Why you should choose Buda over SW Austin (Round Rock, San Marcos: sales, real estate)

[AustinCharley]

Okay.....so I have been reading all of these threads on here and other sites about why to avoid east (mainly) and other parts of the city like Buda or Pflugerville, etc if you can afford to buy in the NW or SW. I must admit that I am a bit confused by what appears to be a lack of depth in the analysis and reasoning provided for these opinions.

I don't think that quality of life is taken into consideration and I sure as can be don't think that the "Real profit" made over the ownership of the home is taken into consideration.

Let's look at it from a more thorough viewpoint and think about some of the things that I believe have been overlooked or not mentioned:

1. The cost of maintaining the older home that you would get in the NW or SW vs. the relative costs of maintaining a new home in the other areas

2. The amount of interest paid compared to the amount of appreciation

3. The quality of life being in a newer neighborhood that has playscapes, pools and an area that has less traffic because it doesn't have main thoroughfares running through it

Let's look at each of these more in depth. The maintenance costs in buying a home that is >10 years old can pile up quickly. You will probably want to change the carpeting or the designs because they seem dated or you may end up with structural issues like foundation cracking or a leaky roof. All of these costs run into the thousands of dollars and will be out of pocket costs because they cannot be simply added into the mortgage like upgrades can be when purchasing a new home.

The amount of interest paid over the life of the loan is ridiculous in comparison. Let's compare the amount of interest on two different houses; one is SW that is purchased at a price point of $250k and one in Buda that is purchased for $165k. We will make the assumption that the homes will sell in 5 years at a 5% appreciation.

At 7% interest, the home that was purchased in Buda for $165k will now have a value of $211,000. You will have paid $67,000 ($73,000 at 9%) in interest on the home. You end up with a net loss of $21,000 ($27,000 at 9%) even though the house sales for $46k more than you bought for.

At 7% interest, the home purchased in SW for $250k will now have a value of $319k. You will have paid $85,000 ($110,000 at 9%) in interest on the home. You end up with a net loss of $16,000 ($41,000) even though the house sales for $69,000 more.

If you are in the home for 10 years, the difference is astronomical:

Buda interest paid: $108,000 at 7% ($142,000 at 9%)
SW interest paid: $164,000 at 7% ($215,000 at 9%)

Buda house is valued at: $268,000
SW house is valued at: $407,000

Which house do you think will sit on the market longer at those price points and taking into consideration the age of the homes at that time (Buda 10 yrs old vs. SW home being 20 years old)?

Now add in the realtor fees that you are going to pay for purchasing the home in the SW (you don't need a realtor to buy a new home saving you those costs) and the additional realtor fees that go along with selling the home in SW for the higher amount and you will end up in a dead heat or with a bigger net loss in the SW than you would in Buda.

Both options are better than renting anywhere in the world because that is a total loss. Every penny you pay for rent is gone down the drain. If you paid $1000/mo for rent, over those same five years you will have lost all $60,000 that you paid.

Now onto the quality of life. The SW is mostly made up of older type communities and neighborhoods that don't have a community pool or playscapes contained within for children. They will usually have a main road near or going directly through them which increases that amount of traffic through the neighborhood. And don't forget that you will be paying a lot more per month (> $700) so you won't have as much (if any) disposable income for other activities that you and your family enjoy.

Also take into consideration that the house in the "less desirable" location will also cost you lower upfront because you will be able to negotiate stronger up front. You will get a lot more for your money and in the end....the result will be pretty much a wash.

You have to also realize that the houses in SW will not continue to rise as quickly as they are. They were a great buy a couple of years ago...but they are fast approaching their peak because Austin's population isn't earning enough to purchase homes above the $400,000 price point consistently.

The only ones that benefit from having you purchase in the "desirable areas" are the realtors who get a bigger commission and the banks that rake in a ton more in interest payments.

[Trainwreck20]

I am not disagreeing with you necessarily, but you left out commute times/gasoline/auto costs. If I (personally) lived in Buda instead of the Villages of Western Oaks (SW Austin), my commute would go from ~15 minutes to probably 45 minutes (average) each way. Five hourse a week, 50 weeks a year (after vacation), means at least 250 hours year in commuting, a higher risk of having an accident, and 30 extra miles a day commuting (probably more) for 150 miles a week, 50 weeks a year, for 7,500 extra miles per year. This would take at least a year or two off the life of my car. I get around 25 mpg on my current commute, which would convert to about $900/year and contribute to the already existing commuting/pollution problems.

