An Austin housing bubble? Trulia report is nonsense, local experts say


Online real estate site Trulia recently issued a report saying that the Austin metro areas has the most overvalued home prices in the country.

That has drawn the ire of local housing market experts and real estate agents, who say Trulia just has it plumb wrong.

In Trulia’s latest “Bubble Watch” blog, chief economist Jed Kolko ranks Austin at nearly 20 percent overpriced. That’s worse than Los Angeles, Orange County, San Francisco and Riverside-San Bernardino in California — four California metro areas that were significantly overvalued during the most recent real estate bubble.

By contrast, Austin and Houston are the only metros out of the 100 largest that look more overvalued today than in 2006, Kolko says, noting recent double-digit increases in asking prices in both markets.

Trulia comes up with its Bubble Watch rankings by comparing current prices with historical prices, incomes and rents.

But ranking Austin the No. 1 overvalued market left some local real estate observers wondering what kind of algorithm Kolko was using.

“This does not sound like an economist that works for Trulia,” Byron “Buddy” Schilling, president of JB Goodwin Realtors in Austin, wrote in an email to his agents and reiterated in an interview with me. “It sounds like an economist that works for the state of California and is tired of seeing people leave the state for Austin.”

Local real estate broker Eric Bramlett chimed in with this: “It’s important to remember that Trulia is, first and foremost, an advertising company. They sell page views to real estate agents. The more page views they get, the more advertising revenue they get. Their bubble blog seems to be nothing more than clickbait.”

After seeing an article about the Trulia report headlined: “SoCal housing markets among most overvalued, but at least we’re not Austin,” local broker David Schneider added his 2 cents worth:

“I think they have a motive for dissing Austin because I think they’re losing a lot of people to a city that is more affordable and maybe a little bit more friendly, said Schneider, with Better Homes & Gardens Real Estate Bradfield Properties. “A bubble is when it’s not built on a foundation, and our foundation is solid.”

Ouch. Don’t mess with Texas.

Trulia, Schilling and others say, just got it wrong.

“A bubble is foam — froth based on something not real,” as in the easy loan money and speculation that precipitated the financial and housing market woes of 2008.

The Central Texas’ housing market, Schilling said, is based on something real — as in the 30,000-plus jobs created during the past three years and the 110 people a day who are moving into the region, per U.S. Census data. Those and other factors, including stricter mortgage lending rules, aren’t the stuff of which bubbles are made but rather “are a solid foundation based on supply-and-demand economics,” Schilling says.

“Austin is a ‘Steady Eddie’ when it comes to median price,” Schilling said, with experts noting it has increased 4.85 percent per year for the past 20 years.

Last summer, when talk of a local bubble also was surfacing, a number of Central Texas experts said strong demand for housing, coupled with a low supply of newly built and resale homes, was pushing prices higher, but nowhere near into bubble territory.

“A housing bubble is created when home prices rise sharply over several years, far outpacing the increase in income levels for the local workforce,” and that was not the case in the local market, housing expert Eldon Rude told me then.

And that continues to hold true now, Rude said last week.

“The recent strong price increases for housing in Austin were the product of a classic imbalance in supply and demand. We had stronger than anticipated population growth during the last recession, and at the same time builders and developers were forced to slow the pace of construction because they could not get access to the capital needed to finance construction,” said Rude, principal of 360 Real Estate Analytics, a research and consulting firm.

With so much local skepticism about Kolko’s ranking, I asked him to explain further.

Here’s what he told me via email:

“To be sure, local demand is strong and getting a boost from fast job and population growth. But Austin prices have recently been outpacing both income gains and rent increases. While in many markets across the country home price increases have run ahead of income gains and rent increases, in many markets recent price increases have been, in part, a bounce-back after big price declines during the housing bust.

“In contrast, Austin and other Texas markets like Houston have seen home price gains outpacing incomes and rents without having had a big price crash in the late 2000s. While Austin has among the strongest employment growth in the country, wage growth has been slower. Furthermore, Austin’s price gains aren’t about a lack of housing: building permits in 2014 (through August) are running 19 percent ahead of Austin’s historical normal level, which is high to begin with relative to other markets.”

Regardless, some local experts still aren’t buying Trulia’s logic.

Schilling says he remains mystified by Kolko’s methods. “But it does remind me of the Mark Twain quote that he and others attribute to (19th-century British Prime Minister) Benjamin Disraeli: ‘There are lies, damned lies and statistics.’”


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