First-time homebuyers cannot afford to live in Southwest Austin

The majority of Southwest Austin ZIP codes saw an increase in median home price in August 2017.

The majority of Southwest Austin ZIP codes saw an increase in median home price in August 2017.

Although the home inventory shortage in Southwest Austin is an indicator of the strong local housing market, one demographic is struggling to find a way in.


With millennials—people born between 1981 and 1997, according to the Pew Research Center—making up nearly 36 percent of Austin’s population, real estate experts say there are not many homes available within the city limits in their price range. Those homes fall outside the city boundaries, such as in Buda and Del Valle.


Marc Warshawsky, market manager for Austin Realty Southwest, said a home in Southwest Austin typically sits on the market for less than three months, which is low. He said the lack of inventory means prices go up, which negatively affects affordability.



By the numbers


Statistics from the Austin Board of Realtors show the median price for a home in Southwest Austin was $350,000 in June.


Data from the Real Estate Center at Texas A&M University—which ABoR uses for data—said the average budget of a first-time homebuyer in Texas is $150,000, but rising land and development costs have made it almost impossible to build a traditional single-family home in Texas for less than $200,000.


Nearly 30 percent of people moving to Austin in 2014 were millennials with a median annual household income of $51,810, according to the National Association of Realtors.


Forbes named Austin the second best U.S. city for young professionals in 2017, citing a median recent graduate salary of $51,800 and a projected annual job growth of
2.97 percent.


Meanwhile, the Austin-Round Rock Metropolitan Statistical Area’s average student debt was $16,324 as of December 2015, according to National Federal Reserve Bank of Dallas.



‘Millennials are improving’


Irene Green, senior vice president and bank manager for Southwest Bank Mortgage in Southwest Austin said millennials are improving their credit scores and debt rates, and more are starting to qualify for home loans each year.


Two types of loans are available for homebuyers—a conventional loan, which requires 5 percent down—and a Federal Housing Authority loan, which requires 3 percent down, Green said.  She said the common disqualifiers for millennials are credit scores, poor debt-to-income ratio and debt on credit cards.


“These kids, they get out of school and buy a new car because they have a new job, and now they can afford it,” Green said. “But that $500 [car] payment can push you out of [home loan] approval.”


Green said another aspect that has helped millennials purchase homes is the change in student loan debt payment. The government has gone back and forth in how to combine that debt with a mortgage payment. A 1 percent payment of the total loan balance was calculated for a conventional loan, and 2 percent was counted toward a FHA loan. Now the actual monthly payment that is reported to the credit bureau is what is taken into account, Green said.


“That has really opened up some things for us in the last two months because the monthly payment is much less that the percentage of the loan,” Green said.



What millennials want


ABoR President Brandy Guthrie said young professionals are interested in smaller homes with less upkeep that have nice amenities and are located in areas that make their commutes easy.


But that kind of housing is not available in locations desirable to millennials at their preferred price ranges, mainly in the urban core, she said.


Cristy Salinas, who recently purchased a newly constructed two-bedroom home in Buda with her husband, said their decision to move to the outskirts of Austin was a better fit for them.


Although she said she commutes about 15 miles to and from work each day, she said the move was worth it. Although the mortgage payment is more than they would have paid for a one-bedroom apartment in South Austin, they now have more space to live and entertain in.


“For us not being able to walk to restaurants or entertainment is not a deal-breaker,” Salinas said. “We enjoy quiet areas. This was a good choice for us, but it might not be a good area for everyone else.”


Warshawsky said as more millennials begin to buy, they will start to influence the definition of new homes and smaller floor plans, and builders will start to reflect that and follow that trend.



Challenges for builders


Geoffrey Tahuahua, the vice president of policy and government affairs for the Real Estate Council of Austin,  a nonprofit commercial real estate advocate, said builders are struggling to keep housing costs down because of the unpredictability of Austin’s permitting process.


“A lot of times what ends up happening is once the developer starts working with the city, there’s a lot of [additional] costs the developer [incurs during] that process,” he said.


In an ideal world, developers would receive comments or approval from the city’s development services department on their submitted site plan within 30 days, Tahuahua said. In reality, the site plan goes through several departments, such as Austin Water and the Austin Fire Department, which raises building costs, he said.


“That’s where the timelines exacerbate and pile up on top of each other,” he said.


He said builders exasperated with Austin’s process head toward cities such as Dripping Springs, where the permitting process is more predictable.


“The cities have figured out that they can benefit from Austin’s affordability problem and make the process more efficient,” he said.

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