When Win Butler, lead singer for the indie rock band Arcade Fire, took the outdoor stage at the recent Austin City Limits Music Festival in Texas, he told the audience, "I don’t know if we’ve ever prayed for rain before at a festival, but we are this time."
The sentiment is an entirely serious one in Austin, where a long-running drought, followed by literally thousands of wildfires, has cast an economic shadow in a region that hasn’t had a whole lot to be anxious about in recent years.
"Thriving" is a word commonly associated with the city. While most of the country has wrestled with recession, job losses and housing angst, Austin — along with the rest of Central Texas and even the state as a whole — has been riding a wave of economic well-being. Companies are hiring. The population is growing. And real estate — if not exactly booming — is stable.
"We’re in a good place," said Mark Sprague, director of business development for Mission Mortgage in Austin, in a forecast to a group of real estate and lending professionals in August. Sprague said the local housing market had bottomed out, and that the economy is outperforming the nation as a whole on several fronts, according to coverage of his speech by the Austin American-Statesman.
Examples of those robust fronts:
- the Rice University Kinder Institute for Urban Research in July placed Austin as the 11 th fastest-growing city nationwide by having added nearly half a million residents in the past decade, and predicted the metro would add 6,000 residents just between July and August of this year;
- the Federal Reserve Bank of Dallas has predicted that the metro area would add 7,000 to 11,000 jobs in 2011; and
- the city of Austin this year earned AAA ratings on its bonds from the three leading ratings agencies.
Besides being a hub for health care and pharmaceutical companies and a history that long has been built on cattle and agriculture, some of the "why" behind Austin’s growth stems from the double presence of the state government and the 50,000-student campus of the University of Texas. Both are major employers, and the university churns out large numbers of well-educated graduates each year.
Those graduates (in addition to local venture-capital funding) have helped turn Austin into a technology hub in recent years. Dell Inc. is possibly the best-known tech firm based there, but the list is certainly growing. Online document provider LegalZoom; Coremetrics, a unit of IBM; Facebook; Samsung; Web-hosting firm HostGator; and eBay all have operations there, in addition to dozens of startups.
The supply of trained tech workers, however, isn’t keeping up with local demand: Execs from 30 area high-tech companies went on a collective recruiting trip to Northern California in September.
Locals make no secret of aspiring to be the "next Silicon Valley," with Austin’s image aided in no small measure by the annual Southwest Interactive component of Austin’s South by Southwest annual festivals of film, music and technology.
Forbes magazine recently opined that Austin has a secret weapon in this quest: California-like ambiance at a fraction of the cost. Known for its "Keep Austin Weird" movement that promotes a bohemian (by Texas standards, anyway) lifestyle supplemented by a renowned music scene, Austin also has at least one thing that Northern California lacks — housing costs that don’t break the bank.
The Austin Board of Realtors reported a median home-sale price in August of $200,000; the average price, it said, was $261,273. Those prices are essentially unchanged from August, 2010, testament to a comparatively stable market. The Austin Realtors reported the average number of days on market for single-family homes was 79 in August; pending sales for single-families were up 19 percent, year over year.
Despite all the generally positive economic activity, however, some worries began to emerge this summer.
Several economists reported that the sagging national economy had begun a downward pull on Texas. Although year-over-year job growth remained positive, the state’s employment remained flat most of the summer, according to the Texas Workforce Commission, a state agency.
In June, the government and private sectors lost 1,1000 and 1,600 jobs, respectively, the commission said. In August, it reported that the government sector had shed 600 jobs in Austin; the government accounts for 22 percent of jobs in Central Texas.
At about the same time, the heat and drought rolled in, followed by the wildfires.
As of Sept. 18, the Austin-Mabry area had seen 85 100-degree days this year, setting a record, according to federal reports. The accompanying drought — about 8 inches of rain, less than half the annual norm — took a devastating toll on agriculture statewide, to the tune of $5 billion, according to researchers at Texas A&M University. It has taken with it half of the state’s cotton crop and the entire hay crop, and cattle ranchers, unable to support their herds, are selling them off. The dryness also bodes ill for winter-wheat production.
