Housing shortage may cause home values to rise by 2011
Friday, 27 February 2009
While many homeowners across the country have watched the values of their homes plummet, the Central Texas real estate market has fared much better. Economic forecasters are now saying a housing shortage will cause Austin's home values to increase drastically within the next two years.
With the relatively healthy local economy encouraging continued migration to Austin and homebuilders slowing or halting many new projects, economic forecaster Angelos Angelou said demand will soon exceed supply.
"My fear is that national developers may have overreacted and Austin may be penalized in the form of lower home starts, which can eventually create an artificial shortage," Angelou said.
Angelou estimates newcomers move to Austin at a rate of approximately 42,000 a year. Those newcomers, coupled with the decrease in home starts — or new homes under construction — may lead to a shortage over the next few years, he said.
"Three years ago we were building new homes at a rate of about 18,000 a year, and last year we only built 8,100 housing units. This year we anticipate even lower: 6,000 or so units. That's not enough," Angelou said. "The ideal number of home starts for Austin is 11,000."
The largest decline in home starts in Austin has been in the $200,000 and under price range since fourth quarter 2006, according to data from housing data analysis firm MetroStudy.
"Capital constraints faced by builders and the tightening in credit for buyers played large roles in this decline," said Eldon Rude, director of MetroStudy's Austin division. "While starts of homes priced below $200,000 will likely continue to slow in 2009, most of the decrease in activity will be in the higher price points."
Wait, wait — don't sell me
Angelou said that now is an ideal time to buy, but those thinking of selling should wait for the housing shortage.
"You don't want to be selling now. This is not a seller's market at all; it's a buyer's market," he said. "I would not even think of selling a house until two years from now, at least."
If homeowners must sell, Angelou advises they consider renting their house out for the near future, as the rental market remains stable, and use that money to help cover the payments on a new home.
"If you're buying, now is the best opportunity to buy," he said. "I wouldn't wait for the market to go down any further, necessarily, because the minute it goes down further and the credit market is unfrozen, then a lot of people are going to jump in it."
RE/MAX real estate consultant Shara Parker said, thanks to lower interest rates and home prices, selling now can be a viable option, depending on the move a seller is looking to make.
"It is an excellent time to sell if you're going to move up. If you're buying more equity for a higher-priced home, then you're cutting your losses," Parker said. "And if you're looking to buy, absolutely, you need to go ahead and buy."
But being a buyer's market does not mean property in the booming 78749 ZIP code, ranked the second fastest selling ZIP code in the country late last year by BusinessWeek magazine, is going to come cheap.
"It's a little different here," Parker said. "I think a lot of people get confused with the national news. A big challenge that we face is that the buyers come in and think they can buy a house in this area for pennies on the dollar."
The drop in home values in some parts of town has put more homes within the average buyer's price range, but Parker said at the same time it has become harder to get credit.
"The guidelines have tightened so much now that even A+ credit buyers are challenged," she said. "I don't think it can get any tighter than it already is."
The psychology of a recession
Despite Austin's high-tech reputation, Angelou said it works to the city's advantage that not all of the local economy is tied into the technology industry.
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"When 25 percent of your economy is the government, another 25 percent is professional services and another 20 percent is retail trade, 70 percent of Austin's economy has nothing to do with technology and is fairly stable, with the exception of retail," he said.
Pointing to 2010 as a likely date for economic recovery, Angelou said 2009 may be a rough year, and as more people are out of work, the more pessimistic the national picture will become.
"The psychology of the market is very important. If you expect that the economy is going to get better, it instantly gets better. But we're going to see massive layoffs in Austin, and I say ‘massive' by Austin standards," he said. "The unemployment rate will exceed historical highs: 6.5 percent. The national unemployment rate will go higher than 9 or 10 percent."
Last one in, first one out
The oft-repeated conventional wisdom that "Texas is the last one in a recession and the first one out" may have been true in the past, but Angelou said the stakes are higher now than during previous economic rough patches.
"There may be a difference here, because this is no longer a real estate and housing bubble — this is the collapse of the U.S. economy including technology," he said. "When we're hit by both a real estate-led recession, as well as the high-tech recession, it may be that we may not come out as soon as we anticipate."
Angelou said the good news is Austin home values have never appreciated to the degree national values have.
"[Values] are not likely to go down as much as they have nationally," he said. "But we're not immune from the national cycle, so we're seeing the impact."
Rude said job losses, the credit crisis and uncertainty about how much the national economic stimulus package will help housing markets make it difficult for MetroStudy to predict when the housing industry will stabilize or recover.
"When conditions do improve nationally, Austin will be well-positioned for a rebound because the overall inventory levels are low," Rude said. "At this point, the most significant variable impacting local demand for housing is depressed consumer confidence. When consumer confidence returns, possibly in 2010, home production will gain momentum."
In anticipation of the economy's recovery, Angelou said many who have lost their jobs in smaller markets will move to Austin and other areas like it.
"In a way we're kind of blessed that we have a housing market that has a lot of challenges, but nowhere near what those challenges might be elsewhere," he said. "[The housing] market will very quickly recover."
Source: Community Impact News