Regarding quality of life, SW austin has Dick Nichols park with great facilities, including a free LARGE pool, and there are a couple of other neighborhood specific pools. A few hundred yards from my house is a great playscape at Waterloo Ice House/austin Scoops Ice cream. The biggest road is Escarpment, which is wide, fairly slow, and has large bike lanes. The schools are excellent.

I agree, though, that there are financial considerations that a lot of people do not factor in. Personally, the biggest deal for me is proximity to work and basic needs (groceries, mainly). We can walk to the store and get our groceries. The 250 hrs/year would be ~$30,000 at my companies billing rate (although I do not get that money myself, my company does better and I am an owner, or I feel that is a good estimate of that time value to me).

[AustinCharley]

Valid points about the additional commute factors. I think that those are being mitigated however when you consider the extra infrastructure that is being put in place. With the by pass that is now open, a lot of the truck traffic will be alleviated and the commute time will be shortened. Also, depending on where you are in Buda, the distance to downtown is < 14 miles. That isn't that much longer than Circle C which ends up being > 11 miles from an address I found there to my office in downtown Austin.

I think that the amount of time the commute takes depends on when you leave for and from work. I am currently living in NW Austin and it takes me almost 25 minutes longer in traffic if I leave the house 15 minutes later than I do and the same on the return trip.

As the SW continues to populate, it is going to get more and more congested and you will start catching more and more lights because there are no major interstates to catch. If you do catch them, then we are in the same boat (or jam as the case would be). This is going to increase your commute time regardless of whether you live closer to the city by five miles or not.

Your points are less valid if the areas continue to grow as they are.

[tashina]

My general disagreements with quality of life statements:

1) not everyone has a mortgage - to Californians and others houses here are cheap enough that you may not need a mortgage. Since appreciation is currently over 5% which is what my about what my money market account pays, I'm not losing anything by having the money tied up in a house.

2) there are plenty of new communities in SW Austin, many like mine have pools and water play areas. I don't need to go to Buda to get a pool. As a matter of fact, I could build my own pool for the cash I'd save in gas.

3) part of our quality of life is that we work 4 minutes (5 if the traffic light is red) for work. We spend about $20 on gas per month here. Some days my husband can work from home because it only takes him a couple minutes to get there if he's needed in person.

4) areas close in will generally do better in a downturn than cheaper houses farther away. Ask me how I know.
I'm currently watching the southern California housing bubble since I left at the height of it. What market is going down fastest? Riverside/Temecula with lots of newer less expensive houses. Now that houses are getting cheaper people don't have to commute so far and are buying the houses inside the city of San Diego. Those prices are going down too, but not nearly as sharply as Temecula.

In an up market, the areas will likely appreciate about the same amount with the more expensive house obviously gaining faster in dollar amount (and this often happens in times of low interest rates so having the house is better than having the money in CDs)

5) Renting is often better in a down market. It is not a waste of money. Check out some blog entries from this blog if you think that buying is always better.
Bubble Markets Inventory Tracking: If Only I Waited... In Old Creek Ranch

[AustinCharley]

My general disagreements with your reply are that > 95% of the population will have a mortgage. There is no way of getting around this point. Granted, if you have the means to not carry one, then chances are that you don't really have to concern yourself with a lot of the factors that I have listed.

I would also like to argue that the majority of people are not fortunate enough to be able to work within 5 minutes of their residence. If the majority could do that, then there would be little to no traffic for the rest of us to contend with.

I would agree that the closer areas tend to do better is a weaker market. However, you are still taking a bigger loss.

As for renting vs. owning....if you own, you will always be able to recoup some of your money whether through the resale of tax breaks associated with paying interest. If you rent, you never get any of that money back.

[tashina]

95%? Link please. I think the best way to "get around this point" is with facts.

In Texas, 2,471,978 or 64.2 percent of home owners have a mortgage. The median monthly mortgage payment is $986. 1,377,607, or 35.8 percent of home owners have no mortgage.

Texas (TX) Real Estate, Census Data, Zipcode Lookup - House.com

Of these homes, 79,835 or 76.2 percent have a mortgage. The median monthly mortgage payment is $1,181. There are 24,959, or 23.8 percent of home owners without mortgages.

Austin, Texas (TX) Real Estate, Census Data, Zipcode Lookup - House.com

And those stats are from the 2000 census, before the big buying boom in America. And before Californian's and other "Coasters" started moving inland and buying homes without mortgages.

[Jazzedforhim]

One reason is if you'll be working in Buda.

[AustinCharley]

Originally Posted by tashina

95%? Link please. I think the best way to "get around this point" is with facts.


