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Keep Austin Confused?

Some insight into our local Buyers and Sellers current experiences

Have you ever been to a new restaurant and later described the food or the décor as “weird”? Have you ever encountered someone in line at Home Depot and later though or recounted them to a friend as being,” weird”? In both of those cases your experience of weirdness was probably tied to some confusion. You may have been confused about what the restaurant was “going for” when their waiters were all wearing Home Depot aprons. You might also have been confused about why the guy at Home Depot was selling tamales!

In Austin, Keeping it Weird is a passion. For those of us who are native Austinites, we don’t get too surprised anymore. Like the taco joint, hardware store and seemingly most of our local establishments, that “weirdness” is present in our local real estate market. Today, Austin’s market has a combination of good jobs, low interest rates, high rental rates and no shortage of rah-rah realtors to spread the good cheer. Contrary to the good, we also have an economy in trouble, spiraling gas and food prices, regional real estate meltdowns and all of this is happening in an election year.  Our market is WEIRD, and that’s ok! We live in Austin, we Keep it Weird! How then should we think about today’s Buyers and Sellers? To understand the psychology of the market, first, wipe the salsa off of your band-saw and then realize that “weird” can lead to becoming “confused”.

Increasingly, I find myself describing today’s Buyers and Sellers as “confused”.

“Which camp is right?” they wonder. Is the market good or bad? Are homes sitting on the market? Are their more foreclosures? Why are some homes receiving multiple offers? Why do some sit on the market for three weeks with no activity and THEN receive multiple offers on the same day?  I’ve noticed that when we step back, we can look at long trends. We can discuss fundamentals like annual job gain, annual increases in inventory etc. When Buyers and Sellers interact however they are dealing with daily trends. “Did the stock market lose 300 points today?” “Did interest rates drop 3/4s of a percent today?” It becomes so tempting to make decisions that try to “time” the market based on these daily trends, when the long view of fundamentals should be your guiding light.

The largest concern that divides the doom vs. boom camps is that of whether there is a bubble in Austin real estate prices. This becomes particularly important for Buyers and Sellers because sometimes decisions are made with the herd, i.e. “Everyone is buying, real estate always goes up, you have to get in now!” and sometimes decisions are made at a personal level, “this house offers the space I need, and it is more affordable for me to buy it than rent it.” The herd level decision is the playground of confusion, while the personal level decision can be made in the realm of reason.
So how can we measure the market? Bubble or not? A quick way is to compare Home Price / Rent Ratios of Austin to those of the nation. The Bubble cities, and the national average to a lesser degree, show prices that have escalated faster than the cost of rental. This rental cost gives us a baseline for the cost of shelter aspect of the real estate. When these P/R ratios go down, it means that the price of the homes are moving up faster than the rents – LESS affordability.

Courtesy of The Real Estate Center at Texas A&M University, who has prepared a study comparing different metros around Texas to the nation for 2005 & 2006:

United States                2005 P/R ratio – 22.7    2006 P/R ratio – 24.3
Austin – Round Rock     2005 P/R ratio – 21.2    2006 P/R ratio – 20.3

Note that Austin is actually moving towards a MORE affordable ratio of Prices to Rents, contrary to the average numbers for the whole nation.

One of the lessons to learn from this quick (and maybe over-simplified) example is that Buyers and Sellers make decisions at the macro and micro scales. And like the “current events” on your favorite national news channel, just because you see an orange apron, it doesn’t necessarily mean you are at a hardware store. Weirdness can be navigated if you simply embrace it and acknowledge that as Austinites we are possibly the most prepared city in the nation to “Keep it Weird”. Our market is definitely weird. That is OK! Take a deep breath, and survey your surroundings. It is still possible to asses your “weird” location without resorting to “confusion.”

-Tune back in next week for more tools to avoid confusion-

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