Is Austin Housing Market Inflated? Is there a Bubble?

[llkltk]

Steve are you saying that a home in SW Austin could possibly appreciate 3% annually? So a 300K home in 5 years would be worth around 345K?

[austin-steve]

Originally Posted by llkltk

Steve are you saying that a home in SW Austin could possibly appreciate 3% annually? So a 300K home in 5 years would be worth around 345K?

I'm saying if I was filling out a Rent vs. Buy calculator, I would use 3% as the projected appreciation over a 5 year period. If you want to be conservative, run it with zero appreciation.

Steve

[Exiled Texan]

I'm not an agent, just someone who follows RE in central austin with voracity. Some days I think it is primed for a 5-10% dip. Others I think it will be stabilized. My logic is mainly based upon cheap rents in Central Austin (it's cheaper to rent in Central Austin), high inventories of higher price points. On the other hand, it really is a rather small geographic area.

Outer Austin and smaller price points is a little unknown to me. But, incomes seem to support it. Also, unlike Dallas and Houston, we have more barriers (geographic and political) to building massing sub-urb commuting abilities. Congestion may eventually limit supply?

In short, who the hell knows.


BUT, I did read upstairs someone saying they can't imagine having a mortgage more than 1.5 times your gross income. I'd say that is very true for people kids (college savings/daycare/afterschool activies), retirement priorities, etc. If you are a young DINK couple with no debt and rising careers, that is a different question.

[texastrigirl]

Two thoughts...

I think it depends where in Austin you buy and what price point you are at. We sold a house in Circle C for $280K in July 2007. My realtor there (also a client) said the house would sell for the exact same price today because it is on the lower end for CC, it is on a nice street, has a great yard and terrific floorplan in demand as a one-story. Higher price points in Circle C have come down a bit though. This house was one of the smaller houses on the street as well.

But in terms of appreciation...Consider that Circle C is a very well established and desirable SW neighborhood with great amenities, schools and good proximity to downtown (12 miles). I bought the house in July 2000 for 220K and sold it for $280K (27% appreciation over 7 years). Factor in 7 years of high property taxes probably totaling at least $40,000, plus interest on the loan, even considering the tax effect of being able to deduct those items, HOA fees plus maintenance costs and I maybe broke even and that was with the employer that moved us to Seattle paying closing costs on our sale! And this is in a great neighborhood by most measures. So I don't know that any of the "burbs" in Austin are going to bring a huge windfall upon sale unless you plan to be there a very long time. It's hard for me to see real estate other than rental property as an "investment". As my primary residence, it's more a place to live, take comfort and anchor my family.

[austin-steve]

Originally Posted by texastrigirl

Two thoughts...

I think it depends where in Austin you buy and what price point you are at. We sold a house in Circle C for $280K in July 2007. My realtor there (also a client) said the house would sell for the exact same price today because it is on the lower end for CC, it is on a nice street, has a great yard and terrific floorplan in demand as a one-story. Higher price points in Circle C have come down a bit though. This house was one of the smaller houses on the street as well.

But in terms of appreciation...Consider that Circle C is a very well established and desirable SW neighborhood with great amenities, schools and good proximity to downtown (12 miles). I bought the house in July 2000 for 220K and sold it for $280K (27% appreciation over 7 years). Factor in 7 years of high property taxes probably totaling at least $40,000, plus interest on the loan, even considering the tax effect of being able to deduct those items, HOA fees plus maintenance costs and I maybe broke even and that was with the employer that moved us to Seattle paying closing costs on our sale! And this is in a great neighborhood by most measures. So I don't know that any of the "burbs" in Austin are going to bring a huge windfall upon sale unless you plan to be there a very long time. It's hard for me to see real estate other than rental property as an "investment". As my primary residence, it's more a place to live, take comfort and anchor my family.

I don't disagree. But on the other hand, you did enjoy the stability of not having to move, as might have been forced upon you as a renter. That "move avoidance" has value.

Your timing is interesting. Had you invested your downpayment in the S&P 500 index in 2000 and sold in Aug 2007, you would have enjoyed good timing and taken a profit. But by Jan 2010, S&P 500 was right where it started from 10 years earlier. Most Rent vs. Buy calculators assume a gain on the invested downpayment, as well as appreciation on the home. Neither are a given anymore.

