each year.

Appreciation of Austin Homes 1600-2200 sqft, 3/2/2+, built 1990-1995.
1998 to 1999 Appreciation = 5.6%
1999 to 2000 Appreciation = 13%
2000 to 2001 Appreciation = 8.7%
2001 to 2002 Appreciation = -1.6%
2002 to 2003 Appreciation = -2.2%
2003 to 2004 Appreciation = -1.8%
2004 to 2005 Appreciation = 2.0%
2005 thru July 2006 Appreciation = 7.1%

Total Appreciation 1998 thru July 2006 = 34%

We’re barely halfway thru 2006, so I expect the 7.1% for 2006 will be even higher by year’s end. This is for all areas served by the Austin MLS though. Does the city of Austin have results that differ much from the full MLS stats, and are those numbers much different than what we would find in an outlying area such as Round Rock? Absolutely.

Let’s look at the same graph below (with the upper range extended to $200K), with Austin and Round Rock broken out. (sorry some of the numbers on the chart overlap)

Austin Real Estate Appreciation Graph

What does graph this tell us? It looks to me like sticking closer to Austin pays off. I preach this constantly, and don’t yet see any reason to stop doing so. Investors ask me about Round Rock all the time. “Isn’t that where a lot of growth is happening?“, ” Isn’t that where all the High Tech companies, and Dell are located?“. “Aren’t many of the new Toll Roads up North?“. Yes, yes and yes. But even during the high flying tech boom, Round Rock still did not outperform Austin in real estate appreciation (save for 1 lone year). Let’s look at the chart below.

 

Appeciation
All MLS Areas
Austin Only
Round Rock Only
1998-1999
5.6%
9.7%
6%
1999-2000
13%
15%
9.1%
2000-2001
8.7%
5.3%
8.2%
2001-2002
-1.6%
0%
-1.1%
2002-2003
-2.2%
-3.1%
-4.4%
2003-2004
-1.8%
2.7%
-5.2%
2004-2005
2.0%
5%
2.8%
2005 – July 2006
7.1%
5.2%
5.4%

 

Total Appreciation All Austin MLS Areas combined – 1998 thru July 2006 = 34%
Total Appreciation Austin Only – 1998 thru July 2006 = 46%
Total Appreciation Round Rock Only – 1998 thru July 2006 = 22%

The bottom line is that a home buyer or investor who was willing to spend $133K in 1998 in Austin vs. $118K in Round Rock owns a home today that is worth $195K in Austin vs. $144K in Round Rock. Which home would you rather own if you are selling this year? Was the “better deal” in Round Rock in 1998 a good move? And this doesn’t even factor in the better rents that Austin enjoyed during that time span, and will continue to enjoy in the future, nor the lower property taxes inside Austin compared to Round Rock (2.75% vs. 3.25%).

I think an investor in 2006 who is willing to spend $195K in Austin vs. $144K in Round Rock today will reap a similarly favorable gap in appreciation 7 years from now. This is how we advise our buyers and we’re sticking with it.

The problem with Round Rock and other areas surrounding Austin is that there will always be nicer, newer homes available another 10 minutes out. We see that happening in Hutto, Manor, Pflugerville and Elgin now. Stick to areas where new home competition cannot hurt you and you’ll be a step ahead of other buyers and investors when it’s time to sell and cash out some day.

Posted by Steve
10 years ago
Steve

Steve is a Real Estate Blogger, Husband and Dad, UT Austin Grad, Runner, Real Estate Broker and owner of Crossland Team and Crossland Real Estate in Austin TX.

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Bill - 10 years ago

Good analysis. I think the graph and numbers really showed a convincing notion of “location, loation, location”.

My question is that if we focus on “Austin Only”. We can probably further devide the city of Austin into few geogrphical areas and find that it essentially follow the same pattern where traditional high valued areas like downtown, Terry Town, Travis Heights appreciate much more steadily than some other areas.

My question is for an investor who focus on “Austin Only”, what area tend to give them the most cost-effective returns?

