Every year, housing industry professionals eagerly await word from speakers at HBA’s Annual Housing Forecast on whether this will be the year the economy stalls. It’s a prediction that could lead the way for Central Austin real estate prices to fall more in line with the rest of the country. But yet again, the message to about 750 REALTORS, agents, home builders and investors in attendance was that there’s no recession in sight and demand for housing is and will continue to stay strong. Housing industry expert Eldon Rude, kicked off his 18th keynote speech at the conference declaring, “It’s going to be a huge year.”
The event, held on Jan. 14 at the AT&T Executive Education and Conference Center, featured analysis of housing and economic trends by Julia Coronado, founder of MacroPolicy and a clinical associate professor at the University of Texas McCombs School of Business; Randy Clarke, CEO and president of Capital Metro; and Rude, principal at 360 Real Estate Analytics.
A few attendees came poised to hear some sobering news, a sentiment Rude had been anticipating. “The last three major recessions arrived unannounced. How will the next one arrive?” he asked. But in an earlier speech, Coronado said that despite a second year of a “slowing global economy … slower can be OK.”
Regarding issues unique to Central Texas, such as the ongoing housing shortage and resulting rising prices, the overall theme, articulated by Rude, was that it will be a robust year for the economy, barring, of course, an “unforeseen global or economic shock that would result in a sharp drop in consumer confidence.” But Coronado headed off the analyst’s bet-hedging prediction in her earlier presentation, saying that across the U.S. “a stable service sector and cautious consumers serve as stabilizing forces against recession risks.”
Austin, increasing job numbers are still holding strong and steady after a decade and there’s no prediction for when population growth will slow. In fact, it’s expected to double by 2050. Both of these — job growth and the population boom — serve as the foundation for housing demand throughout Central Texas and especially suburbs in Round Rock, Pflugerville and Cedar Park, which are on track to resemble urban Austin. Rude calls attention to specific neighborhoods on the outskirts of Austin that have added a combined several million square feet of office, retail, residential, hotel and entertainment space. He calls it a “Domain-ization” of the suburbs.
But overall, there’s no decline in home demand on the horizon. Last year builders started construction on more than 18,000 homes and for 2020, Rude says there will be more than 19,000 new home starts.
Year-over-year demand for housing continues to outpace supply as the leasing market in Austin metro has been setting records with fewer units available. For the last half of 2019, occupancy rates were between 94 and 95 percent. “There are barely enough rentals to accommodate new people in Austin,” said Rude. Thanks to demand, the average citywide cost of rent has increased dramatically over the past decade. In 2010, the cost per square foot was just under $1. By the end of the decade, the average cost per square foot hit $1.54. “So there’s a lot of interest for renters to go into home buying,” said Rude.
Some concerns were addressed, too. Over the past five years, the median price of a home in Central Texas quadrupled while, over the same period, the median family income only moderately went up. Common sense suggests that if wages are stagnant, buyers will resist the rising cost of housing, which is what’s been happening in other peer cities. But that’s not happening here. Those who can’t afford to pay $405,000 — the median cost of a single-family home in the city at the end of 2019 — are simply moving farther away, which is creating higher demand on housing in nearby counties. Median home prices there are also increasing, by 1.8% in Hays County to 11.1% in Caldwell County, according to the Austin Board of REALTORS. And in two counties adjacent to Travis County, monthly housing inventory declined, according to Mark Sprague, state director of information capital at Independence Title. “Every real estate channel in the Austin metro — from homes to warehouses — is doing well, even though not enough inventory is available,” he said. Rude doesn’t anticipate seeing the gap between income and home prices decreasing any time soon. “And it’s hard to say if it will ever occur,” he said.