What really is the current state of the Austin real estate market?
Jed Kolko is the chief economist for Trulia, one of the nation’s largest real estate search websites. Dr. Kolko has a Ph.D. in Economics from Harvard University and more than 15 in research and economic development. Needless to say, his most recent statements about Austin’s real estate market got our attention.
The Following is an excerpt from the original article, which can be found here:
“Trulia’s Bubble Watch shows whether home prices are overvalued or undervalued relative to their fundamental value by comparing prices today with historical prices, incomes, and rents. The more prices are overvalued relative to fundamentals, the closer we are to a housing bubble – and the bigger the risk of a price crash. Sharply rising prices aren’t necessarily a sign of a bubble. By definition, a bubble develops when prices look high relative to fundamentals…The most overvalued market is now Austin, at 19%, followed by the California metros of Los Angeles, Orange County, San Francisco, and Riverside-San Bernardino. The California metros on the top-10 list were all significantly overvalued during the past bubble, ranging from 46% overvalued in San Francisco to a dizzying 87% in Riverside-San Bernardino. By contrast, Austin and Houston are the only metros out of the 100 largest that look more overvalued today than in 2006. Texas markets avoided the worst of the housing bubble during the past decade. Recently, they’ve had double-digit home-price increases.”
What exactly is a real estate bubble?
A real estate bubble is characterized by quickly increasing property values that is followed by a decline in property value. The force that causes the bubble to burst is when excessive risk-taking on both the buying and selling side begins to populate the market. This happens while the supply of housing is still increasing. In short, demand decreases while supply increases, resulting in a fall in prices.
An important principle to understand is mean reversion, which is the theory that prices and returns eventually move back towards the mean or average. It is widely known that real estate markets are not subject to the same economic bubbles as some of the other bigger industries, however it is still important to understand that housing bubbles do exist.
What does this mean if you are looking to buy or sell in the Austin market?
It’s likely that prices may rise slower or remain stagnant in some areas (and some areas may even see a retraction in prices) to allow for a stabilization. What’s important to remember is that real estate is local and certain areas of the Austin Metro behave differently than others and are much more resistant to price fluctuations. It’s always useful to have an experienced real estate agent review and understand your individual buying and selling needs to help position you for success. Keep in mind there are many indicators that point to Austin’s continued growth including an extremely low unemployment rate and the number of businesses that are expanding in the area. A historically low interest rate environment is still keeping it extremely affordable to purchase a home even with appreciating prices.
To summarize, we are bullish on Austin’s real estate market, but agree that everyone should examine their real estate strategy and needs with the help of a professional that knows their market. We are here to answer your questions and help you determine if buying or selling now is right for you. Don’t hesitate to call or email, we look forward to identifying the best course of action with you.
There are many great Austin area homes for sale. Click here to perform a full home search, or if you’re thinking of selling your home, click here for a FREE Home Price Evaluation so you know what buyers will pay for your home in today’s market.
You may also call us at (512) 537-6739 for a FREE home buying or selling consultation, so that we may answer any of your real estate questions.