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Steve - 10 years ago

For most people, whether you are an owner-occupant or an investor, sticking to the median size and value for the particular area in which you purchase is prudent. Some investors deviate from this and purchase higher end homes, or the very lowest end homes – in both cases hoping for better than average appreciation. Some look for growth areas on the edge of booming areas, hoping to beat the population wave (i.e. the 130 Toll Road).

These other strategies may or may not work in Austin depending on a lot of other variables. For me, when I see a home in an area surrounded by plentiful cheap and empty land, I stay away.

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bigmouth - 10 years ago

34% over 8 years translate to just over 4% each year. That’s pretty sucky when you compare that to the rest of the country. Even those “cooling off” market, you still see a 5-7% growth in the last quarter. They call it “cool off” when the appreciation rate falls to single digit, we call it hot when the growth rate is in positive.

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Andrew Ao - 10 years ago

i live in SF bay area. here SF is the metro center. similar to austin, the price appreciated much faster than the suburb in the beginning. however, suburb started to pick up much faster (not in $ amt but in %) when it reached closer to buildout. i wonder if it would be similar to the case in austin. (disclaimer, i never set foot on austin yet.)

i have not much idea how far austin metro area has been developing. but i assume that austin might have been fully built out and a lot of suburban is not yet developed. if that assumption is valid, supply is limited in austin but is not in round rock. therefore, i wouldn’t be surprised that the house in Round Rock appreciate much less than those in Austin. sooner or later, employment might draw in enough families to fully populate into Round Rock area, and traffic limits the appeal of lower cost housing in farther away. if that turns out true, it would be very logical to see Round Rock would outpace Austin. Now investment in north west could be a more attractive proposition.

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Todd - 10 years ago

There are a lot of errors in the article. I’ve only seen Round Rock property taxes as 2.76%, I’ve never seen 3.25.
The data is for houses built 1990-1995. Most of the ‘good’ houses in RR are newer. Look at Galt. In 1995, you will probably see a bunch of double-wide trailers and run down houses. Same with RR. They didn’t start building/booming until 5-6 years ago.

Even if the article is correct, here is the problem with it.

The average house price is considerably higher in Austin. This means you are paying much more and would be harded to get a good cash flow from, even if the rents are a little higher.

If that appreciation is true, then I see Round Rock as being the better deal, from now on. Let me explain:
A gap will stay the same in an area, relatively. If Austin goes up 20% one year and Round Rock 10%, the following year some correct will happen because Round Rock is more affordable and more desirable and a correction will occur. You can’t expect Austin to keep doubling percentage-wise to Round Rock because then Austin’s average price will be $400K and Round Rock only $210K. That will never happen.

Past data doesn’t predict future data. If it did, Sacramento would still be going up 25% per year.

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Steve - 10 years ago

Hi Todd,

Thanks for your comments.

> There are a lot of errors in the article. I’ve only seen Round Rock property taxes as 2.76%
Many areas of Round Rock have property taxes over 3%. Teravista is 3.25%. Avery Ranch, Brushy Creek, Cat Hollow, Sendero Springs – to name a few – are all above 3%. What I stated was that Round Rock property taxes range from 2.75% to 3.25%, which is in fact correct.

> The data is for houses built 1990-1995. Most of the ‘good’ houses in RR are newer.
The same could be said for Austin. Either way, it’s apples to apples the way I did it. The idea was to eliminate the data being skewed upward by new homes.

> In 1995, you will probably see a bunch of double-wide trailers and run down houses.
The data includes single family homes only, no mobile homes.

> A gap will stay the same in an area, relatively.
Not true. Look at Travis Heights 10 to 15 years ago compared to today. Certain areas can and do gap up well ahead of surrounding areas for a variety of reasons.

> … average price will be $400K and Round Rock only $210K. That will never happen.
I disagree. It could very easliy happen. Austin is running out of space to build inside the city limits. Round Rock has plenty of big plots of land yet to be developed, especially to the East.

