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Economic Outlook for Central Texas


Read time: 5 minutes

How is COVID-19 impacting the Austin housing market?

AUSTIN, TX— Watch as Realty Austin’s co-founder and Chief Technology Officer, Jonathan Boatwright, interviews nationally recognized real estate economist, Dr. Mark Dotzour. Learn what to expect for mortgage rates, home prices, job growth, the stock market, and more. Read a summary of the Q&A topics covered below!

Q & A

How will unemployment in Central Texas compare to the U.S.?

The state of Texas’ economy has such a positive business environment. People can’t wait to move here from other parts of the country that are not as business-friendly. Considering this, the state of Texas is going to fare well on a relative basis when compared to the U.S. Each city in America is going to rebound from this pandemic in a different pattern.

How will home prices and sales volume be impacted in Central Texas?

Last Fall 2019, the housing market started to rebound. The housing market is what leads the U.S. economy out of recessions. The significant demand for housing became evident starting September 2019 to about February 2020. The bottom third of the price range in Austin or any city in America still has way more demand than supply.  It is anticipated that there will be continued strong demand in this bottom third price range with competitive pricing and bidding on homes. Home prices are expected to continue to rise as months of inventory remains tight and demand in the markets is strong.

How will home prices and sales volume be impacted in Central Texas?

Last Fall 2019, the housing market started to rebound. The housing market is what leads the U.S. economy out of recessions. The demand for housing became evident starting September 2019 to about February 2020. The bottom third of the price range in Austin or any city in America still has way more demand than supply.  It is anticipated that there will be continued strong demand in this bottom third price range with competitive pricing and bidding on homes. Home prices are expected to continue to rise as months of inventory remains tight and demand in the markets is strong.

How will longer-term demand for houses be impacted?

The month’s supply of inventory is so important and is a good indicator of what kind of market we are experiencing. People want to know what’s going to happen to transaction volume in their market, prices, and the cost of mortgages. 6.5 months of inventory is a balanced market. Below that is a seller’s market, and above is a buyer’s market. When you have a balanced market, home prices go up 2%, maybe 3%. We have not had a balanced market in Central Texas since 2008. In April of 2020, Austin had 2.1 months of inventory. The further we get under 6.5 months of inventory the more competitive the demand and the more ferocious the market will become in terms of pricing. Key indicators to understand demand in any given market is to look at the months of inventory and the price range.

What will happen to mortgage interest rates?

Historically, a 30-year fixed-rate mortgage is about 1.75% over the 10-year U.S. Treasury bond. The U.S. Treasury bond is about 0.7%, so if you add 1.75% to the 10-year Treasury, you get a mortgage rate of about 2.45%. That is where the mortgage rate should be today. This is part of the Federal policy if we get into a recession, they are going to lower the mortgage rates to around 2.5%, allowing every homeowner in America with a 3.5 to 4% mortgage rate the opportunity to refinance their mortgage around 2.5%. This should be happening today, but there is too much risk in the market due to mortgage forbearance.

How should I interpret big swings, up and down, in the stock market?

Whenever the stock market experiences volatility, it makes people want to buy real estate. Volatility creates more demand for people to want to own homes if they have any investment decision in their minds.

Why does owning a house make sense in an inflationary environment?

Single-family homes are a great investment and a good hedge against inflation. Home values do not drop 30-40% in a week like the volatility of the stock market. “You don’t invest in stocks. You invest in bonds, you invest in real estate and you speculate in stock,” said Dr. Mark Dotzour.

Should I be worried that the budget deficit could be $3.5 trillion this year? Who’s going to pay that back?

There are no plans or intentions for anyone to ever pay back the budget deficit. The debt will continue to increase, which is why the government wants inflation, they want prices to go up, just enough to keep the economy running and people buying. Our federal debt was $24 trillion, in February 2020. The federal debt could increase to $30 trillion, however, this should not be a concern until the debt doubles. One of the key things you can do is buy a single-family home. “Some real estate is a good hedge against inflation,” said Dr. Mark Dotzour.

Will this cause inflation?

Runaway inflation is not happening and is not expected to happen, which is why mortgage rates have remained low for the past 20 years and will likely stay low for 10 years or more. We have not had any kind of high inflation for 30+ years. You can’t have inflation without a shortage of goods. Inflation is caused by shortages, too much demand, and not enough supply. With our global economy, millions of people worldwide, and factories constantly producing goods, shortages of any kind are not anticipated. “I do not see any threat of inflation on the horizon,” said Dr. Mark Dotzour.

Will buyer’s preferences change coming out of this pandemic, such as people looking for bigger yards, more land, or pools? Or people looking outside of the city with the ability to work remotely?

Yes, continued demand is anticipated for suburban properties. A desire to get out of crowded, congested cities is expected with movement to the suburbs 30-40 minutes outside of the city. Once companies get comfortable monitoring the productivity of their workers from home and workers have more flexibility, buyers will view commute times differently and the demand in suburban housing and surrounding towns will increase. Pool, land, and amenities like home offices are going to become popular requests as homebuyers transition to suburban life.

What activity do we see in relocation to Central Texas from out of state?

People can’t wait to leave cities like New York, Chicago, and throughout California. People are ready to escape high taxes, regulation, and unaffordable housing. We are seeing an influx of entrepreneurs and Fortune 500 companies looking for better business opportunities particularly in Central Texas. “We like businesses here, we treat them well and the cost of living is moderate,” said Dr. Mark Dotzour.

What is the housing market like now in Austin and how is it recovering compared to other cities in the U.S.?

Sold Listings

Sold listings are somewhat off as there is a delay in reporting, however, over the last four weeks, we should see a large increase in sold listings following an increase in pending listings.

Withdrawn and Temp Off the Market Listings

Homes were pulled off the market or temporarily off the market around March 28, however, this is now steadily declining.

Price Decreases

In December 2019 and January 2020, when the market was red hot, sellers increased their pricing and may have pushed a little farther up in price than today’s market is comfortable with. We see a lot of these sellers are still decreasing their price to get a real buyer. Buyers are a little smarter and more cautious now. Sellers have to react with decreased pricing and reevaluate their market.

Austin has taken 36 to 42 days to get back to normal and has recovered rapidly when looking at other major cities such as San Francisco, Chicago, and New York that were harder hit and are still having to climb back up from a major decline. Austin is down about 9% in new listings year-over-year.

On March 22, Austin’s pending sales declined and are now 10% above where they were this time last year, as of April 26. 

Resources to compare the housing market recovery by city: mikedp.com

Detailed Austin Market Data: austinlocal.com/market-statistics

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