Then came the fires — more than 21,900 of them, Texas-wide, burning through 3.7 million acres, according to the Texas Forest Service. Forestry losses amounted to the tens of millions of dollars, and the fires took out more than 2,600 Texas homes — about 1,500 of them in the so-called Bastrop fire, near Austin, which burned through 33,000 acres in early September. Two people died in the Bastrop fire.
But after the immediate tragedy subsides, the region will rebuild, according to observers in the real estate industry.
"The demand created by the destruction of 1,500 homes in Bastrop alone will be very noticeable — it roughly equates to 12 percent of our inventory in our regional (multiple listing service)," according to Sharon Stanberry Rosshirt, president of Stanberry & Associates, a brokerage in Austin.
"We expect that some of the displaced homeowners and renters will rebuild in Bastrop, and others will move away from what promises to be a chaotic scene for some time," she said in response to an inquiry from Inman News. "Many may take insurance settlements and start fresh elsewhere, but we expect the moves to be within Bastrop County or nearby communities in Central Texas.
"Rental properties in the area are being scooped up, and there was not much inventory available before the fire," she said. "There will be lots of work for people involved in removal of debris, construction and building, and selling real estate."
Austin Real Estate Market Data
|Population||790,390 (2010 Census)|
|Population growth (2000-10)||20% (Census)|
|Total closed sales (2010)||17,905 (Austin Board of Realtors)|
|% change closed single-family sales (August 2010 to August 2011)||+33% (Austin Board of Realtors)|
|Single-family median sales price (August 2011)||$200,000 (Austin Board of Realtors)|
|% change in median sales price (August 2011 vs. August 2010)||Unchanged (Austin Board of Realtors)|
|Foreclosure filings rate (August 2011)||1 in every 821 housing units (RealtyTrac)|
|% of sales distressed (Q2 2011)||12%|
|% of homes affordable to median-income households (Q2 2011)||71.5 (Wells Fargo/NAHB)|
|Austin-Round Rock-San Marcos metro unemployment rate||7.1% (Bureau of Labor Statistics, September 2011)|
|Rent vs. buy ratio (July 2011)||16 (Trulia)|
Sources: U.S. Bureau of Labor Statistics, Trulia, RealtyTrac, Walk Score, National Association of Home Builders/Wells Fargo, U.S. Census Bureau, Zillow.com, Austin Board of Realtors.
Inman News reached out to Austin-area real estate agents to get their views of the housing market
Q: What types of properties are selling fastest/slowest in your market area, and why?
Austin Board of Realtors
"Buyers who qualify for lending are looking for homes that really shine. Property owners who have spent time preparing their homes to sell are seeing offers."
J.B. Goodwin, Realtors
"The Austin market, in both the sales and leasing categories, is experiencing a shortage of properties. Sales inventory, area-wide, is at a 6.5-month supply, down from 6.9 months in June; total leasing inventory is down 30 percent from a year ago. The fires have added an immediate 1,500-plus households in need of housing, and as insurers release vouchers to the victims of the fires, they will be in search of housing."
Re/Max Austin Skyline
"Houses in the outlying areas are selling fastest — Lakeway, Bee Cave, Cedar Park, and Round Rock. Austin is still selling in popular neighborhoods, and under $300,000, but the suburbs are where my buyers are looking, and price doesn’t matter. The areas that are selling slowest are the southwest areas like Dripping Springs and Spicewood."
Stanberry & Associates Realtors
Bastrop County Association of Realtors
"The rental market has gone crazy — they are gone as soon as they become available. Homes in the range of $100,000 to $150,000 are moving fast for those who have the means available to buy quickly, and then resell later or turn the properties into rentals in one or two years."
Cantera Real Estate
"Homes in need of updating are not selling because buyers have so many choices. Modern and contemporary homes close to downtown are selling quickly."
Sharon Stanberry Rosshirt
Stanberry & Associates Realtors
"Properties that are priced impeccably are selling now, regardless of the price stratum. The market is very sensitive to appropriate pricing because buyers have enough choices and enough skittishness to only choose the best opportunities. Luxury homes have been popular with buyers coming into the state, and many of these are cash buyers.