Texas (TX) Real Estate, Census Data, Zipcode Lookup - House.com


Austin, Texas (TX) Real Estate, Census Data, Zipcode Lookup - House.com

And those stats are from the 2000 census, before the big buying boom in America. And before Californian's and other "Coasters" started moving inland and buying homes without mortgages.

You acknowledge that your stats are a little dated. How can you claim that they are any basis for proof in today's market? If you look at your own link provided, you will see that almost 37% of homes are less than $100,000. Where can you find a home for less than $100,000 today?

In 2000, the median price for a home in Austin was $131,000. Today, the median is $269,000. Your stats are pretty meaningless considering the amount of time and the dramatic rise in prices. You fail to calculate how many of those that didn't have a mortgage seven years ago sold their home to upgrade and are now carrying a mortgage. You fail to account for the fact that Austin was still a fairly rural area seven years ago and had a fairly large amount of mobile homes.

Your assertion that almost all Californians that come here are able to slap down a few hundred thousand dollars on a house is a bit absurd also. A lot of people in Cali are/were carrying interest only mortgages or living so far above their means to be able to afford a home that they didn't really have much in equity. You also don't take into account the market in Cali has dropped dramatically and those that believed that they were going to be able to double or triple their profits are lucky to even make a profit now.

A few headlines from a quick Google search show:

Continued slow for Southland home sales Last month was the slowest May for Southern California home sales in 12 years, mainly because of sharp declines in lower-cost markets.

California Foreclosure Activity Jumps Again

The number of default notices sent to California homeowners last quarter increased to its highest level in almost ten years, the result of flat appreciation, slow sales,and post teaser-rate mortgage resets

Steep drop in sales of California vacation homes

Second-home purchases in California dropped sharply last year, the result of lower appreciation for primary residences as well as continued interest in out of state properties.

After peaking in 2005 at $220,643, the median net cash gain by sellers from all home sales declined 8.4 percent to $202,000. It was the first time since 1997 that the median net cash gain fell. The median net cash gain for single-family detached homes increased 1.6 percent to $250,000, while the median net cash gain for condo/town homes declined 2.7 percent to $180,000.

I realize that everyone saying move SW or where ever else is just trying to maximize their own bottom line because the more desirable they can make their neighborhood the more prices will climb. What I am trying to do is to show people that, if you do the math, even though your house will sell for more...in the end you will have had a net loss greater than those in a "cheaper" house.

Also, I have already stated that this thread is for the majority of us that WILL HAVE A MORTGAGE/FINANCIAL decision to make....not the fortunate few of you that don't. So, if you would like to stop thread crapping and get back on topic, feel free.

[tashina]

I don't think the stats were useless. I am a librarian and a moderator of financial boards, and in my experience those sorts of stats don't change quickly. But let's see updated stats just so we get this right.

2003 stats.
ACS: 2003 ACS Tabular Profile for Austin--San Marcos, TX MSA -- Table 4
196,449 with mortgage
62,074 without mortgage
total = 258,523
percentage without mortgages: 24%

My earlier 2000 figure was 23.8%.

Doesn't seem to be changing as quickly as you think.

This is the closest I could get to the original statistical area for 2005 - from the census department but is Austin/Round Rock instead of Austin/San Marcos.
Austin-Round Rock, TX Metro Area - Selected Housing Characteristics: 2005
with mortgage 245,410
without 81,074
percentage without mortgage = 24.8%

For your quote:

You fail to calculate how many of those that didn't have a mortgage seven years ago sold their home to upgrade and are now carrying a mortgage.

I don't have a clue. Based on the stats above, I'd say not many. If you think there is a significant amount, feel free to provide the link.

Your assertion that almost all Californians that come here are able to slap down a few hundred thousand dollars on a house is a bit absurd also.

Don't put words in my mouth. I said:

to Californians and others houses here are cheap enough that you may not need a mortgage

"May not need", not "almost all". It is my reasoned opinion that many are coming from California and the coasts and that if the percentage without mortgages is rising, that's the main reason. I don't know this for sure, but darn near every article I read on the Hill Country including one today in the NY Times, has California buyers with money in it.

That's just the mortgage issue. I think there are benefits and minuses to moving to Buda or SW Austin. I understand you only presented one side of the story. I don't see a clear winner. Obviously, since I had no mortgage and my husband works in SW Austin, I thought that was our best choice. Plus I drove out to Buda and it was too long of a drive for me to want to do it often. I don't care for commutes.

I do disagree with a few other things.

