Experts: Expect another strong year for Austin housing market


Highlights

Job, population growth expected to keep market robust.

Home prices projected to continue upward climb.

But a rise in interest rates could dampen demand.

This year’s housing market in Central Texas could shake out much like last year’s, with labor and lots in short supply, strong demand due to job and population growth — and a continued rise in home prices.

That was the outlook Wednesday from real estate expert Eldon Rude, delivered to more than 600 builders and other industry professionals at an annual housing forecast event. The forum, sponsored by the Home Builders Association of Greater Austin, took place at the AT&T Conference Center on the University of Texas campus.

Rude, principal of Austin consulting firm 360º Real Estate Analytics, is the former regional director of Metrostudy in Austin and has been tracking the local housing market for more than three decades. His annual forecast covers the entire Austin region, a five-county area from Georgetown to San Marcos.

Last year was “an exceptional year” for the housing market, Rude said, and he predicted 2018 will be another robust year.

Job and population growth fuel demand for housing, and signs point to continued growth of both in the Austin region, Rude said.

Central Texas has been adding jobs at an average annual rate of 3.3 percent, or 27,300 jobs per year, over the past 10 years, Rude said.

A key factor for the housing market is technology-related companies, which continue to grow significantly in Austin and bring more high-paying jobs to the region, Rude said.

“Major tech companies will continue their drive for growth this year, and Austin has emerged as one of a handful of cities most attractive to the industry for expansion,” Rude said. “This will keep tech workers flowing into Austin in 2018.”

Rude cited examples of several large leases in which technology companies will occupy the majority — and in some cases, the entirety — of new area office buildings. Those include Google, Facebook, Indeed, HomeAway and Parsley Energy.

The Austin Board of Realtors said this month that sales of pre-owned homes and the median home sales price in the region — about $300,000 — hit all-time annual highs in 2017. It was the seventh year in a row that the previous year’s numbers were surpassed.

In the new-home market, Metrostudy reported last week that builders started construction on 16,000 new homes in 2017, the highest level since 2006.

In his forecast last year, Rude had predicted builders would start construction on 14,000 to 14,500 homes in 2017.

This year, Rude’s outlook calls for builders to start about 17,000 single-family homes — an increase of more than 6 percent from 2017’s level.

“With lot supplies tight and labor shortage issues persisting, builders will be scrambling trying to keep up with demand,” Rude said.

Amid strong demand for housing and lagging inventory in recent years, the Austin area’s median home price has soared 45 percent over the past five years, Rude said. But despite the significant price increases in a market grappling with affordability challenges, “people are continuing to buy,” Rude said.

Recently, another housing expert, Vaike O’Grady, said that many builders are doing their best to bring prices down, even while they face increased costs for labor, construction materials and fees.

“They know that fuel for the market is in in the $200,000 to $300,000 price range. As a result, lots and homes are getting smaller, and attached housing is gaining a foothold in the market,” said O’Grady, Austin regional director for Metrostudy, which tracks the local and national housing market.

One headwind this year, Rude said, could come if there is a “sudden, sharp increase” in mortgage interest rates, which likely would negatively affect housing demand.

O’Grady, in a recent housing forecast, also mentioned the prospect of rising mortgage rates as a factor that could temper the local market.

“We’re winding down 2017 with a lot of momentum,” O’Grady said. “The Austin economy is still vibrant, and people still want to live here. So we’ll meander along the peak for a while. But as the year progresses, slower job growth and higher mortgage rates will likely soften the Austin residential market.

“For the past few years, low mortgage rates helped many renters to become buyers,” O’Grady said in her forecast. “As rates increase —as we expect to happen in 2018 —it will become harder for buyers to qualify. And given high home prices, would-be move-up buyers may choose to stay put.”



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