Bill Morris on Austin Real Estate
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Affordability and Austin-area schools
I have commented previously on housing affordability issues in the Austin area. Not only do rising home prices in the city of Austin cause urban sprawl and exacerbate transportation/mobility issues throughout the region, but they are also contributing to an ongoing loss of students in Austin ISD:
Austin school district enrollment tumbles by 1,600 students, as adjacent districts grow
Readers who follow me here know that this kind of story makes me wonder about more specifics, and this one does just that. As a key point of reference, note that according to MLS data, the median price of a single-family home in the five-county Austin Metropolitan Area at this point in 2018 is $315,000. There are ten school districts with median home prices below that level:
In-demand Leander ISD is a little higher than the Metro median, but Austin ISD is $84,000 — 26% — higher at $399,000!
ACS data shows metro area median household income at $73,800 in 2017. For discussion’s sake, assume it has increased to $75,000 in 2018. With 10% down and reasonable assumptions about taxes and insurance premiums, the monthly payment at a price of $315,000 would be about $2,445, or about 39% of a median household’s monthly gross income. Generally, the median-priced home in the ten lowest-priced school districts should be affordable for a median-income household with little or no other debt. In Austin ISD, however, the median-priced home requires just under $100,000 annual income. Note that the definition of “median” is that 50% of all houses in Austin ISD require more that $100,000 household income.
As you might expect, migration toward the suburbs is putting pressure on home prices there as well. Look at the rate of price change over the past five years:
There’s not a perfect correlation, but the lowest-priced school districts are generally experiencing the most dramatic increase in home prices, from just under 40% in Round Rock, Lago Vista, and Leander to almost 85% in Del Valle ISD!
Ultimately, where we can afford to live is a function of housing and transportation/commuting costs. As Austinites move farther from the city, their commuting costs generally increase. The combined cost of housing and transportation will ultimately impose a real limit on how much sprawl we can sustain. In the meantime, hollowing out Austin ISD is impacting the region’s largest school district in very detrimental ways.
The city of Austin has talked for years about land use policies aimed at creating activity centers around the city where at least some residents can live, work, and play, and which will concentrate enough of our growing population to make a function transit system at least possible. In addition, Austin voters recently approved $250,000 in bond debt that will be used to address the city’s affordability issues more directly. The issue is a regional one, however. Central Texas remains an attractive place to live and to visit. Let’s do everything we can to keep it that way.
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I offered some thoughts yesterday about where we are in the current market cycle. For a broader view of the Austin-Central Texas residential real estate market, this post will cover my ongoing Market Dashboard, now updated through 3rd Quarter 2018.
First, Trends to Watch commented on listing inventory. Here’s the big picture since near the end of the last market cycle:
Most market analysts consider 6 to 6 1/2 months’ supply to represent “normal” or “balanced” market conditions. Notice how long our local market inventory has been at or below half of that level. Listing inventory in September was 3.0 months, unchanged from August and the same as September 2017. Seasonal performance looks very much like each year since 2014.
My earlier post also discussed market absorption — i.e., the “odds of selling” for an active listing each month. For historical perspective, this chart clearly shows how different this market cycle has been from all others in almost 30 years:
The steep decline from 46% to 31% between May and September is noticeable. As I said earlier, though, one data point is not a trend. This metric will bear watching in the coming months.
Finally, I wrote previously about the slowing pace of year-over-year price appreciation, but the view of actual average and median prices is important:
Notice that very strong demand has pulled prices upward and above the long-term trendline in recent years, most noticeably since 2015. Prices have moved closer to the trendline since June, which hasn’t been unusual in recent years, but it is more noticeable and coincides with the decline with the decline in “odds of selling.” Again, there isn’t enough data here to state with certainty whether this is the beginning of a market transition or just typical seasonality.
Market economists remain confident in our strong market conditions through 2019 and into 2020, and I agree. Inevitably, however, we will see prices moderate, interest rates increase, “days on market” grow, and inventory will begin to catch up with demand. I don’t see signs right now of a sharp change but instead anticipate a fairly smooth transition. Of course, external factors that we don’t know about today could change that, but that’s another post for another time, if needed.