> Past data doesn’t predict future data. If it did, Sacramento would still be going up 25% per year.
I understand your point. But demographics and growth patterns are in fact much easier to predict than, for example, stock market prices. Central Austin and Downtown are going to continue to see growth and price increases. The only question is how high the prices will go and what the cycles will look like.

Thanks for your comments. I really do appreciate hearing other points of view.
Steve

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Todd - 10 years ago

Hi Steve. Thanks for clarifying the tax rates for the Round Rock area. You initially said ‘vs.’ so I assumed it was a comparision. My reasoning for mentioning trailers was the lifestyle of the area has dramatically changed from being extremely rural in 1995 to a booming, suburban area in 2006. I was saying that this is a much different ‘apple’ to compare to the established Austin ‘apple’.
That is a good point you have on running out of space within the city limits. That is definitely one thing that is affected by supply and demand. Just as Andrew stated above, a huge metropolis like the S.F./Bay Area where there are over a dozen million people, you’ll see the price of S.F. go up dramatically. But we are talking about Round Rock, which is only a 15 minute drive north of downtown. I understand that traditionally people in Austin don’t commute as much as say people in California. But I would run statistics on how many of the new residents (that have more than doubled the population in just the last few years) are from places like Los Angeles, New York, or any other big cities that don’t see much difference in value of commuting 5 minutes to 20 minutes.
Other cities/areas comparable in size (Like Portland, Sacramento, etc), the areas that are new, booming and within 15-20 minutes of downtown are going up just as fast or faster than most of the older areas in the city limits (also where the neighborhoods aren’t often as nice as a new area). Going back to San Francisco, if you look out the same distance from downtown San Francisco at housing prices 15 minute drives in any direction (except for Oakland), you’ll see that there still are extremely expensive housing because they are ‘close’, just like Round Rock is.
As an investor, I look for new(er) but relatively established neighborhoods, within 10-25 minutes from downtown, new stores/strip malls (a good indicator because they have done their research as well), income levels, education levels. I wouldn’t want to buy an older house for investment purposes because if you are buying a 15 year old house and plan to hold it for 10, your house will eventually be 25 years old. The can be a lot more problems with an older house than a newer one. Plus, renters tend to treat ‘new’ homes better than old homes, which as you mentioned, would be hard to find in the Austin city limits.
I do agree that you should look at Austin and not just the outside areas though. I would love to chat with you sometime on the subject.

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sabby - 9 years ago

What do you folks think about Pflugerville homes? Both rental and price appreciation?

From my information, it is a suburb of Austin and after the initial RR hype is dying down now, it is being regarded as the next RR like city, and same for Cedar Park. Is this a logical trend – are there some numbers to back this trend?

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Steve - 9 years ago

Hi Sabby,

Pflugerville is currently a tough market for resale and rental homes. They don’t move very fast. Coming years may be different. It’s in a good location but has some traffic problems and lack good retail shopping. New retail is starting to move in though but I’m still not recommending PF to our buyers unless they have a lifestyle reason to be their (friends, family or job close by).

Steve

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Mare - 9 years ago

Hello Steve! This is a great topic. My husband and I held off on purchasing a new home in Hutto for the reasons you cite – we were uncertain the home would hold its value. Like Sabby, I would would like to know your thoughts on Cedar park. After doing some (limited) research, it does look like an area that will continue to grow, yet retain its value. We’ve looked most specifically at Cat Hollow. The west side of I-35 north of Austin looks like our best bet overall; however, we’re probably going to hold off for another year. We are currently in Round Rock (recently annexed to Pflugerville), and while we’re happy to see some positive appreciation, we would like to move to a more ‘stable’ area. We were in a hurry to sell (and buy) when we were not ready, due to the strip club that was going to be built on Grand Avenue (about 2 miles down the road from us), for fear it would hurt our property value to the point where we would be upside down on the mortgage. We weren’t sure if this was a justified fear, but it seemed like a good idea at the time.

