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Is The Austin Real Estate Market Overpriced?

Posted by Sharon Rosshirt on Monday, July 17th, 2017 at 8:00am.

This is a question we hear on a frequent basis, and there is evidence for the “yes” side of that argument. Prices for homes in Austin are rising. Appraisals on the sale of residential properties right now are consistently coming in lower than agreed upon sales prices.  Doesn’t that mean that the market is overheated?

We think the answer is no, and we’ll show you why.  We’ll also give you a tip on how to manage that, if you are a buyer concerned about being caught in a situation where you have to offer more to buy a home than the home is worth.

You may remember that Texas home prices appreciated more slowly than many other areas in the runup to the crash that came in late 2008.  We watched as prices in other states, particularly California, Nevada, and Florida zoomed up at unsustainable (but exciting!) high double-digit rates.  Texas, and Central Texas, clipped along at a modest 4-5% average increase.  Healthy.  Sustainable.

But, the Austin Board of Realtors just released March sales figures indicating a 10% appreciation rate, this March over last March!  Shouldn’t we be concerned?  Again, we say no, because if you look at the underlying market principles, everything is still solid, and still sustainable.

Austin’s Solid Foundation For Growth

The primary underlying fundamental for demand in a real estate market is always jobs; that drives demand and prices.  Texas is producing jobs at an outstanding rate, with unemployment at or below the national average for 99 consecutive months.  In the Austin metro area, we have UT as a job source, (and they are currently building the Dell Medical Complex, a new Engineering building, and a new business school building, all to both accommodate job growth and serve as sources for jobs.  Austin boasted the strongest expansion in tech sector employment of any of the nation’s 52 largest metro areas from 2004 to 2016. Entrepreneurship is rewarded and nurtured here.  People are moving here at an energetic rate, partly for quality of life reasons, but largely because there are jobs available, and the production of new jobs are expanding. Is all of this sustainable?  Most analysts think it is.

Some tech companies like Apple and Evernote are even moving whole divisions of their companies to Austin. An Apple office across from our Westlake office holds one of their finance divisions which they moved here wholesale from the bay area. So as some new people move here they are actually just migrating their old jobs here with them to Austin.

If that doesn’t impress you with the solidity of our market fundamentals for job creation, then consider also that the Austin metro is part of what’s known as the Texas Triangle; DFW, Houston, San Antonio and Austin.  They are each distinct, adding to the whole and not competing, and together they represent 68% of Texas job growth.  Together, these symbiotic metros are considered to be the primary economic engine of the Southwest.

So Why are Austin Home Prices Rising?

Our inventory levels are low, which puts upward pressure on home values, but builders and developers are working to bring new inventory as fast as they can. Taking a look at the new Condo project on South Lamar, South Congress, Downtown, the development in Dripping Springs and in Williamson County shows that the homes to house everyone that wants to live in Austin are on the way, and yet our growing population is absorbing the inventory faster than it appears.

So, yes, we see prices increasing, but we see stable, sustainable market forces underlying these increases, so we fall firmly on the side of the argument that says “no, we are not in a bubble, and we are not overpriced”.

How to Succeed in the Market We’re In

If you stayed with us through this article, you’ll see that we do have some advice about making offers in a market like ours, where appraisal information lags behind market values and results in some residential transactions being challenged to close by low appraisal results.  First of all, find a good Realtor to help you.  Stanberry and Associates have some of the most well trained, results-oriented professionals around.  Consider then, in partnership with your lender (and we know the good ones!) making an offer that indicates you will pay some amount in cash at closing if the appraisal does not meet the agreed upon sales price.  This makes your offer, that includes financing, function more like a cash offer.  Discuss with your lender and your Realtor how you might adjust down payment amounts to allow you to do this.  In a competitive offer situation, this can elevate your offer to the first pick.

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