National Real Estate Trends Affect Georgetown, Austin Markets

Between the Fed’s Beige Book release last week, the Mortgage Bankers Association Annual Convention this week, the release of the Land Institute’s Emerging Trends in Real Estate on Wednesday and all the buzz about Texas as an overvalued housing market, I thought it was a good time to look at all of this national and state level information and discuss what it means for the local housing market in the Greater Austin Area.

With all of the information available to us today, it can be hard to make sense of what it means, especially on a local level. Real estate is above all, a local activity, and while national numbers can tell us what’s going on in the aggregate, they won’t always help you make real life decisions in real time to meet your consumption or investment needs today. That said, national events certainly affect local markets, and it is important to keep in mind what is happening at both a national and local level when trying to make sense of the housing market.

So what can we expect in the Greater Austin Area’s housing market in coming months? Are we experiencing a bubble? Is it a good time to buy? Sell? Let’s look at some key indicators to get a clearer picture.





The labor market can tell us a lot about the real estate market. Why? When people aren’t working, they aren’t earning, when they aren’t earning, they aren’t buying. This applies to both would be first time home owners as well as people who would like to buy larger homes to accommodate their growing families, but are not earning enough to support the move up. On a national level, unemployment is at 5.9% while unemployment in Texas is 5.2% and unemployment in the Greater Austin area is down to 4.6% (4.7% in Williamson County), or back down to the late 2008 unemployment rate. The lower unemployment rate is generally a good sign for real estate and Austin’s unemployment rate is the envy of much the nation. However, before we can draw any conclusions about the health of the labor market, we need to look at the Labor Force Participation Rate. While unemployment measures the number of people unemployed against those who are currently looking for work, the labor force participation rate measures the number of people participating in the labor market versus the entire population. The national labor force participation rate fell to 62.7% in September and is predicted by the Bureau of Labor Statistics to continue to fall in the foreseeable future (they have predicted out to the year 2022). Texas, on the other hand, has had a fairly stable labor force participation rate since 2007, or through the recession, and remains fairly stable still at 65.2%.

A national decreasing labor force participation rate is a concern, especially since it doesn’t appear to be caused by retirement. In fact, the data suggests that less people 55+ are retiring, or in other words the labor force participation rate is actually increasing for ages 55 and up. The rate is decreasing for younger age groups suggesting that people are dropping out of the labor pool for reasons other than retirement. Due to the relatively stable labor force participation rate in Texas overall, this is less of a concern and will affect our local markets less severely.

The Effect of Real Income

People who don’t make a living wage can’t buy houses. The annual mean wage in Texas is $44,400, but the average home price in Austin is well over $200,000. The low supply of affordable housing for first time homebuyers can definitely create a problem in the marketplace. As Austin attracts companies that pay higher wages and provide more high paying jobs, the annual mean wage should rise. In fact, it is on the rise for Austin and for Texas as a whole. Faster growth in real income should equal a healthier housing market for first time homebuyers. However, if prices don’t fall, many lower income families will remain priced out of the market.

Cost of Money – Mortgage Rates

Thirty (30) year fixed mortgage rates are down to 3.9% which is good, but 3.9% is still higher than where things were early last year. With lots of news coming out of the Mortgage Bankers Association Annual Convention, rates seem poised to fall even further. Confusing and vague regulatory rules that tightened lending have been clarified at the convention which should ease banks fears of lending. This has also paved the way for lower down payments for credit worthy borrowers which will help create more demand with first time homebuyers who might have trouble coming up with cash for a 20% down payment. Credit scores were also discussed at the convention, but no new regulations suggest a loosening there.

Bubble vs. Basics

In Texas, and more specifically in the Greater Austin Area, with a falling unemployment rate, steady labor force participation rate, rising real income, and falling mortgage as well as down payment rates, the stage is set for a healthy housing market, so why has there been so much talk of a ‘housing bubble’ in the Austin area? Prices. Austin has made headlines recently as one of the top overvalued real estate markets in the U.S. and homes here are currently priced well above historical levels. The question is, why? Claims that Austin homes are overvalued and have created a housing bubble stem mostly from fears that the overvaluation is due to speculation and not real market forces. This is a valid concern – heck, nobody likes a bubble in the market - but data suggests that Austin’s current, historically high, prices are due not to speculation but rather to a simple economic principal at play: supply and demand. Low unemployment, rising real income, and available jobs are a few of the reasons why Austin area property is such a hot commodity right now. In other words: Demand. Basic economic principles tell us that all else constant, when demand increases, prices will increase. But demand isn’t the only thing at work in the Austin area equation. Supply is also affecting the price. As noted by Texas A&M researcher, homebuilders in the Austin area are not able to keep up with demand due to limited access to labor and land. Renters are willing to pay higher and higher rents because they can’t find housing anywhere close to their price range, driving investment property values up higher and higher. Currently, the Austin area has three (3) months of resale and new construction inventory. According to economist Mark Sprague, six (6) months of inventory would be considered market equilibrium between the sellers and buyers markets. Austin currently has only half the supply required to reach equilibrium, and a cooler housing market. Until supply can catch up or demand decreases, low supply of housing inventory will keep prices naturally high.

Austin has made some other headlines this week, namely its appearance in the new release of the Urban Institute’s Emerging Trends in Real Estate. Austin was ranked number one (1) for home building and number two (2) for Investment. A great outlook for such a fine region!

If you have questions, please feel free to call the Russ Phillips Team. We specialize in Georgetown TX Homes for Sale and real estate throughout the greater Austin region.

We can help you make sense of the market and how market forces at play might affect you and your home. Ready to invest in real estate? We can help you with that too!