Again, thank you for the stats – it’s food for thought.

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Steve - 9 years ago

Hi Mare,

Thanks for your comment. It reminded me of this blog article and that I want to do an updated version that includes all of 2006. Hopefully I’ll find time someday soon.

With regard to Cedar Park, I think your right. That entire corridore up 183 through Leander is growing very fast yet prices seem to be holding.

Take Care,

Steve

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sabby - 9 years ago

Hi Mare, Steve and everyone else,

Even though the commute from Cedar Park down on 183 is a pain but Cedar Park prices are still holding up well. Its far from major employers and the commute is rough so I dont know what the value proposition for that city is yet. Can anyone chime in on this point please?

Heres a question: Looking for a investment/rental property – what city would folks here choose for a comparably priced home and why – pflugerville, cedarpark, RR, Austin ??

Austin homes per my research are generally older construction and generally offer negative cashflows because of smaller rents. But thats based on my limited information so far.

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Mare - 9 years ago

Someone in my real estate class mentioned this, and I wanted to share: http://www.tinyurl.com/2uhl46
If they do go through with this water park/hotel, surely they’ll have to widen 1431, and that will be a mess. In your experience, Steve, does living around road construction tend to keep a home on the market longer and/or affect selling price?

Sabby – I think it depends where in Austin proper you are looking. I think that rentals closer to UT will have a better return. And don’t discount older construction – it’s rather ‘trendy’ around here, especially if you do some remodeling. If you look at any other suburb (Round Rock, Pflugerville, Hutto), looking for a home to exclusively rent may not be a great idea now. Prices are lower and so are the interest rates, and there’s plenty of new construction with some crafty incentives. There are two homes in my neighborhood that have had ‘For Rent’ signs for going on 6 months now (one home was rented just a couple of weeks ago). South Austin might be another story. I have not looked at any numbers, and this is just my opinion, but living down there is becoming increasingly popular (and home prices are increasing). You might check out the Onion Creek/Slaughter Lane area. I think condo sales are down, and that might be a good place to look also (on a side note, a condo might not be the best idea if this is your first investment property, but again, this is my opinion). Best of luck!

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Steve - 9 years ago

> what city would folks here choose for a comparably priced home and why – pflugerville, cedarpark, RR, Austin ??

I continue to advise investors to stay in Austin.

> Austin homes per my research are generally older construction and generally offer negative cashflows because of smaller rents.

Rents in Austin are much higher than the surrounding areas. And they are appreciating better overall.
See: http://crosslandteam.com/blog/2007/01/21/austin-rental-market-update-2006-summary/

> In your experience, Steve, does living around road construction tend to keep a home on the market longer and/or affect selling price?

I’ve never marketed a home ro sold one that had road construction issues. My first thought, however, is that if I owned a home affected by road construction I’d wait until it was over to try to sell. I certainly can’t help the home get a better price, so there is no upside and only potential downside.

Steve

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Mare - 9 years ago

Hello Steve, I have another question for you. Is there any website that maintains a comprehensive list of ALL neighborhoods in Austin and the surrounding areas?

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Steve - 9 years ago

Hi Mare,

Not that I know of, but a great resource for getting a lot of opinions about different areas of Austin is the online forum at:
http://www.city-data.com/forum/austin/

Statesman.com has some info but many of their articles are dated.

Steve

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Tony - 9 years ago

http://www.main.org/neighbor.php

Has a pretty good listing. My neighborhood as well as a few others are not listed so it clearly is not comprehensive.

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Mare - 9 years ago

Hi Tony – Thank you for the list!

Man, talk about reviving an old ‘thread!’

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Round Rock home - lease or sell? - City-Data Forum - 3 years ago

[…] Also Round rock is not austin and is heavily dependent on dell. This is from austin-steves blog: Austin Real Estate Appreciation Austins 10 year appreciation is around 3.25%, round rock is 2.75 Take into account 1) taxes on […]

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