Austin, TX - Bubble or Boom?

Question

I get asked by my clients everyday, is Austin, TX market a bubble or will it continue to boom?

The white-hot housing market in the Austin area continues to blaze, with the median sale prices for homes hitting all-time highs in June — and real estate experts say that even as demand soars, the region is showing no warning signs that it's experiencing a housing bubble that is at risk of bursting.

I purchase a house in Leander back in September, and rented it for $3,300 this month in 48 hours.  It’s not just Austin, but a lot of parts of surrounding areas are booming just as much.  What are your thoughts?

Danny Webber · Answer

We are in a bubble and boom wrapped in a tortilla!

Aaron Gordy · Answer

@Stephen Stokes What are the fundamentals? Is it employment? Unemployment?  Is it interest rates? Is it affordability? Is it labor costs? Lack of available skilled labor?  Scarcity of resources? Is it lack of skilled workers locally and some that are being nabbed at the border chasing a better life? Is it 2x4 prices going sky high?  I can go on and on. But one can simply boil it down to demand outstripping supply. Right now there is fiscal policy pushing out money at unprecedented levels. We also have monetary policy that is making money super cheap. Imo we are okay as the austin job machine keeps creating great paying jobs. The risk for entrepreneurs is very low now as business loans are cheap.

Even housing economists can't get it right. One can read studies such as this https://www.frbsf.org/economic... from the Federal Reserve in SF and try to glean some insight on short term bubbles.  Who knows? But when liquidity leaves the market or banks fall apart such as the Texas S&L crisis of the 80;s then we have real problems.  It's very interesting to see the developments in Austin during the 1980's. There are many apartment buildings that were built in the early to mid 1980s and then nothing. The building that the city owns that houses the permitting was a 1980s disaster that the city took over. The people that weren't well positioned got hurt. The people that were well positioned got rich.

Ryan Kelly · Answer

@Darshil Parikh I don't think we are in a bubble (that will pop), but I do think we're in a shift. I can make an argument that most appreciation this year has been front-loaded to the first half of 2021, with the second half starting to see some ceilings get reached. My personal opinion is I don't expect the rate of appreciation to continue moving forward as we shift back down to a 6-8% annual level. This would still be phenomenal, but nothing like we've seen the past 12 months. Only time will tell, but I'll be shocked if the pace of appreciation continues much longer. Post-COVID activity will start to shift with buyers as they start to commute and travel more, plus spend more money in other sectors of the economy.

Jordan Moorhead · Answer

Love that @Stephen Stokes. I think last year we had an irrational run based on fear and don't think we'll see the same rapid run up in the near future but even the historical appreciation of the last 25 years driven by business and population growth is good for me!

Stephen Stokes · Answer

@Darshil Parikh definitions usually help discern what is and what is not….

What Is a Bubble? (Investopedia)

A bubble is an economic cycle that is characterized by the rapid escalation of market value, particularly in the price of assets. This fast inflation is followed by a quick decrease in value, or a contraction, that is sometimes referred to as a "crash" or a "bubble burst."

Typically, a bubble is created by a surge in asset prices that is driven by exuberant market behavior. During a bubble, assets typically trade at a price, or within a price range, that greatly exceeds the asset's intrinsic value (the price does not align with the fundamentals of the asset).

Jaron Walling · Answer

@Darshil Parikh I think the fire going on in most popular markets is going to go out this year, but it's not a bubble. I also think we will have some foreclosures but nothing like 08'-12'. Austin has charm and it's a great tourist city. You guys have SXSW and Formula1 which attracts a lot of people.

Ryan Kelly · Answer

@Danny Webber sounds like we're in the "breakfast taco" market. I do love breakfast tacos!

Stephen Stokes · Answer

ok so now that we have a definition lets look at a few of the key fundamentals (facts not feelings):

Pricing:House prices in Dallas jumped 1.7% for the month and 13.4% year-over-year.https://wolfstreet.com/2021/05...

Employment:

15.4 million people are still claiming unemployment benefits

https://wolfstreet.com/2021/06...

Mortgage delinquency:

Delinquency rate of FHA mortgages rose to 17.5% in February, up from 17.0% in January and a 2019 average of 11%

https://wolfstreet.com/2021/03...

Austin, TX - Bubble or Boom?

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