Is Austin currently experiencing a real estate bubble? (Houston, Victoria: renters, crime)

[cBach]

Some of you are looking at the microeconomic picture and not the macroeconomic picture. If you're looking for short term investment, it's a crap shoot. If you're looking to hold onto properties long term, rent them out, etc... then it is a very wise move indeed for the simple fact that there will be 7.8 million souls in this city come 2050. Doesn't take a rocket scientist to figure this one out.

[handog]

Originally Posted by JohnHenrySDM

But the fact of the matter is that you can't say that with any more certainty than someone else can say the exact opposite.

My assumption is based on #1 the continued tightening of lending #2 A million homes foreclosed last year and another million expected this year.#3 Last but most important, high unemployment which is not going away. Housing will go up like everything else due to inflation. At some point it will be good to be locked in a low rate mortgage. Timing is key. Personally I have been a happy renter for the past three years. I’m not sure when the market will hit bottom but I am sure we are not there yet.

[JohnHenrySDM]

Originally Posted by handog

My assumption is based on #1 the continued tightening of lending #2 A million homes foreclosed last year and another million expected this year.#3 Last but most important, high unemployment which is not going away. Housing will go up like everything else due to inflation. At some point it will be good to be locked in a low rate mortgage. Timing is key. Personally I have been a happy renter for the past three years. I’m not sure when the market will hit bottom but I am sure we are not there yet.

I admire your certitude. You're right to say that timing is key. Where we disagree is that I maintain that timing, at least short-term timing, is impossible to predict. And if you can predict it, then you're never alone, and it's already been predicted by others and consequently factored into current market prices... meaning it's too late for you to capitalize on it.

But that's the (Efficient Market) Theory I subscribe to when playing the stock market. It may be different with regards to real estate.

Depending on exactly how certain you are of 1, 2 and 3, you might consider putting a little money into something like SRS, a fund that makes money when the real estate market goes down.

[jobert]

Originally Posted by jobert

Considering the spike in commodities, it's a good time to buy east of I-35 and as close to downtown as possible, especially in the pockets of hilly terrain on that side of town.

Someone had PMed me about my comment, and after putting the time and effort into the PM reply, I thought it better to share my reasoning with everyone as well:


My reasoning for the comment about appreciation being a good bet on the east side (and 78741 in particular) is for several reasons:


1. Improvements to the central core have become a focus of the city council and they have not disguised this agenda at all.


2. Light rail is being planned, providing more mobility to those in the urban core and in certain zip codes - 78702 and 78741 with access to ABIA to run thought this specific zip.


3. The boardwalk on the lake. It has been approved and will be built over the next couple of years. Proximity to this improvement and the lake will become highly sought after when it becomes increasingly scarce.


4. The area is cheap right now, but not for long (see graph below, compliments of CityData). Those who know real estate will tell you that you make your profit on the "buy" and there is relatively little speculation built into SE Austin right now unlike 80% of the other urban areas.


5. Access to ABIA is extremely underrated, and this area is not a "flyover" zip code, yet enjoys exceptional access to the airport.


6. Formula One. It's on this side of town - and anything between the track and downtown will become increasingly sought after.


7. "Urban hill country light" is what I consider the areas on the east side of 35 all the way down to Stassney/Cannon. And this is the last area you can get it cheap - the other areas with this proximity to downtown and this type of terrain (Rollingwood, Barton Hills, West Austin, Travis Heights) have been marked up 3X over the last 15 years.


8. Improvements to 35 are coming - eventually. The suggestion to turn I-35 into a tollway may actually grow some legs and when it happens, a huge change in the congestion and overall perception of this highway will occur.


9. Price pressures of those being pushed out of 78704 - this will spill over either east of 35 (78741) or south of Ben White (78745) or most likely both.

[mark311]

Originally Posted by jobert

Considering the spike in commodities, it's a good time to buy east of I-35 and as close to downtown as possible, especially in the pockets of hilly terrain on that side of town.

