We recently had the pleasure of hearing another economic forecast from David Tandy, CEO of Gracy Title Company. We have attended these forecasts over the last couple of years and they have always proved extremely insightful. Here are some highlights: both positive and negative.

Positives

Austin recently passed the two million mark in terms of residents in the MSA (Metropolitan Service Area), which includes Austin proper and adjacent cities with the exception of Georgetown. Austin’s population has been growing at a rate of at least 3% per year over the past four decades while the U.S. grows at about 1%. In 2015, Texas had an influx of 500,000 new residents and 67,000 of those came to Austin. This population growth continues to drive our economy.

One thing that makes this growth different is that for the first time, we haven’t come close to keeping up with new housing that matches the number of people that have moved to the area. Remember those 67,000 new residents? Austin and surrounding areas would need to build around 17,000 new homes to accommodate them, but only 11,000 were built in 2015. This shortage of new home builds will continue to keep our inventory low for the foreseeable future.

Jobs and the “Keep Austin Weird” Culture

Austin’s culture, climate, and workforce continue to make the city attractive to employers. Job growth has been absolutely amazing for Austin and 2015 was one of the best years ever. It's Austin’s young, educated, motivated work force and that attracts companies like Oracle to Austin, who are planning to open a 60,000 square foot campus on Riverside in the near future. These companies need talented young professionals to join their workforce, and since Austin is a place Millennials want to be, it’s a perfect fit.

In 2015, 43,400 jobs were created in Austin -- a 4.7% job growth rate. That puts us at Number Two in the nation for job growth, right behind Orlando. Orlando is new to the Top 10, but Austin has been consistently recognized for the past decade.

Negatives

Affordability in the area is on the decline: In 2010, 35% of all homes sold were priced under $165,000. Price pressures created by Austin’s rapid growth and lack of commensurate housing inventory have put significant upward pressure on the median home price and has resulted in a reduction in available homes at lower price points. In 2015, only 12% of all homes sold were priced under $160,000.

New construction homes in Austin generally cost between $250,000 and $400,000 -- mainly due to price pressures created by high land values, lot shortages, construction materials values, labor shortages and wage pressures in the Austin construction industry. This means that “affordability” will continue to suffer. Affordability is the largest challenge in Austin’s housing market, and presents long term risks to the city’s well-being if it cannot be addressed. The median home price for 2015 was $259,000, up by 7% and is projected to grow another 7% to $277,000 in 2016.

If affordability and cost of living cannot be kept in check, companies may begin to look elsewhere in the state to find affordable labor pools that offer a good quality of life -- Dallas and San Antonio have already seen growth as a result of this trend.

More Renters by Choice

About 25% of Austin’s population are millennials, the highest percentage in the nation. This demographic values flexibility and mobility and hate being “tied down”, and they are waiting longer to buy homes as a result. That said, almost all of them say they want to buy eventually.

There are a number of factors that lead millennials to put off purchasing a home. Millennials as a group carry much more student loan debt than those before them, and as a result have had less time to accumulate capital to purchase a home. High rental rates also make it harder to save for a downpayment or qualify for a mortgage. In addition, many Millennials entered the workforce during the worst recession in recent history and witnessed the burst of the housing bubble. This has led many Millennials to take a much more cautious and frugal approach toward home buying.

In markets with lower home prices, millennials are much more likely to buy since the price of entry is more within reach, but in a market like Austin’s, they simply can’t (or don’t want to) compete.

Outlook

Overall, the Austin economy and real estate market are strong. The under $400,000 price point should continue to appreciate quickly due to the continued population growth in the area, while the upper end luxury units and higher priced homes will likely see a bit of a slowdown due to the economic pressures the contraction of the oil industry has imposed on the upper end of the real estate market throughout the state.

I hope you’ve enjoyed this economic outlook! If you have, please do me a favor and share it with a friend or on social media.

Regards,

Ryan Rodenbeck - Spyglass Realty

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2708 S Lamar, Ste 200E Austin, TX 78704