Housing experts have said they expect Austin-area home prices to continue increasing in 2015, but also predicted that increase could decelerate by 2018 during a housing market slowdown.
Ken Perlman, senior vice president at John Burns Real Estate Consulting, said Austin is “a little bit of an overpriced market,” especially given relatively low interest rates for home loans. However, he said he does not see the market slowing any time soon because of the 25 percent increase in single-family building permits in 2014.
“It would not be unreasonable to believe a housing market slowdown could be on the horizon in the next two to four years,” he said during an address at a Jan. 20 meeting hosted by the Home Builders Association of Greater Austin. “I’m talking about a slowdown. … We’re still projecting price appreciation. We’re still projecting job growth.”
Increasing prices, sales
Perlman said increasing lot prices, along with a push from builders to construct new homes faster to meet demand, also put pressure on home prices, leading to slower 2014 sales. He said new homes prices in Austin are about $54,000 higher than resale properties, and historically that difference is about $35,000.
“We remain bullish on Austin but are concerned about home prices having a negative impact on volume in 2015,” Perlman said. “That’s one of the things we’re looking at here.”
Two other companies in 2014 ranked Austin as the most overvalued market in the U.S.—Trulia, an online real estate portal, and financial services company FitchRatings. Eldon Rude, principal at 360° Real Estate Analytics, said home sales slowed more than anticipated in late 2014 and more inventory was available.
“A lot of that was buyer fatigue in terms of price increases,” he said.
The so-called pricing bubble, Rude said, is more a psychological issue but one that still should be taken seriously.
“At the end of the day what’s the most important thing [buyers are] thinking of?” he said. “Did I pay too much? That’s why it’s important.”
However, Rude said he expects the slight slowdown to turn around this spring when more residents will list homes and inventory likely will decline from increased sales.
“A lot of people built equity in their houses [in] the last several years and will want to move up and over, so the sales pace will probably go up slightly as we move through 2015,” he said.
New home sales
Rising costs for materials and labor have also put pressure on new home prices, as Austin faces construction in all markets, including commercial and retail development and transportation.
Perlman said homebuilders should target the first-time homebuyers market, which often means building new homes priced below $250,000. Homebuilders will likely turn to suburban areas such as Buda, Hutto, Kyle, Manor and San Marcos, to meet that price point.
Another market builders should target, Perlman said, is the luxury move-up market, which traditionally comprises adults age 55 and older who are looking for a second or third home purchase. He said these buyers who are considering a new home's location often look at the home's proximity to family and entertainment .
“Austin is dramatically undersupplied for active adult housing, and I think you’re going to see a lot more that coming,” he said.
Rude said buyers should not view homebuying as an investment but rather as a means to meet their need for growing their family or their desire to live in a particular neighborhood.
City efforts to address home affordability will need to include modifying city ordinances and regulations that allow for more density in the central areas of Austin, he said.
“A lot of it has to do with neighborhoods and city leaders working together to find solutions closer to town that allow for constructive density that the neighborhoods can tolerate and make sense from the builders standpoint,” Rude said.