I definitely agree with this. If you're looking at strictly investment, as close to Town Lake trail on the East side is a great place to invest. The question is whether or not you're willing to put up with the rest of the gentrification process in the short term.

[JohnHenrySDM]

Thank you, Jobert, very much for that excellent post. Very Informative.

[irishlover]

Originally Posted by die Eichkatze

Largest employers in Austin:
1) State of Texas (Massive budget deficit/employee layoffs)
2) Dell.....?
3) UT-Austin (See #1)
4) Austin ISD (layoffs)
5) US Government (would expect local fed employees to also be on the chopping block)
6) City of Austin (large budget deficit....tax hike and/or layoffs)

....may have a lot to choose from in the fall.

This aligns with my thoughts exactly. IMO Austin's economy isn't diversified enough to support the price many homes are going for now...even in the "fringe" areas. I feel much more confident in Houston's economic future than Austin's. Yes, Houston's economy is focused on the energy sector but the city has done a remarkable job of developing a massive health care component and petrochem to its economic portfolio since the energy crash in the 80s. As well as It worries me that Austin is 90% government and Dell.

We've been looking at homes in Austin and Houston in comparable neighborhoods and have been shocked by the prices in Austin...sometimes we've come across nearly identical homes in nearly identical neighborhoods with good schools in both places that are twice the price. Even taking the Austin "cool" factor into account doesn't explain this to me. I think Austin real estate is ripe for a fall.

[mark311]

Originally Posted by irishlover

We've been looking at homes in Austin and Houston in comparable neighborhoods and have been shocked by the prices in Austin...sometimes we've come across nearly identical homes in nearly identical neighborhoods with good schools in both places that are twice the price. Even taking the Austin "cool" factor into account doesn't explain this to me. I think Austin real estate is ripe for a fall.

I actually think it's the opposite. Certain areas of Houston are the bargain if you can handle a little more humidity and a larger metro area. People like my wife are afraid to live in Houston because of weather events like Hurricane Katrina. Austin is just more in line what we are used to with San Diego. But, I would count on those nice areas of Houston "catching up" with Austin, not the other way around. Areas like Mid-town/Montrose already have caught up to a certain extent.

[loves2read]

This is little off the topic but saw a show on HGTV that was First Time Buyer series--
young woman moving from San Francisco Ca where housing was too expensive--took job transfer to Austin just to be able to buy a home--
spent (from what you were shown) two days on separate trips looking at property --which I know is due to time constraints of the show--and saw two houses--
this is where the logic of her choice breaks down to me--
one house was in Round Rock--had a pool with some yard left over--4/2 two story that looked to be in good shape with upgrades like granite in kitchen and master bath at least--
house was priced at 275k--she offered 241--they countered with 274 and she did not respond

next trip she went to suburb in north Austin--new construction--smaller house with 3/2 and no pool--
house was more expensive per sq ft but the salesperson for builder was willing to come down on price 3K and play for 5K in closing costs--so house was about 251 w/ no pool
which she said she would install w/in 7 mo and would likely cost 40K

just showed all the wrong ways to buy a house if you are moving in from out of town (or even if you live in area)

[jobert]

Originally Posted by irishlover

We've been looking at homes in Austin and Houston in comparable neighborhoods and have been shocked by the prices in Austin...sometimes we've come across nearly identical homes in nearly identical neighborhoods with good schools in both places that are twice the price. Even taking the Austin "cool" factor into account doesn't explain this to me. I think Austin real estate is ripe for a fall.

I respectfully disagree.

The ratio of average property value income/average household income in Austin as of 2010 = 3.3

This is not exorbitant by any means considering the U.S. national avg hovers around 3.0

Some areas have lower ratios, such as Saginaw MI (1.9) and some areas are obviously not sustainable, such as San Francisco (around 7.1).

The question is not whether it's worth it, but rather if you should rent or buy. You say it's too expensive? Then rent.. it's an accurate/real time assessment of what property is worth.