Recently the Kenan Institute, in partnership with UNC Kenan-Flagler Business School, launched the American Growth Project, which aims to provide economic data, analysis and forecasting for cities and counties across the US. This project supports government officials, business leaders and decision makers, in near real time, short-, medium- and long-term economic forecasts. Why is this interesting to us at AustinRealEstateHomesBlog.com? They recently released a report and named Austin the #2 fastest growing US city. They used some interesting metrics and I think it has some parallels to the Austin housing market, or at least some trends we can use to extrapolate where the housing market is heading as we head into 2023.
Austin Named the #2 Fastest Growing US City
This report was especially interesting because they looked at more intricate measures like industry growth potential, labor flexibility and readiness, skills levels and gaps and the urban/rural economic divide versus just population growth. Not only are they looking at more long standing issues, they also looked at the effects of pandemic related migration and work from home policies, something we don’t typically see as a metric on some of these more general lists.
Local Economies Fare Differently than the US as a Whole
They reported in 2020, the US economy contracted by 3.4%, while Austin’s economy grew 1.2%. Las Vegas’ economy, on the other hand, dropped 10.2%. They attributed this difference to resident’s abilities to work from home during the pandemic. The lesson? You can’t always use what the media is reporting about US economics to predict local economics. Same with the housing market. You can make generalities about the US as a whole or a state as a whole, or even a city as a whole, but real estate is hyper local. What’s going on in one town, or even neighborhood, might be completely different than the neighborhood or town right next door.
Which Cities Made the Top 10 Fastest Growing US Cities?
Here are the top to fastest growing US cities according to the American Growth Project:
- San Francisco Bay Area
- Austin, TX
- Seattle, WA
- Raleigh and Durham, NC
- Dallas, TX
- Denver, CO
- Salt Lake City, UT
- Charlotte, NC
- New Orleans, LA
- Orlando, FL
What Metrics were Used to Make the List?
They analyzed the 50 largest cities in the US, as ranked by speed of economic growth. They looked at 2022 GDP Growth, GDP, GDP share of US total, GDP rank, population in 2020, population share of US total in 2020 and population rank. Austin saw a 4.3% GDP growth in 2022, $216 billion GDP, took 0.9% of GDP share of US total, ranked #22 in GDP, had a population of 2.3 million in 2020 which was 0.7% of the US total and ranked #33 in the largest cities list. They also included metro areas, not just these specific cities, giving a more accurate view of how these economies work.
What’s Ahead for 2023?
This report explains manufacturing and construction have historically fallen more during recessions, especially ones in which the Federal Reserve increases interest rates. Though we are seeing demand for houses and cars shrink with increasing interest rates, we are still seeing supply shortages, which is a different trend from previous recessions. On the other side, tech experienced one of the strongest recoveries from the 2020 COVID recession. Will we see the same trends in 2023? If tech is hit, Austin will see some sort of a slowdown. However, tech is not the only industry in Austin and Austin is more affordable than San Francisco and Seattle. Will tech employers and employees in these areas migrate to Austin looking for a more affordable place to operate as they have over the last decade? Hard to say for sure, but definitely some interesting trends to consider.
What’s Next for the Austin Housing Market?
So far, we are still a stable housing market and even still in a slight seller’s market in some areas, others we are more balanced. Has the market slowed? Absolutely. Did it need to slow down some? Yes. Offers at 20-30% above an already high asking price were not sustainable. Yes, interest rates were lower and people could afford more. However, they were also settling for the house they won in a bidding war, not the house they actually wanted. There were no buyer concessions. They were having to give everything to the seller. Not the case any more. Sellers are reducing prices, offering to pay the buyer’s closing costs and are willing to work with the buyer’s timelines. We saw none of these things 6 months ago. Sellers back then were even asking for (and often getting) 3-6 month free leasebacks where the buyer pays the mortgage and the seller stays for free. Insane.
Can’t Buy Because Interest Rates are Too High? Maybe Not
You still have options. Some sellers and builders are willing to pay to reduce your interest rate for the life of the loan, so you’ll pay less than market rate and your total mortgage payment will be lower. Another option are adjustable rate mortgages or interest only loans. If you aren’t planning to stay in this house for longer than 5 or 7 years, these are especially appealing. Adjustable rates start at a lower interest rate and go to market rate in a certain time period if they aren’t paid off. Interest only loans are structured so you pay only the interest during the first several years. Since you don’t pay off too much of your principal in the early years of your conventional 30 year fixed loan term, you’re in a similar situation at the end of a few years in terms of how much principal you have left to pay.
Of course there are risks with both of these loans. If your plans change and you want to stay longer, you’ll either need to refinance or take the market rate and payment when the loan resets. If you are in a situation where you can’t refinance, you’ll have to absorb the rate. It could be lower or higher. If your home’s value goes down, you might owe more than you can sell it for and have to pay on that end. Home values aren’t guaranteed to go up, so you could face this challenge if you have a 30 year fixed loan as well.
Remember, when interest rates do go back down, you can always refinance as long as you don’t have a prepayment penalty. If you have an adjustable rate mortgage and want a fixed rate so you don’t have to worry about rate fluctuations, you can switch to one. But, in this situation, you do have to wait until interest rates go down and no one can predict when that will happen.
Bottom line, if you want to buy a house and want to do it in a business-like fashion, not an emotional scramble where you throw all your money at a seller, now is the time to buy. We can recommend several lenders who have worked in markets like these and know how to help you combine saving money and minimizing risk.
Cash Buyers Are About to See a Huge Opportunity
Builders have a lot of inventory they started several months ago when the market was hot. They’re wanting to get it closed before the end of the year and are starting to make deals to be able to make that happen. My prediction is come early December, cash buyers who can close before the end of 2022 are going to see some deals. Most production builders are publicly traded companies and want to keep as much revenue in 2022 to offset their 2022 costs. They’re usually willing to make deals in order to accomplish this. Once you get into a period where financed buyers will not be able to meet the end of year timeline, you’re going to see builders scramble to keep revenue numbers from falling.
Motivated sellers are the same way. If they need to sell and they have a timeframe, they’re going to meet the market where it is. If that means reducing the price to find a buyer, they’ll do that.
Historically, buyers who buy in November and December pay less than they do if they waited until the following spring. Though this year is a bit different than years past, I think we’re still going to see that same trend. Take advantage of the outside forces that are distracting buyers from house hunting and snatch up a good deal while the market favors buyers. When buyers get accustomed to the new interest rates and feel the spring itch to buy, we’re going to see demand increase.
Not Sure Where in Austin You Should Look for a Home?
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Looking to Buy a Home in the 2nd Fastest Growing US City?
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