By Riki Markowitz
For years, the Austin-Round Rock metro area has been, and continues to be, one of the hottest real estate markets in Texas. Unlike the rest of the country, home prices here are not coming down, inventory is staying low, and prices and appreciation values continue to rise. By certain measures, Austin is considered “the fastest growing housing market,” according to the Home Buying Institute. Compared to Dallas, El Paso, Houston, and San Antonio, the median number of days on market (DOM) for sales listings in Austin is 12 days. While no one can predict when or how things will cool down here, there are no shortage of experts who have some thoughts on how different market forces are connected. Mark Sprague, an economist and state director of information capital at Independence Title in Austin, says that a robust leasing market in Travis and surrounding counties is indicative of a robust residential real estate market.
“The higher the occupancy rate, the higher the sale rate,” says Sprague. “It’s a science. Demand is demand.”
Austin-Round Rock Leasing Market by the Numbers
The U.S. Department of Housing and Urban Development (HUD), released a comprehensive housing market analysis and forecast for the Austin-Round Rock Metropolitan Statistical Area for the period between April 2018 and April 2021. Here are some interesting findings:
- Vacancy rate in the rental market was 6.4 percent in March 2018, down significantly from 8.6 percent in 2010
- Demand for rental units during the forecast period is 29,950; the number of units under construction is 13,900
- In 2018, 22 percent of renter households lived in single-family homes, up from 18 percent in 2010
If a robust leasing market goes hand-in-hand with a healthy residential real estate market, then there’s no reason REALTORs in the Austin area should be experiencing a slow patch, right? If you are, a few things might be happening. According to analysis by the Austin Chamber of Commerce, the metro area has grown by 55,000 people every year since 2010. That population boom, coupled with high demand and low inventory, drives up the price of housing. (According to HUD, total demand for new units is 51,700 and units under construction is just 4,550.) These factors together force a good percentage of aspiring homebuyers straight into the lease market.
There’s no easy fix for the lack of inventory, says Sprague. The fact that Austin has failed to keep pace with the number of people moving here is just one reason why he says “Austin continues to be successful despite itself.”
People who start out looking to buy end up leasing for other reasons, too. Such as those who want to live in or close to central Austin and don’t want to compromise on location. If they have their eye on neighborhoods that have seen some of the highest increases in home values, their only good option may be in the leasing market.
We’re seeing generational issues too. Millennials have their own unique barriers to home ownership. In 2019, residents between the ages of 22 and 37 are the largest population of aspiring homebuyers in Central Texas. But they’re also liable for a tremendous amount of debt. Last year, Lending Tree published a list of the type of debt this generation carries, city-by-city. In Austin, more than a third had student loans to pay off. Close to 40 percent owed money on auto loans, and nearly 20 percent had at least one credit card balance. Austin was number three on a list of cities where Millennials carried the most non-mortgage debt. The median amount they owed was $26,164. Millennials are drowning in bills more than any other generation in history.
That’s not to say agents should write off Millennials as debt-ridden apartment dwellers. According to Sprague, “they’re now starting to jump into homeownership with both feet.” Vaike O’Grady agrees. The Metrostudy regional director has been researching and tracking new home activity for years. What she is finding is that Millennials tend to be ready for home ownership after they’re married and have baby number-two.
Affordability actually plays a role in driving low vacancy rates in the leasing market even more than Austin’s troubling lack of inventory. Anyone who has his or her heart set on home ownership in neighborhoods with the highest active real estate markets has to be able to afford the cost of housing. This means coughing up anywhere between $318K to nearly $600k. That brings us back to Austin’s median DOM. Buyers have about 12 days to find a house they love in a price range they can afford. But also beat out all the other offers for the same house. Of course, even before finding the right property, potential buyers have to pre-qualify for a mortgage. Not to mention get pre-approved for credit. Going through that process several times can be enough to drive anyone to the rental market out of sheer frustration.