Photo courtesy Pierpont Communications Inc.

A slight drop in momentum ended an otherwise banner year for Austin real estate professionals, and optimism is high to start 2014.

The Austin Board of Realtors and Greater Austin Home Builders Association gathered Jan. 8 to present the 2014 Housing Forecast. The event highlighted possible pitfalls in the Austin real estate market, national and global economic concerns as well as efforts to increase the state's water supply.

Population and employment growth in Austin has outpaced the amount of new housing available, an interesting trend that may continue this year, said Eldon Rude, principal of 360 Real Estate Analytics. The lack of inventory caused a sharp increase in prices on all home types to end 2013, he said. As of November, little more than two months of Austin-area housing inventory was available, while the average sales price increased beyond $275,000.

"Significant price increases like that are not sustainable and make Austin a little less attractive to the point where we begin to get into a situation where affordability becomes a problem," Rude said. "Our job is to find ways to bring housing online that is affordable to families."

Both Rude and Dr. Greg Hallman, University of Texas finance professor, agreed that a spike in interest rates may have contributed to the late drop in new home starts. 30-year mortgage interest rates ran as low as 3.4 percent last April but climbed as high 4.48 percent to end the year.

A federal program known as QE3, which enables the Federal Reserve to buy billions in bonds each month from banks to encourage lending, is coming to a gradual end, Hallman said. The news initially incited fear, he said, but interest rates have since stabilized despite the initial "tapering" in December of the bond buy-back program.

"There is some evidence to suggest the effect of ending QE3 has already ended," Hallman said. "I think there's some argument that we've already seen the worst [of interest-rate spikes]."

Interest rates could increase up to 5.5 percent, Hallman said, still nowhere near levels seen in the 1970s, '80s and '90s.

Also, Hallman said many consumers are reluctant to borrow money despite paying off old debt, while corporations have sat idle on record profits. Internationally, the Eurozone has technically been lifted from recession but continues to struggle, he said.

"In the long run, I think we will do well in the U.S.," Hallman said.

National concerns include long-term unemployment and underemployment, he said.

Water issues also were addressed at the housing forecast. Statewide, efforts are underway to increase the state's water supply. Carlos Rubinstein, chairman of the Texas Water Development Board, told attendees that Travis County alone needs 92,000 acre-feet more in water capacity, while Williamson County needs 117,000 acre-feet and Hays County requires 36,000 acre-feet more water storage to accommodate the next 50 years of anticipated growth.

Voters in 2013 agreed to allocate $2 billion in loan money for water infrastructure projects on the State Water Plan. If all the regional projects are completed, Rubinstein said Travis County would add 192,000 acre-feet of water capacity—well more than needed to accommodate growth, and Williamson and Hays counties would add 175,000 acre-feet and 72,000 acre-feet, respectively.