More on Austin-area prices and affordability

Following up on recent posts about rising home prices in Austin and Central Texas (Home prices are up …, most recently), more direct discussion of affordability is in order.  As a starting point, this chart from the National Association of REALTORS® (NAR), with one added data point, provides some national perspective:

Clearly, the Austin metropolitan area isn’t the highest priced market in the United States, nor is it the lowest.  But prices have been rising over the past couple of years, and concerns about ongoing affordability are well-founded.  Still is this the most over-priced real estate market in the country as one industry media source stated recently?

How much do homes really cost here?  Here’s a comparison of the city of Austin and major nearby suburbs:

Even in the metro area, the city itself doesn’t have the highest average and median prices.  That position is occupied by neighborhoods around the close-by south shore of Lake Travis.  At the other end of the market, there are six suburban cities with average and median home prices at or below $200,000 — far from exorbitant.

And how about the city of Austin?

The labels along the X-axis of that chart are “MLS Areas” as defined by the Austin Board of REALTORS®.  As you might expect, the highest priced homes are closest to the central city and near Lake Austin and Lake Travis.  (See map.)  Even in the city, though, there are market areas with average and median prices around $200,000 and less.

So, what about affordability?  Of course, living affordably is about more than home prices, but NAR provides a useful tool for comparing cities, taking into account home prices and household income, the Housing Affordability Index.  The HAI is the ratio of median income to the income required to qualify for a 20%-down fixed rate mortgage for a median-priced home.  A higher HAI indicates a more affordable market than a lower HAI.  With that in mind, here is a sampling of major cities from around the country:

I added population and population growth to help in making comparisons.  Among these cities, the Austin metro is near the middle of the pack in terms of affordability, and just a bit more affordable than the national average.  Both Austin and the U.S. average HAI have lost ground in the past two years, and at nearly the same pace.  An important difference is the very strong demand for Austin-area housing — population growth in Austin about 30% higher than the second fastest-growing metro in this sample, and nearly 14-times the national change in population.  I commented on this in Case-Shiller and Market Bubbles a few days ago, and it is important to consider supply-and-demand market dynamics in judging price appreciation.

Workforce housing in and near central Austin is a real, and growing, issue, and local governments are working to mitigate the problem.  With rapid job creation and population growth, turning the tide will be difficult or impossible, but affordable housing is available nearby.  In any discussion of “over-priced” housing, an important threshold question is, “Compared to what?”