Austin Continues to be Economic Top Performer Nationwide

The Austin Metro area ranks 4th among the country’s largest metropolitan areas on the Milken Institute and Greenstreet Real Estate Partners’ 2008 Best Performing Cities list. Texas as a whole did well, with Dallas, Houston, San Antonio, Killeen, and McAllen joining Austin in the top 25 of large metro areas. The top “small metro” area in the country was Midland TX.

Last year Austin ranked number 20 on the list. The list ranks cities according to metrics such as job creation and salary and technology growth.

Is there are corelation between the economic strength of a metro area and its real estate market? Of course there is. Absent the type of speculation that happened in cities like Merced California, a metro area must have solid job growth and positive net migration figures in order to generate the kind of market buyer demand that sustains or propels a real estate market.

Remember, Texas had a soft economy and no real estate price run up during the early/mid 2000’s, and Texas had a relatively low percentage of sub-prime loans, compared to the areas in the U.S. that saw crazy real estate appreciation during those same years. Those 4 years of zero appreciation in Austin from 2001 through most of 2005 are looking pretty good in retrospect. Bleeding out 30,000+ jobs in 2002/2003 was tough medicine back then, but makes for a healthier economy today.

Let’s take a look at some of the cities on the list compared to the real estate markets they are experiencing.

According to the list of top 25 appreciating real estate markets in the U.S. as presented at the Housing Predictor website, Austin ranks number 6 for projected appreciation for 2008, with 4% being the predicted appreciation.

As of July 31, 2008, our median value in Austin was up 4.32% for single family homes, but the average sales price is up only 0.44%. Nevertheless, Austin is hanging in tough relative to most of the country.

Forbes list of the 10 worst real estate markets in 2008 includes Stockton CA, Las Vegas NV, Bakersfield CA, Santa Ana-Anaheim CA, Los Angeles-Long Beach CA, Miami-Miami Beach FL, Sarasota-Bradenton FL, Oakland CA, Fresno CA and Fort Lauderdale FL. How many of the aforementioned 10 cities with the worst real estate market are listed in the 2008 Best Performing Cities list? None. Zero. How many are listed in the top 50? One – Fresno at number 47.

I guess this isn’t a news flash. People know this, right? As job growth and population growth go, so goes the real estate market? Well, actually most buyers don’t know this. If they did, they would act as if they knew it. Instead, there are a lot of worried buyers on the sidelines in Austin at present, passing up interest rates in the 5’s and a reasonably good buyer’s market, in favor of the belief that the Austin real estate market is a bubble waiting to burst. It’s not. Austin is in a slowdown in some areas and price ranges, but overall, Austin is enjoying a real estate market and an economy that most of the country would gladly trade for at present. Buyers that know this are out there making good purchase decisions.

5 thoughts on “Austin Continues to be Economic Top Performer Nationwide”

  1. Two points:

    As a buyer waiting on the sideline, I believe your analysis misses a significant consideration. The national economy is rather unstable now, especially with the approaching banking catastrophe which may or may not be averted. As such, many potential buyers have to consider not only whether the trend of Austin housing prices but also the trend of their own wages. Essentially, there are two national factors, the housing market and the overall economy, which can both drag down the local housing market. Perhaps potential buyers are less concerned about a housing bubble than a recession.

    The second point concerns recent data (via the Statesman) that show Austin home sales declining 20% but the median drifting up slightly. Those data seem to suggest the bottom end of the market dropping out, but I haven’t yet looked at the price breakdown totals. In your experience, does a withdrawal at the lower end of the housing market reliably predict a subsequent (6 months later?) drop in prices?

  2. I also see the possibiltiy (as much as I would like otherwise) for a seismic shift in the rental market, which may make buying less attractive – anectdotal reports suggest West Campus has newish buildings that are half-empty. Sooner or later, those landlords will get tired of empty spaces and get serious about filling them, which leads everything else to move around, and suddenly rents get a lot more affordable everywhere. (“sudden”: because the big companies owning these big buildings don’t need to react as quickly as an individual landlord would, but when they do, the impact will be much larger).

  3. Hi Aaron,

    > Perhaps potential buyers are less concerned about a housing bubble than a recession.

    Will, the root cause of the economic problems IS the real estate market and all those bad loans. But I think you have a valid point, which would in fact apply to many of the fence sitters. We do however know just from talking with a lot of prospective buyers that the mindset of many is simply that they predict that the Austin real estate market is going to tank, which I think is not likely at all.

    > does a withdrawal at the lower end of the housing market reliably predict a subsequent (6 months later?) drop in prices?

    The lower end of the market is actually the strongest in Austin at present. The “months of inventory”, which is a barameter of demand, is almost in a perfect straight line relationship with price ranges. In the lower ranges, there is only 3 month’s of supply and prices are rising. The market equals out at around $400K and becomes a buyers marker in the higher ranges. So what we are seeing is rising prises on the low end and soft or falling prices on the high end, which moves the median diffewrently than the average.


  4. Hi M1EK

    > I also see the possibiltiy (as much as I would like otherwise) for a seismic shift in the rental market.

    Believe it or not, our rental rates are still, on average, below the year 2000 rates. We topped out in 2001 and bottomed out in 2005, but the upward move since then still hasn’t caught up to the 2000 averages. And you’re right, the rental market is softening somewhat, though not terribly. It’s very much like the sales market where there are plenty of winners, but a lot more losers. By that I mean the competition for renters is strong and you have to make sure your property competes on price and condition, even if it means offering concessions to get renters in.

    Here is my latest rental market update, with a chart that shows the historic rental trends for single family homes.


  5. Yes, from what I see the lower end is the healthiest in Austin! Houses between 150-275 get snapped up fairly quickly. Things slow down a bit over 300 and definitely over 400, particularly in the central city.

    There is competition for scarce buyers at that range from downtown condos as well as tremendous in-fill construction in south Austin and north central Austin and east Austin too. Smaller builders and developers in these areas are starting to feel real pain.

    There is a real slowdown in real estate activity above 400K but Steve’s larger point is correct — we do not live in Miami or California. Our home prices have largely stayed in line with area incomes, even with a host of troubling national factors, we will not see huge price declines. Some houses with a wishful thinking price of 700K might come down to 500 or even 450 but we still aren’t an LA-like market.


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