"Sales of starter homes have been hampered by credit. We are developing pent-up demand from people waiting for improvement in the market before they buy or sell."
Century 21 HSK & Associates
"We are seeing that buyers have a sense that they’re able to be picky and take their time. Regardless of price bracket, the homes in great shape are selling very well.
Q: Is anything changing about the profiles of buyers/sellers in your market area?
BUNDSCHUH: Today’s buyers are purchasing homes due to a present need rather than sheer want. For instance, much of the leasing inventory in the greater Austin area is moving quickly. Because there’s not an influx of property rentals available, consumer choices are limited.
Leasing tenants sometimes opt to purchase a home because that property type offers more options. Of course, credit scoring is much higher than it used to be — if specific lending criteria are not met, prospective buyers cannot secure loans.
HARRIS: The main profile for my buyers is relocation. They’re coming here because of work, or they’re coming here because they’ve retired and Austin was recommended.
LOPEZ: Sellers are whose who had intentions of leaving prior to the fires and now have more motivation to sell because demand has gone up. Buyers are those who are homeless and need a place immediately.
OLENBUSH: We have more people paying cash than I can ever remember. Buyers have said they would rather have their money in Austin real estate than in the stock market.
ROSSHIRT: We have a high percentage of Baby Boomers in the area, nicely balanced with a younger crowd. The boomers are looking for less space, with all the upscale features — the "jewel box" homes — and security is an important feature for that group. We have a good second-home market, because many affluent buyers want a place in Austin to work or play.
Q: Are you seeing any change in the market share of short-sale properties or REO properties?
BUNDSCHUH: The number of short-sale properties can differ greatly from area to area. Foreclosures in Central Texas have declined about 6 percent compared to last year. Overall, Austin ranks 96th in foreclosure rates when compared to the nation’s top 206 metropolitan areas.
GUERRERO: Compared to other areas of the nation, Texas’ distressed properties have been manageable and have been absorbed into local inventory.
HARRIS: In my main area, west of Austin in the Lakeway-Bee Cave area, there are only two foreclosures total, and one short sale, the last time I looked, a few days ago. I do see a few foreclosures and short sales in the northern suburbs, but the vast majority are in the lower price points.
ROSSHIRT: REO (real estate owned) properties have been running about 20 percent of all closed transactions throughout this year. We expect that to remain about the same for the next six to 12 months. REO properties will need to be cleared off lenders’ books, which makes it seem likely they will be a larger factor in future sales.
Q: What worries you most about the current state of the market? What represents a sign of optimism/opportunity?
BUNDSCHUH: A lack of consumer confidence worries me. There’s a concern that banks are holding a lot of shadow inventory, and fear of the unknown could be negatively impacting the housing market. On the other hand, investors are seizing the opportunity to buy property in Central Texas. They know it’s a great time to buy because Austin could be at the bottom of the cycle. Rental rates are strong and buyers can get a great deal on homes.
HARRIS: What worries me most are the people who listen to the national news and not the local news. I tried to point that out to a buyer, who had decided to wait a couple of years to buy, that Austin was ranked at the top for best economy and in the top 10 for boomers, (along with) many other awards for the Austin market, and all she wanted was to quote back the national information. Signs of opportunity are the people who are rushing to relocate here, and all the companies that have recently relocated here.
OLENBUSH: My concerns are for the nation as a whole and not for Austin. Our city has relatively low unemployment, healthy job growth, and lots of buzz.
ROSSHIRT: What worries me the most is the difficulty of obtaining loans, even for qualified buyers, and the insecurity felt by investors who can afford to invest but hold back because of the roller-coaster reviews of the economy. Optimism comes from the economic vibrancy we have seen for so many years thanks to our diverse employment base with the University of Texas, the state government, Dell, and other high-tech manufacturing. We have not had depreciation in the average price of homes during the past four years that wounded many markets across the nation.