But I think it's good that more and more people are viewing home ownership as it should be viewed, as a better alternative to long-term renting, but no longer as a cash cow ATM machine. Luckily Texas restrictive Home Equity laws prevented a lot of the damage done elsewhere as people stupidly borrowed 100% and blew the money on "stuff", or more real estate.

Steve

[atxcio]

Originally Posted by texastrigirl

But in terms of appreciation...Consider that Circle C is a very well established and desirable SW neighborhood with great amenities, schools and good proximity to downtown (12 miles). I bought the house in July 2000 for 220K and sold it for $280K (27% appreciation over 7 years). Factor in 7 years of high property taxes probably totaling at least $40,000, plus interest on the loan, even considering the tax effect of being able to deduct those items, HOA fees plus maintenance costs and I maybe broke even and that was with the employer that moved us to Seattle paying closing costs on our sale! And this is in a great neighborhood by most measures.

Broke even, or lived rent free for 7 years? Not saying people should consider their home a pure investment, but...

It sounds like you essentially get your "net" housing cost for 7 years refunded to you when you sold your home, taking into account some equity paydown and the tax benefits.

How much would you have had to pay to rent an equivalent home for those years? Would you have gotten a $60K check at the end of paying that rent for 7 years?

[Southern Phoenician]

What about income taxes? Writing off mortgage interest and property taxes gives us a hefty deduction. Over a 5 year period, that would amount to a lot of $$.

[texastrigirl]

I am not even saying I would have rented...I don't have any problems with people buying homes and I believe it was the best decision for us because of the stability it provides. I was more pointing out for people saying Austin real estate is going to drastically appreciate in the next 5 years or those that think their primary residence is an "investment". Prices will undoubtedly go up but it's good to put actual numbers with that and see what the truth is...numbers don't lie in general and can curb some enthusiasm in real estate purchases helping a person define their expectations. Again, it's okay to own a home but rental property is more of a true real estate investment. And you will always be able to find someone who made out on a home sale...my inlaws had a home in CA go from $800K in value to $1.6M when they sold it. Great return on $160K down in 8 years but that's not the norm esp. in the suburbs of Austin.

In my home I could have rented it for roughly what my mortgage and interest payment was mostly because property taxes are so dang high in Texas. Mortgage was $1067 and taxes/insurance were another $600 or so. I did upgrades through the years, new floors, repairs, repainting inside and outside, minor remodeling, landscaping, etc. etc. I am a CPA so believe me, I am obsessed with numbers, have every dime I have spent since 1996 in Quicken and am aware of the "tax benefit" of owning a home in terms of deductions...but really when you run the numbers, I didn't really make $60,000 off the sale of my home even though that was the appreciation on paper. You have to think of it in terms of what I invested to make that $60,000 as Austin Steve points out above.

[CptnRn]

Originally Posted by texastrigirl

I am not even saying I would have rented...I don't have any problems with people buying homes and I believe it was the best decision for us because of the stability it provides. I was more pointing out for people saying Austin real estate is going to drastically appreciate in the next 5 years or those that think their primary residence is an "investment". Prices will undoubtedly go up but it's good to put actual numbers with that and see what the truth is...numbers don't lie in general and can curb some enthusiasm in real estate purchases helping a person define their expectations. Again, it's okay to own a home but rental property is more of a true real estate investment. And you will always be able to find someone who made out on a home sale...my inlaws had a home in CA go from $800K in value to $1.6M when they sold it. Great return on $160K down in 8 years but that's not the norm esp. in the suburbs of Austin.

In my home I could have rented it for roughly what my mortgage and interest payment was mostly because property taxes are so dang high in Texas. Mortgage was $1067 and taxes/insurance were another $600 or so. I did upgrades through the years, new floors, repairs, repainting inside and outside, minor remodeling, landscaping, etc. etc. I am a CPA so believe me, I am obsessed with numbers, have every dime I have spent since 1996 in Quicken and am aware of the "tax benefit" of owning a home in terms of deductions...but really when you run the numbers, I didn't really make $60,000 off the sale of my home even though that was the appreciation on paper. You have to think of it in terms of what I invested to make that $60,000 as Austin Steve points out above.

Which was what? You stopped short of the payoff. What did you make?