Near-record low mortgage rates, the significant current and expected influx in population, and the severe inventory shortage are the main drivers of the large rise in housing prices in Texas, according to the author of a new study on markets nationally.
Austin is the second most overpriced market in the country, with homes selling for approximately 50% more than where they should be in normal circumstances, reports Top 100 Housing Markets for over/underpricing, according to a study by Florida Atlantic University and Florida International University. Dallas-Fort Worth came in at number 19, at 31.75% overvalued, while Houston ranked 57th at 17.99% over, the study found.
Boise, Idaho, tops the list at 80% overvalued, with Ogden, Utah, number three.
Low mortgage rates, Austin's popularity as a relocation destination and the ongoing inventory shortage are to blame for the city's position on the list, says the study's author, Florida Atlantic Associate Dean of Graduate Programs Ken Johnson.
"These three things will also cushion the coming slowdown in real estate prices," Johnson told Texas Realty News. "Texas will remain a very popular relocation spot due to its business-friendly climate. The state’s current housing inventory shortage has been years in the making and will not be solved in the near term, and mortgage rates, while anticipated to rise when the FED begins to taper its bond purchases, should not increase significantly.
"These will all come together to make the effects of the coming slowdown far less than during the last major housing crisis 15 years ago," he added.
He predicted there will be a new housing crisis, but it will "in general, cause less harm than the last. It will come and it will pass.
"Population growth is always the best solution for real estate pricing issues," Johnson said. "Texas housing will come out of the near-term rough patch and do well in terms of average annual property appreciation over the long term."
On what advice he might deliver to brokers, Johnson cautions they might not appreciate his suggestions, because it would hit their income.
"Basically, it is exactly for times like these that brokers should always have a well diversified portfolio of business – both in sales and property management," he advised. "Property management is there to carry a broker though the rough times."
But those in the Austin real estate business wanting to develop their property management arm are somewhat hampered by the lack of a reliable rental price table, which stops the city being part of the BH&J Index, which compares rent and buy, he noted.
According to the most recent census data, the populations of Austin, Fort Worth, San Antonio, Dallas and Houston all grew in excess of 10% over the last decade. Austin and Fort Worth showing rapid expansion, each at 22.1% growth since 2010.
Nationally, potential buyers priced out of the market face soaring rents, rising 13% through July, according to a Wall Street Journal report.
Home prices have risen 23% nationally over the same period, with limited supply and fierce competition driving the increase, according to the report.
Competition from institutional investors is a key issue, according to Desiree Fields, a geography professor at the University of California, Berkeley, who researches the single-family rental industry.
“Institutional players are chasing some of the same homes that would be starter homes for owner-occupiers,” Fields told the Wall Street Journal.
According to Redfin, one in six homes sold in Q2 of this year went to an investor.
