Nov

16

2011

Austin’s Economic Forecast 2012

Nov. 16. 2011

I am no economist, however if you know me at all, you know I carry a spiral with me just about everywhere (I know it’s no iPad) and inside that trusty spiral are some notes. I take notes when on the phone, when I randomly think of something while driving (I mean while stopped at a red light of course), and for my infinite to do list…(aka Success list as a motivational speaker once told me it should be called). Anyway, without further a d0 (thanks Tim for the grammar correction, I can’t believe I graduated college), here are some notes on the Economic Forecast for 2012 meeting I attended a few weeks back, and the trends we have seen the past few years in Texas and Austin especially. Since I am such a list maker, a lot of this may be bulleted, please remember I went through a bunch of slides pretty fast with graphs and charts.

I know it isn’t the most exciting information in the world, but it sure is important!

  • Officially the Recession of 2007 has been declared over. Does it feel like it, perhaps not, but it is.
  • New home construction is what took us into the recession, but it will be what takes us out
  • Our economy won’t recover until the housing market recovers
  • Most election years are slow (this I can tell you from personal experience) then not necessarily based on who is elected, but what they promise to do will determine how the housing market will turn around

Hurdles for 2012:

  • Tepid growth in private sector
  • home prices declining
  • Government restrictions from falling revenues
  • Commercial Real Estate (RE) still dragging due to lending and regional banks
  • Uncertainty in the Gov. due to lack of confidence re: actions, regulations, taxes, national debts and deficits, global disruptions
  • Credit contractions for consumers and businesses
  • Confidence in RE increasing in value still down, consumers making lifestyle choices over investment opportunity

Reasons for Optimism!: Why I am happy to be a Texan

  • Tx job growth is double the National rate
  • Relentless population growth in Texas
  • Government budgets finally getting real
  • Pent up demand due to: retiring, moving to a new location, buying a house, relocating biz to Tx, expanding a business
  • Texas Recession was 2009: 2010 and 2011 have been recovery years
  • Texas is the fastest growing state 2000-2010 (21% increase)
  • Projected: 40yrs 13.9million people, 703k per yr (2000-2010)
  • Austin, Tx has increased 37% since 2000, 6.8% of Texas and projected at almost 50k ppl per year moving to Austin, TX
  • Texas is a young state: 27% of Texas is 18 and under, only less than 10% is 65+

Forecast Factors…a Closer look at Age:

  • Generation Y is much bigger than baby boomers
  • Generation i–> what they are calling the next group because they will have come into this world not knowing what it was like to not have internet (crazy, huh?!)
  • Baby Boomers: Home Ownership Grows (since the ’70s)
  1. It was the “American Dream” for the Boomers
  2. Last serious time of deflation of home owning: 1930’s
  3. Loss equity in real estate
  4. Because of Boomers Gen X and Gen Y have shifted attitudes due to seeing their parents lose value in their home
  5. Since 2007 we see more people “doubling up” moving in together even after college, or back in with parents

Boomers Own–> Gen Y Rents

  • 25-35 yr olds > 50% are already home owners
  • Took advantage of tax credits, interest rates, and timing in the market/opportunity

Austin, TX  Breakdown:

  • Echo Boomers: Gen Y 16-34 (31.8%)
  • Baby Bust: Gen X 35-46 (17.6%)
  • Millenials: Gen i
  • Austin owner occupied units have become younger and foreclosures are declining
  • Because Tx is a non-judicial foreclosure state, we really are declining here compared to other states
  • 550days!!!!!–> National average of days before foreclosures happen

A Closer Look: Households in #s:

  • In the 1960s–40% of people had 4ppl in a HH (household not happy hour)
  • In 2009–30% had 2 person and 31% had 1 person per HH
  • Also noted–married couple decline in HH types

Current Housing Issues:

  • Low demand and high supply=weaken home values (I really don’t see how this applies in Austin so much…rental market was tight due to influx of people, with more coming-where are we going to put them all??)
  • Gov stimulus efforts prolong market recovery (tax credits and mortgage workouts)
  • Lenders in Difficulty: Told to make loans, but are punished for making RE loans or CRE loans
  • Renting a more viable option to buying (only if you can’t qualify and it makes sense financially)
  • FHA essentially a sub prime lender

Overall Texas Housing Markets Info:

  • 2010 sales decreased from 2009: The Good News?: After flattening we’ll increase
  • All metro areas in Tx after tax credit home sales went down
  • End of 2009 and beginning of 2010 we see an increase in sales due to the tax credit (these factors will always need to be examined closer when comparing year to year housing prices)
  • Homes sales haven’t increased, but employment has
  • National delinquency is much higher nationally
  • Foreclosures: 2Q2011:      US: 4.43       TX:1.87

AUSTIN, TX:

  • Top 10 in US metro areas for healthy housing, in fact all 4 major markets in Tx are in the top 10, alongside North Carolina
  • 2011 Home sales up in Austin (19k-21k)
  • Median price of homes: Up 2% from 2010, $192,800
  • Historically 4% increase
  • Rest of the US is down
  • “Flat is the new Up!” (referring to charts where our prices and values stay steady, because at least they aren’t declining!
  • Generally strong market due to Supply and Demand
  • Multi-family building permits up in June

In conclusion, I hope you took a little from those notes (I know they were somewhat overwhelming). I always think it is interesting to analyze numbers based on sales, housing prices, building permits and growth, alongside cultural changes. Generation Y shifting in attitudes, each generation becoming more entitled… more need for instant gratification and honestly, in my opinion, lacking financial self discipline and money smarts. With lending regulations being as tight as they are, I feel it is our responsibility to start informing and educating those younger than us the importance of paying on time, income to debt ratio and saving money, and that they don’t have to have the best of everything right now. Ok I will get off my soap box, because I am such a great parent and all…

So, really now, in conclusion Texas is doing great. Overall we will see steady until after the election of 2012. Rates will remain low for a while (not forever), Texas and local markets will continue to grow and make modest improvements and there will be some enthusiasm come Spring 2012. In Austin, due to tight lending regulations, while there have been some multi-family building permits approved, this doesn’t necessarily mean they are getting done. While there being an influx of young people moving here, they are more likely to be renters and studies have actually shown that more unemployed college kids move to Austin (live off parents and savings) because they hear how great Austin is (Great! More unemployed college kids stimulating the local Austin economy with their parents’ money, awesome!) Austin, known for its Technology sectors will still increasingly grow…a youthful city at that. Being there will be so many moving here from other places, I predict rental market to still be high, and decent places with desired location to still moved fast. If you have been paying the same amount in rent for the past two years…consider yourself lucky! I also predict (based on what I have seen and read) the same shift toward people “doubling down” and rooming together. I hope you found this Economic Forecast of 2012 interesting, rewarding and something to take home. Call me if you are ready to buy while the rates are low and the rents are high and as always, thanks for reading!

Ashley Brinkman/Realtor/Prudential Texas Realty/512.665.8787