By Riki Markowitz
Over the past several years, the economy has been a boon far increasing numbers of home sales, specifically in Central Texas. But things may be evening out by the end of the year, or perhaps slowing, according to Eldon Rude from 360 Real Estate Analytics.
Based on sober calculations presented by Rude last month at the Home Builders Association’s annual housing forecast, home prices in Central Texas are 3.5 times higher than the median family income in the Austin metropolitan area. While this figure has been growing year after year, past measurements show that the difference between home prices versus income between now and 2010 is far greater than the previous five-year period. In 2005, the cost to purchase a home was 2.4 times higher than median family income while in 2010, the difference only increased by a tenth of a point.
According to Rude, during periods of recession, cities with the largest gap between home prices and income are most at risk for experiencing declines in residential real estate prices. Some see this as a sign that personal financial confidence may have taken a hit here. But the main message for real estate professionals to take away here is that demand for housing is still going very strong.
The overall positive economic outlook in the Austin area for 2019 is a result of low unemployment, as well as a continuing influx of new high-paying jobs, a number of large companies moving here, or those expressing an interest in moving here. Austin may not be the future home to a new Amazon HQ, but the city received a lot of positive press for making the finals in Jeff Bezos’ search. It’s almost certain other promising companies noticed the advantages of opening or moving offices to Austin. As a result, all of the commotion is attracting more high earners that want to buy a home.
At Supreme Lending’s annual market update, John McClellan discussed mortgage trends for 2019. McClellan also suggested that demand for homes will remain strong in the coming year. The downside is that agents have expressed frustration in identifying potential homebuyers: mainly millennials. This generation is entering the real estate market in new ways and many agents, specifically those who have been in the industry for decades, don’t always know the right way to find and approach such a tech-savvy generation.
Millennials in the Austin area are in a more advantageous position to afford today’s home prices, as well as qualifying for loans, because they’re in higher paying jobs and a very secure job market. There are no projected slowdowns for this trend in the coming year, in part, because the tech sector is still growing and adding new jobs every year. In a December press release, for example, Apple reported a $1 billion investment in a new, 133-acre campus in North Austin. After opening, the company anticipates employing about 5,000 people and up to 15,000 in subsequent years.
News also broke earlier this year that Google signed a new 35-year lease for 790,000 square feet of office space in a new downtown tower. Even if these tech behemoths don’t begin hiring new workers for two or three years, their popularity and investment in the city will surely lure even more promising companies knowing that there is a large pool of employable high-tech experts to fill those vacancies, plus the infrastructure to support their presence (or, in some cases, a promise to provide more or upgraded infrastructure).
All the newly formed engineering, R&D, finance and sales jobs from technology employers, plus many other types of jobs and career categories, like construction, the trade-transportation-utilities sector and professional and business services, provide the promise of income growth and career stability to all generations, but experts say that millennials will benefit most. The message here is not about turning our nose at the highest earners in different age groups. Thanks to tax cuts and years of career experience, they’re doing very well. But those individuals are not looking to break into the residential real estate market the same way as are those in their mid 20s and 30s.
What also puts millennials in a good position for becoming home owners this year is that many are in a two-income household, and individuals or couples who haven’t started a family yet are showing clear signs of economic confidence, says Ted Jones, chief economist at Stewart Title. Over the past 12 months, the United States has seen a 1.89 percent increase in leisure and hospitality jobs. But that increase is nothing compared to how many new jobs in this sector have been added since the lowest point in 2010. Jones says this is “the blood pressure test of the U.S. economy.” And the job growth numbers in this sector would have been higher today if it weren’t for a slump that began in Houston, Florida and especially Puerto Rico, in August 2017 when Hurricanes Harvey and Irma hit. When you look at financial confidence levels — referring to those who are putting money toward hospitality, leisure activities, and purchasing cars — millennials are right up there. At the 2019 Real Estate and Economic Outlook event in January, Jones says this age group is “the future and the present.”
Every year, during “forecast season,” professionals brace themselves to hear how long Austin’s streak can last. Since 2010, we’ve seen major economic growth, a proliferation of commercial real estate development and a 20-year low in unemployment. So the next recession has to be just around the corner for Central Texas, right? Sarah House, a senior economist for Wells Fargo Securities, says it’s not yet time for Austin’s growth to turn around. At the Greater Austin Chamber of
Commerce’s annual economic outlook event last December, House said that for the metro area there is an “exceptionally strong” chance the economy will continue to be resilient. And if it does trend down a point or two, most of us won’t even notice. One reason is because of all those new jobs will keep holding unemployment numbers down.
Experts do believe that much of the country may be heading toward a slowing GDP, but not Austin. And there’s no reason to rule out more growth in the future. RL