Buyers pay more for location, quality schools

In Northwest Austin, where home sales and appreciation continue to rise, homebuyers have not been fazed by the sticker shock of increasing home prices.

Realtor Janet Murdock of JB Goodwin Realtors, who also serves on the board of directors for the Austin Board of Realtors, said homebuyers are willing to pay more for location, quality homes and established trees. This is despite a 13 percent jump to $223,000 for the citywide median home price from September 2012 to September 2013.

A growing business industry coupled with three high-performing school districts continues to put Northwest Austin at the top of desirable places to buy a home in the region, she said. Homeowners also saw their home values appreciate by 34 percent from January 2012 to January 2013, contributing to the area's appeal.

"The overall economy in Austin and the fact that 130 people move to Austin every day is really significant," Murdock said. "They have to live someplace. The northwest corridor is sought after because of the schools. That's a major selling point."

Two years ago, the city's median home price hovered around $180,000, said Madison Inselmann, Austin regional director for Houston-founded real estate market research firm Metrostudy.

"Forty thousand dollars in two years is pretty strong," he said of the increase.

Jim Gaines, a research economist with the Real Estate Center at Texas A&M University, said rising home prices means residents need more income to afford the median-priced home in Austin. This could affect the ability of those in the workforce-housing sector—those residents such as police officers, teachers and medical personnel with well-paying jobs—to buy homes.

"[Some] people can buy higher-priced homes [at] $300,000–$400,000, but for the family only making $40,000, is there supply for them?" he said.

Minding the affordability gap

TAMU's Real Estate Center created the Texas Housing Affordability Index that calculates the ratio of the ability of a median-income family to purchase the median-priced home. Gaines said any number above 1.0 is considered affordable.

Austin's affordability index peaked at 2.38 in 2011 and dropped to 2.09 for 2012, meaning that homes are generally still affordable. The statewide index was 2.18 for 2012. Gaines said that because home prices and interest rates continued rising in 2013, he expects Austin's ratio to drop in the vicinity of 1.8 to 1.9 for 2013.

In 2012, the median family income was $75,900 for the Austin metro area with the median home price at $203,300. Gaines said residents typically can afford a home worth three times their annual income meaning a family income of $75,900 could afford a $227,000 home.

Gaines said Austin's affordability index has remained high because home prices have been stable, but with home prices increasing in 2013, affordability will be affected.

"Home prices are going up faster than income and interest rates," he said.

Metrostudy's Houston office recently released an affordability gap study that shows the relationship between the median home price and the household loan for which a median-income homebuyer could qualify. Austin ranked lowest among the top five Texas metro areas.

"It was pretty surprising: one, that Austin was the only one that had that discrepancy, and also how wide that gap was," Inselmann said.

Despite this gap, higher home prices have not slowed sales in Northwest Austin. Murdock said buyers are already aware of how much it will cost to live in the area before they even meet with a real estate agent.

"Location, price [and] condition are the factors that affect how fast it will sell," she said. "These are rapid sales, extreme."

Brand new homes

New home construction prices are also on the rise, Inselmann said. In the Austin metro, the median new home price is $240,000, up from $200,000 two years ago. This increase is reflective of where people can buy a house and where on the price spectrum builders can make money, he said. The greatest growth has been in the $300,000–$500,000 range for new residential construction projects, which has doubled since 2010, he said.

"If that [range] is gaining market shares, somebody has to lose market shares. That's been at the under-$150,000 price," he said.

Inselmann said he is seeing a lot more new construction of smaller units such as townhomes and condos.

"In Austin, even though we've had these price increases, it's encouraging to know they are from economic fundamentals from some real demand: strong job growth and even stronger population and migration," he said.

Rent vs. buy

Rental occupancy has been above 95 percent in Northwest Austin since 2011. Robin Davis, manager for, which is run by Austin Investor Interests, said rates are also rising for apartment rentals, up 6 percent in the past two years. Citywide, monthly apartment rental rates are about $1,007 compared to $975 for Northwest Austin, according to AII data.

Davis said job growth and increased traffic congestion have contributed to many residents choosing to lease closer to work or in live/work/play environments.

Murdock said well-maintained rental units lease quickly—often in one day—because inventory is low. This brisk market might also prompt residents to consider buying a home, she said.

"It is a numbers game," she said. "If a person is in a position to pay as much or more than the house payment would be, then certainly it's more prudent to buy because in Austin, the probability of appreciation is strong."