The maintenance costs in buying a home that is >10 years old can pile up quickly. You will probably want to change the carpeting or the designs because they seem dated or you may end up with structural issues like foundation cracking or a leaky roof. All of these costs run into the thousands of dollars and will be out of pocket costs because they cannot be simply added into the mortgage like upgrades can be when purchasing a new home.

Okay, lets take upgrades like carpeting. I'd rather buy an older house with bad carpeting and upgrade it myself than roll $2000 of new carpeting into my mortgage and pay $50 a year for the rest of my ownership in property taxes on that carpet. Same with any other minor upgrades I can get from home depot. In my new house in Temecula, they offered me window coverings and flooring. Instead of doing that, we installed them after closing saving us $325 a year in property taxes. Here in Texas I had to close with flooring so I had to add that onto my property taxes. And since I didn't like the builder choices I now have tile I don't love like I would if I had ripped out the flooring on an older house with discounted price.

Also, although I don't have stats, my feel is that few 10 year old houses in Austin are going to have significant problems with leaky roofs (aren't they all 30-40 year composite now and guaranteed by the company? I'd have to look at my warranty) or foundation repair. Maybe austin-steve could help with that issue as he's an agent and probably runs into those issues more. Actually I'd like to hear his opinion overall.

I realize that everyone saying move SW or where ever else is just trying to maximize their own bottom line because the more desirable they can make their neighborhood the more prices will climb

I think it's more a matter of pride of place, which may be where your original post comes from. I doubt many believe they are going to have a significant impact on housing prices by posting here. I found it sort of insulting. I took it as if you were saying that anyone that disagreed with you was just trying to prop up prices, which may not be what you meant.

And I'm just wondering where you got this "fact"?

The SW is mostly made up of older type communities and neighborhoods that don't have a community pool or playscapes contained within for children.

I tried to think of all the communities I've seen signs for: my neighborhood, Circle C, Legend Oaks, Village at Western Oaks. A quick look showed they all have pools and some have playscapes (also available at local parks). I'm sure there are some communities in both SW Austin and Buda that don't have these things because really, not all people want them. I don't have kids but still pay monthly towards the playscape and pool that I've been in once in 1.5 years.

Anyway, to me it was a quality of life issue. I wanted my husband to be able to come home for a nice meal at lunchtime. I wanted to be 5 minutes from a great grocery store and 10 minutes from Borders and Barnes & Noble. And I wanted to live on a hill since I live in Hill Country.

Money-wise I think it pretty much is a wash. Live for 10 years in a less desirable area with a longer commute to amenities and a lower mortgage payment but a lower value at the end of 10 years. Or live in a more desirable (beautiful really) area with a higher mortgage payment and a higher value at the end with less of a commute. Even after you figured out all the compounding, you still came up with:

you will end up in a dead heat or with a bigger net loss in the SW than you would in Buda.

We disagree on which house would be easier to sell 10 years down the road - you say newer house farther out, I say houses in desirable close-in areas (except downtown condos) historically are less prone to bubbles and busts - and who knows when you are going to need to sell. I think 10 years from now houses in SW Austin will be considered close-in.

Actually, that was one of my main financial reasons for buying here in SW Austin. I saw how cheap houses were here in comparison with houses a 15 minute drive away (downtown). I read the stats on how the population should double here by 2030 (from NY Times today) and see what happened in my home town of San Diego. I think SW Austin has about the sweet spot in distance from downtown to do well in a 10 year time frame. If I were an investor looking at a 30 time frame, I might think of Buda.

Interesting topic. Thanks for starting it.

[swaushorn]

Tashina, As a resident of Western Oaks - I don't disagree with your comments on savings on fuel and other aspects of this area. It seems just fine and I think there are still good buys in this area.

What I want to throw water on is your argument (and I know you've provided copious stats) about not really needing a mortgage. I see from your profile you were previously in San Diego - well most of "us" were not previously in San Diego - in fact I was previously in Ohio, not necessarily the "hotbed" of real estate investing and over valuations (of which you've obviously benefitted from based on your no mortgage comment). So I think it's a big stretch to think that "you don't necessarily need a mortgage"! Again I agreed with much of what you said about the area - but found your comment on "no mortgages" to be a bit smug by Austin standards and would hope you show a bit more appreciation for those of us who didn't have the benefit of coming from an area where we could sell our 1500 sqft shack for half a million, thus creating an opportunity for "no mortgage" of which many from California seeking utopia here in Austin that have done this. Providing stats and facts are excellent, but sometimes on the ground it's much different (as someone who has served the mortgage industry here for the past 9 years and regularly sees many of the hardships people go through to get a loan and a home).