some numbers

In the previous post, this comment was made:

(context: this was in response to another comment saying it was a buyers market.)

Think so? Even though buy-vs–rent-ratios are so out of whack?…and despite that homes are still listing for double what they sold for ten years before?

On a very early morning drive this AM to the airport I was wondering what the numbers really were.  I know housing pricing hasn’t doubled in raw numbers in the past 10 years and what about the average income, that has surely increased as well?  And interest rates, outside of income that is one of the biggest impacts on buyer’s purchasing power.

Here is what I found.

  • Median home price growth, 2000 to 2010:  +31%
  • Median household income, 2000 to 2010:  +25%
  • Median home price to income ratio growth 2000 to 2010:  +4.5%  (2.45 to 2.56)
  • Average interest rate, 30 year mortgage conventional, 2000 to 2010:  - 3.37%
This sum of that basically is that it the cost of buying of home for the median is just over 1% more expensive in terms of purchasing power now than it was 10 years ago.
Now if you go back to 1990, that is where you see the big change.  The numbers argue that it was between 1990 and 2000 when Austin become less affordable (at least as measured as ratio of income spent).
  • Median home price growth, 1990 to 2000:  +98%
  • Median household income, 1990 to 2000:  +49%
  • Median home price to income ratio growth, 1990 to 2000:  +32%  (1.85 to 2.45)
  • Average interest rate, 30 year mortgage conventional, 1990 to 2000:  - 2.12%

Here we see a 30% rise in the cost of buying a home.

Let’s thank our lucky (lone) star that we are not like SF or California as a whole.  Even after the ‘crash’, the income to home price ratio for SF  is 4 times what it is here and 2.6 times for the state as a whole (including the vast wastelands of places like the island empire).

Within a more recent analytic window, we have seen income growth outstrip home price growth since 2007.  Median incomes are up 6%, median home price is up 2% and interest rates have improved by 1.65 points.  That means housing is 5.35% more affordable than it was 2007.

Reference data:

http://recenter.tamu.edu/data/hs/hs140.asp

http://www.ci.austin.tx.us/demographics/downloads/mfi_10.pdf

http://www.federalreserve.gov/releases/h15/data/Annual/H15_MORTG_NA.txt


13 Responses to “some numbers”

  1. RobG says:

    Longer comment is merited but here’s quick response to ponder: 1990 was a recession year (following the S&L crash of the late 1980s). Austin real estate (actually all of Texas) was down at this time. 2000 was a boom year in the midst of an overheated dotcom bubble. The real run up in prices occurred from 1997/98 through 2006/07 with a downward correction during 2002/03.

  2. B Jentley says:

    Some things to consider…

    According to the 2010 census, the median household income for Austin was $42,689, and the median income for a family was $54,091. According to the Austin Biz Journal, this annual increase was at a rate of roughly 1.5%, with a hiccup in both 2008-9. These numbers trail the national average of 2.5%. Contrast this with an annual core inflation rate in a healthy economy of roughly 3-4%, (according to the BLS), and median salaries in Austin aren’t even tracking inflation. Housing in Austin in the last five years has easily out-paced inflation, which I’ll get into below.

    It’s actually hard to get an accurate picture of the numbers in Austin, thanks in part to the non-disclosure law in TX, which makes tracking comps/sales histories almost impossible. Add to this the subterfuge from the NAR, who’ve been overstating housing sales for the last decade or more (see recent Corelogic report). Further distorting the picture of housing inflation is how all sales statistics in Austin seem to combine outlying areas such as Kyle, Manor and Pfugerville — which aren’t really Austin proper. This offsets the real rate of inflation here.

    There are a couple of extreme examples I can dig up where asking prices are double what the properties sold for in the last decade. Less extreme examples are much more abundant, however, and a cursory perusal of Zillow or Redfin reveals a pretty clear pattern — when a sell price is actually recorded, that is. One example is just two doors down from me: an unremarkable SFH without garage, which just sold about seven months ago for 100K over what it sold for in 2006. There’s an even less attractive home catty-corner from it, right off the railroad tracks, asking more than 100K over what it sold for just five years before. If you follow the logic that home prices in a healthy market track inflation, then these numbers speak for themselves.

    Here are some rough numbers I found tracked by a local resident over the past 6-7 years:

    78702 – average SFH home price increase 150%
    78703 – average SFH home price increase 75%
    78704 – average SFH home price increase nearly 100%

    I do agree that interest rates have a major impact on purchasing power; but perhaps not in the way suggested above. Artificially low rates keeps housing prices inflated. Asking prices necessarily fall when interest rates rise, as potential buyers qualify for less mortgage at higher rates. Higher rates don’t price buyers out of the market — they price sellers out of the market, as asking prices will need to come down in order to facilitate transactions. I also think it’s better to buy with a higher rate and lower price than vice-versa for many reasons that I won’t get into here, though lower property taxes is just one.