STRIBLING: What concerns me most about the greater state of the market is the potential for lot shortage. We’re still one of the destinations that people around the country want to move to, and my concern is that this future influx will lead to a boom that might seem good, but ultimately leads to inflation and an accelerated increase in home prices.
Q: Where are sellers moving to, and where are the buyers moving from in your market area? Does this represent a change?
BUNDSCHUH: The sellers I’m working with are moving to other areas of Austin, while buyers are coming from Dallas, Houston, and many cities throughout California. The availability of jobs is drawing people.
GUERRERO: Buyers are from all over the country. High-tech employers are making recruiting trips to California to bring in additional employees as our homegrown labor pool has been exhausted.
HARRIS: About half of my sellers are moving out of the area, like to Washington, D.C., and the Carolinas. Some have come from South Austin to move into Lakeway and Bee Cave. Most of my buyers are coming from California and the Midwest.
ROSSHIRT: We do not have a lot of out-migration right now. Buyers are coming from all over the U.S., including a large percentage from California, but many are moving from other metropolitan areas within Texas. There is actually a fair and close-to-even exchange of residents between major Texas metros that happens all the time; this exchange represents a slight net growth for Austin, particularly from Houston.
Q: How have you changed your business to mirror the market and to capitalize on market trends?
GUERRERO: I have many investors as clients and am targeting that market more heavily. The leasing market is currently a high-demand area, with excellent return opportunities, and for the savvy investor it’s a good time to increase … property portfolios. I’m also targeting the first-time-buyer niche: The low interest rates continue to drive that section of the market.
HARRIS: The main thing I’ve changed is to give myself more of an Internet presence, showing people more local events and activities. I do this because with all of the relocation buyers I’m working with, they always end up searching for things to do in the Austin area and — voila — my name is plastered on many of those activities and events.
ROSSHIRT: We were able to use Facebook and our RealEstateinBastrop.com blog to push out helpful emergency information to people in Bastrop County (during the wildfires). It was helpful because many of the evacuees did not get out with computers, but their smartphones gave them access to that type of information.
We posted about where to take animals being evacuated, where to take donations of food and water, how to link of with an adopt-a-family program, etc.
Q: What are some overall economic trends you’re seeing in your market area that will guide the real estate market?
BUNDSCHUH: There is a record-high occupancy rate in rental properties in Austin right now, which makes housing a more attractive option for potential buyers. However, there are several apartment building projects under development that may affect the demand for lease properties.
GUERRERO: Locally and statewide, jobs continue to drive the influx of new citizens. This is a fantastic driver for our sales and leasing departments.
LOPEZ: Prior to the fire, the market had become slow. Homes in the moderate range were not moving quickly, but those with some acreage did seem to have good activity levels.
OLENBUSH: The housing market in Austin should continue to outperform the nation due to our higher job growth and lower unemployment. People are following the jobs to Austin, and they all need a place to live.
ROSSHIRT: We’re seeing more demand for more energy-efficient construction methods. Smart-growth principles of denser building and more public transportation methods are trends we are seeing being rewarded with buyer demand. We have a rapidly growing Hispanic population placing demands on all service providers to accommodate (their) needs.
STRIBLING: When we recover fully from this economic slump, Austin will be one of the top locations in the United States to move to. The communities north of Austin, such as Round Rock and Georgetown. are still experiencing tremendous growth and are incredibly attractive because of the lifestyle they afford.
Q: Any other big changes you’re seeing?
BUNDSCHUH: Surprisingly, a lot of buyers are paying cash. Perhaps they don’t want to hassle with the lending standards.
HARRIS: The areas that I mainly work are selling rather well, much quicker than the Austin average, and many are selling at 97 to 98 percent of the asking price — none of this "Barbara Corcoran stuff" of submitting offers for 20 to 30 percent off the list price. You’ll be laughed at in this market, unless the property is grossly overpriced, which you don’t see very much any more.
STRIBLING: We are seeing enormous interest in securing lots from builders. That’s based on two things, primarily: a forecasted shortfall based on demand, and water-rights issues forcing development into certain areas based on who has water and who doesn’t.