Expert: 2020 to be ‘huge year’ for Austin housing market

Following a strong 2019, Central Texas homebuilders can look forward to a reprise this year in the region’s housing market.

That’s the outlook of Austin-area housing industry expert Eldon Rude, who for the 18th straight year delivered his annual housing forecast for the Home Builders Association of Greater Austin.

About 750 builders and other industry professionals attended Tuesday’s event at the AT&T Executive Education and Conference Center on the University of Texas campus.

“I don’t see anything getting in the way of another robust year for our economy,” said Rude, principal of 360° Real Estate Analytics, an Austin-based real estate consulting firm. “It’s going to be a huge year.”

Rude said builders started construction on about 18,200 homes last year -- three times as many as in 2010 -- and he predicted they could start work on more than 19,000 new homes this year.

“What a year it was last year,” Rude said. “What a decade it has been since this (upturn) began.”

During the past decade, Rude said, the Austin region added about 35,000 jobs a year, on average, and its population swelled by about 500,000, to 2.2 million.

Once again, job and population growth are expected to serve as the backbone for housing demand this year, Rude said.

Falling mortgage interest rates also spurred housing demand last year, resulting in single-family home starts approaching levels not seen since 2006, Rude said.

“If job growth remains at levels we have seen in recent years, I don’t see anything on the horizon that will slow the robust demand we have seen for housing in the region in recent years,” Rude said, with a caveat being an “unforeseen global global or economic shock that would result in a sharp drop in consumer confidence.”

Although the region’s economy is more diversified than in the past, and has seen explosive growth in its tech sector, “at some point there will be a tech recession and that will affect our economy,” Rude said.

The Texas Workforce Commission reported that the Austin region added 29,000 new jobs in the 12 months that ended in November.

With annual job growth in the region now hovering in the 25,000 to 30,000 range, down from the 35,000 to 40,000 created from 2012 to 2017, Rude said the estimated 18,000 new homes that builders started work on last year “reflects builders playing catch up from the job growth in the early to mid-part of the last decade.”

In 2019, Rude said, demand was highest for houses in the $225,000 to $325,000 range. To try to satisfy that demand, builders have continued to look to suburban areas outside of Austin’s pricier core to find land that will accommodate more moderately priced housing, Rude said.

For some time, the Austin market has seen demand for housing exceed the supply. And that imbalance has been a key factor in the sharp escalation in home prices in recent years, Rude said.

“The months of supply of active listings for previously-owned homes in Austin has remained below four months for 89 months (over seven years) – a primary reason for the sustained home price increases in the Austin region,“ Rude said.

Many builders continued to raise prices in 2019, with little resistance from buyers, Rude said.

The median price of a home in Central Texas jumped 25% in the past five years, prompting concerns about whether rising home prices relative to incomes ultimately will lead to slowing home sales, Rude said.

"The trajectory is a little troubling,“ he said.

In November, half of the single-family houses that sold in Central Texas went for less than $305,000 and half sold for more, according to the Austin Board of Realtors. That was a 1.7% increase in the median sales price over November 2018, and was the highest median price for any November on record, the board said.

Within Austin’s city limits, the median single-family home sales price was $405,000, which was 10.6% higher than in November 2018 and the highest median price for any November on record in the city of Austin, the board said.

Although some markets in the U.S. such as Seattle, Denver, Portland and San Jose have seen sales slow as the gap has widened between incomes and home prices, “Austin has yet to see this inflection point in pricing, and it’s hard to say when, and if, it ever will,” Rude said.