Bill Morris on Austin Real Estate

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Market outlook – Austin area 2021

Earlier this week I attended an annual review and forecast by Mark Sprague of Independence Title. This post includes several of his slides, all of which originally included a attribution banner. In the interest of space, I’ll include that here:

I have known Mark for years and always enjoy and respect his work and his insights. Here are a few highlights from this recent presentation.

First, consider the very unusual year we’ve been through in 2020, maybe best viewed through the lens of jobs:

It shouldn’t be a surprise to anyone that this was by far the deepest employment recession we have seen in modern times. It may well turn out to be the shortest. About six months after the beginning of the recession the U.S. has recovered nearly half of the jobs lost in the first two months, but we have not yet returned even to the level that was the lowest point in the 2007 recession.

Against that backdrop Texas, and the Austin area specifically, are well-represented in Job Growth rankings:

Focusing on Texas unemployment, the picture is also positive:

Unemployment claims obviously spiked in the early months of the recession, but declined quickly, and for several months have been below the levels that followed Hurricane Harvey in 2017 and the 2007/2008 recession triggered by crisis in the mortgage industry.

Even in that relatively positive statewide environment, the Austin area has fared well:

The Austin metropolitan area has been blessed with huge demand to live here, and by a regional economy that has continued to create or import high-paying jobs. That is visible in home sales in 2020:

(NOTE: It wasn’t included in Mr. Sprague’s slides, but home sales in November 2020 were up significantly compared to the same month in 2019. See Inventory — Austin housing in 2020 for details, and for my thoughts on our supply challenges.)

Among many things that attract people here, there is an especially important factor that supports continued demand and job growth in the Austin area:

Employers in the information economy and other businesses that require “knowledge workers” are drawn here because of educational attainment, but also because our housing and cost of living is still attractive compared to the four metros that rank above us on this metric.

As I have commented frequently in recent years, housing affordability in the Austin area is challenged because we have been unable to generate enough supply to meet the tremendous demand. There is a bright spot on that front — not bright enough yet, but worth noting:

Yes … among the long list of metropolitan areas on that chart, the Austin area is the only one that has surpassed our last peak in permitting new residential construction. Faced with continued employment and population growth, housing supply will remain a critical challenge in the coming months and years, but progress by home builders is an important component.

Unlike other economists, Mark Sprague expects a “K-shaped” recovery for the current pandemic-driven economy. Mark, with apologies, I took the liberty of turning your description into a graphic but with attribution for the content:

Clearly, Austin’s regional economy includes people who will be included in both of the sectors described, but strength in the groups at the “top” of the K should benefit those at the “bottom” of the K. 2020 has been a real challenge for all, but I see reason for optimism in Mr. Sprague’s prediction.

This selection of charts and graphs omits a LOT of detail from Mr. Sprague’s hour-plus presentation, but I hope it’s helpful. I’ll end where Mark ended:

Be well, and look forward to a New Year in just a few weeks.