Recently the Central Texas Commercial Association of Realtors (CTCAR) hosted a luncheon with a presentation on “The State of the Austin Market 2023” with a discussion featuring Mark Sprague (Independence Title) and Jay Lamy (Aquila). The information shared was compelling and optimistic, which is not normal for Mark, if you know him, and which he readily admits. But it is his pessimism that makes people listen when he shares good economic news.
The overarching theme of the presentation was focused on lack of inventory when it comes to residential and commercial property. Before we look at that however, I wanted to share a few of the other points that were made that help us see the big picture when we look at the economy and the real estate market in Austin and in Texas.
Since the onset of Covid lockdowns and the chaos and decline in the market that we saw in the government’s poor reactions to unknown circumstances (that is to say, government caused more damage than Covid), we have data now that shows that the job market has completely recovered. There are two times as many jobs available as there are people who are looking for work. The problem is not a lack of jobs, but a lack of people willing to work! Ask any small business owner and it is almost impossible to find and hire people who will show up and work.
In the commercial real estate classes that I teach for agents, I started looking at “The Great Resignation” all the way back in April of 2022. As jobs came back, people didn’t. A major factor has been childcare costs. An entry level job won’t provide enough to cover childcare costs for the average family. For both parents to work outside the home and pay for childcare means a net loss at the end of the month. Remember also that while population growth had been slowing (and not in a good way), we have seen a “Baby Bump” that started late in 2020 (go figure).
As medium and large companies move to Texas at a record pace, part of the draw is historical and demonstrates why Texas has always been able to count on its workforce. Sprague called it the “German-Asian-Hispanic Work Ethic.” The attitude that work is noble and good coupled with one of the highest educated workforces in the nation keeps Austin on the map, right in the heart of the “Golden Triangle” for new business from San Antonio to Houston to Dallas/Ft. Worth.
Housing demands are as high as they are because with each new job created in the triangle, 2.6 people relocate here. The expectation is 70,000 new jobs in 2023, and that means 182,000 new people will be arriving and needing a place to live. We’ve averaged a net gain in population of 150,000 each year for the last 2 years in Williamson and Travis Counties combined so that trend is only increasing.
In the commercial space, we need to double our industrial warehouse availability in the next 3 to 5 years due to the tech and manufacturing companies that are arriving. Land for RV parks and storage units remain in high enough demand that cities are starting to address zoning and permitting changes for these types of projects.
So, what is driving the low inventory? A few reasons stood out in this presentation. Other than a lack of infrastructure (I.E., utilities, especially getting water to new subdivisions) and lack of planning by the area governments, we are also seeing people who own their homes paying a mortgage with a 4% or less interest rate. Why would they sell now? Historically, people move every 7 to 9 years. That is being extended to a longer stay now because who wants to sell and buy when they will have less buying power due to a higher interest rate?
Even with the low inventory, we really are in a great market here. We in real estate have to work harder to find properties for our clients and we must do a better job in setting pricing expectations. Properties that sit on the market for a long time with little interest from buyers while inventory is low usually sit for one reason – they are overpriced. Yes, there is demand, but we have to be reasonable and not get greedy. Remember that every time you see a price reduction listed as a “price improvement”, all that really means is that the real estate agent and the seller priced their property too high.
We need to look at comparable properties with a broader range than the last 6 months. What we’ve experienced is an anomaly. As we near the bottom of the market (remember from last month’s email, we expect a rebound in Q3), we can rejoice that we are here, because as bad as it may be, it really is much better than most everywhere else in the US.
Keep in mind also, as Sprague pointed out in his conclusion, that if you bought a property when prices were higher than they are now, you really haven’t lost any money unless you sell now. Rates are lower, and when we look at historical trends, while we may be on a downturn, we are still actually on an upward trajectory overall. Down now is not as far down as it was the last time! Things will appreciate again.
Be sure you have a residential or commercial realtor who understands where we are and where we are going so that you can make the best decisions for your family and your business in the days ahead.
If you are buying, selling, leasing, or investing in real estate in Texas, we can show you the Way!
WAY REALTY GROUP
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