The latest turmoil with the stock market and the recent drop in the price of oil, along with what I consider to be a slower-than-last-year summer had me thinking, "have we passed the peak? And if so, what's going to happen over the next few months?" So I arranged to get my team in front of Independence Title's Chief Financial Analyst, Mark Sprague, to try to answer some questions about what's going on with the economy and where he sees it going. It was an informal meeting and I chose to have him loosely go over his presentation so that we could ask a lot of questions. Here's what he had to say-
I think they are going to go back up. OPEC no longer controls the market and that's a big factor. There are people in Midland, for instance, that are making money off $15 a barrel.
NAR just released a report that cash sales are down (cash sales are 32% now compared to nearly 47% in 2011). What does this mean to the market and to investors?
It means that investors don't see real estate as good of an investment as they did 4 years ago, but it also reflects that investors are leveraging their money based on the low interest rates.
Explain what's going on with the oil prices and how that will affect us if there are heavy layoffs in Houston as I have heard to expect.
The people who are getting let go are shorter-term people for the most part. Texas will still look great because of all the good things in Dallas. Dallas is a phenomenal market, as is Austin, because of all the economic growth and the companies that are choosing to do business there. Luxury sales in Austin have been affected by what's happening in Houston.
How is Austin affected by current prices right now and what do you say to people who say that Austin may be overvalued?
If you look at the major metropolitan areas, you'll see that only 8 of the major MSA's have fully recovered from the last recession, and Austin is one of those places. People think that most of the people are moving from out of state, but the reality is that 70% of the people moving to Austin are from in-state. Also, people think we've had crazy appreciation and that's not true at all when you compare our market to those that have seen a 40% hike in prices.
What's happening with prices in Austin and where do you see the biggest decline in appreciation and values?
The top end, certainly. Take Northwest Hills, for instance. Six months ago there wasn't one single active listing over one million dollars and now there are over 20. Also, the Lake Travis area takes much more time to sell. The average days on market for Steiner is 64 days.
What one word would you use to describe Austin's home values?
Undervalued. Yes, the top has slowed, but we have the best job correlation in respect to the cost of living of anywhere.
What concerns do you have moving forward?
While I believe oil prices will rise, it will be a big issue if it doesn't. We can't afford to have oil below $50 a barrel for 3 consecutive months. Another issue for Austin is wage increases not keeping up with the housing prices and cost of living. On the national level, I think we are in danger of losing the 1031 exchange tax incentives if the politicians have their way.
He also stated that the longest upward run in values that Austin has seen is 6 years and we're only 4.5 years into this current run.
The bottom line is that if you own a home in Austin or are in search of a home, you're in a good spot. The media sends mixed messages about the economy when it comes to stocks and oil prices, but we are largely shielded from those events here in Austin. The Austin Business Journal just came out with this article showing that Austin is the healthiest market in the US for housing.
Even if the market around us is not doing well, we should continue to do well in Austin. I still personally believe that we have passed our peak in Austin and the greatest appreciation gains have already occurred, but the future in Austin appears to be bright for the foreseeable future.