Real estate expectations for the next decade
A friend sent me this NY Times article link and asked for my commentary as it relates to the Austin real estate market. Love to.
An interesting article, for sure. There is so much caution in the market right now and Austin is not immune. Austin has been somewhat immune and definitely lucky with much more economic stability for the past 4 years than the country as a whole and that continues today (how many articles a month do we see that say Austin #1 at something, top-10 something, best business environment, best economy, best for 30-somethings, best tacos, best best best, top this, top that etc).
I filter everything I read on the economy and housing market with 2 filters … the FL/AZ/Vegas filter and the Austin filter. So much of the housing crisis and the economic quagmire is because FL and AZ and Vegas et al were out of control and consumers were ignoring what they learned in Econ 101 (moderate growth is healthy, aggressive gain can only sustain for so long) and wanted in on the opportunity and, of course, the lenders loaning to anyone with a pulse but that is a separate commentary.
I still think you can put a kid through college with buying real estate in Austin; I have no idea what that looks like in FL. An example would be buying a $130k home in Austin right now that can break even per month with an $1100 rent … keep that for 15 years (pay it down aggressively) and sell it for $180k? That is actually about a 3% appreciation if you calculate on the full value of the home but when you calculate on the down payment (which really was your investment), your appreciation is closer to 7%. (Basic real estate math: calculate on your cash-in & return on that investment, not on the market value of the asset.)
The article mentions the Shiller & Case annual survey and it says folks in Boston, SF, Orange Cty & Milwaukee think the market will go up about 10% a year this next decade. Are they on crack? Austin, a very healthy market, appreciated on average about 4-5% per year during the boom; this was an exceptionally healthy and stable appreciation. Come on folks, wake up. Perhaps the article needs to address the psychology of folks in Milwaukee having grand expectations.
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