    As for the price-to-rent ratio I mentioned — that really is out of whack. I think this is one of the single-most important rules of thumb that any potential buyer should consider before entering into a mortgage. If a house cannot be positive cash-flowed at a rate of at least 8-10% — don’t bother. There may be some exceptions with corporate rentals and student housing, but…who wants to deal with/live around that?

    • bp says:

      I don’t have a dog in the show thankfully since I don’t work in the real estate business. I was just interested in the historical trends. My personal belief is that Austin is more expensive to live in than average but far, far less expensive than its peer cities. But that notion is fuzzy since I lump Austin’s peer cities with cities like Seattle, Portland, SF / Bay Area, San Diego, Boston, and Raleigh but not cities like Dallas, Miami, or Philly. Or said another way, for the quality of life Austin has to offer, it still is undervalued. Hopefully, we never quite reach full value or become overvalued (a la SF or Boston).

      About the data:

      If I can be pointed to other fully documented data sets, I’d be happy to re-run the numbers. I used widely available numbers which I linked to above.

      I don’t trust hyper localized data sets since they are distorted by low volume and by factors that we have a hard time adjusting for. A 50%-100% rise in a few homes prices may be fully justified if they were renovated to support the new price point.

      If I did it again I’d graph it over the full time span so to reflect the full trends and eliminate bump years.

      Btw, the median income number you cited (and pulled from wikipedia) was from 1999/2000 census. Here is where they got that data from: http://factfinder.census.gov/home/saff/main.html?_lang=en

      The best I can tell they haven’t released the income and personal data portions of the 2010 census yet.

    • RobG says:

      Again I don’t have the data to back this up (yet) but I do work in real estate and I know 78704 well. I can say with relative confidence that overall SFR values in 04 haven’t gone up 100% in the past 6-7 years. The past three years have seen prices generally holding steady and even declining for certain properties. This can be tough to measure because many properties in central Austin have been added to or remodeled, thereby skewing the numbers. And while not complete, the MLS does have a significant number of actual sales price data as most agents now append the information to the listing. In addition, the MLS gives access to recorded mortgage amounts, which can be used to give a rough idea of a property’s purchase price.

      If you would like to see a really fascinating view of the changes in Austin, look at the interactive graphic on today’s NYTimes.com. The graphic can be found as part of the article on Detroit’s population decline. I just spent the past half hour looking at the census data by census tract (very fine grained) on median household income, house prices, education, household makeup, etc. What struck me most was that a significant portion of central Austin has seen an overall decline in median household income over the past ten years. Most of central Austin has experienced an increase in median home values but very few census tracts exceed 100% over the past 10 years. Check it out for yourself at http://goo.gl/hHAsJ

      • RobG says:

        Correction, the NYTimes graphic represents survey data taken 2005-2009 (not the 2010 census) and presents changes since 2000.

  3. my personal experience only goes back a few years. I find that 78746 zip is often just as expensive as many of the peer cities, sometimes more. the property on wild basin seems like a really good price as a lot in the area can run between 300-750k. I’m less familiar with the other areas.

    I need examples like the wild basin property for my annual visit to the tax man. they taxed my lot (just the land) for about the same price as that home with the same sized lot is asking. any idea how long it was on the market? it’s pending and I bet that happened quick. if I had half a mill laying around, I’d buy it too.

    if I didn’t have kids in the eanes school district…

    I stick to my statement with a side note, it is a buyers market compared to what it was three years ago, before the financial debacle. if we go back in time, I can also remember when gasoline was less than $1 a gallon and a dime bag still cost $10… ok, I have no idea how much a dime bag costs now… maybe there is less in it? but everything costs more now than 20 years ago. I can hardly afford to buy milk any more.

  4. B Jentley says:

    Hi BP

    Median income: Those numbers were actually some of the more generous numbers I could find, and seemed roughly in line with #s I’d seen cited elsewhere, including Biz Journals; City-Data.com cites median household income for a family in 2009 at $50,132, which isn’t too far afield from the numbers above.

    The numbers for

    Remodels: unfortunately, the ROI for remodels/renovations are never dollar-for-dollar, (and that’s according to the NAR), so I don’t think that justifies the hike in asking prices over the last few years. I think it has more to do with speculation and a bias toward debt…but that’s another story.

    To be fair, there have been some asking prices tanking in the last six months, but in many instances, it’s a fall from crazy, to only slightly less so. I know that’s not scientific, but I’m refraining from posting actual properties on here lest I potentially tramp on someone’s feelings.

    I completely agree that Austin is a damn fine place to call home. It’s a classic American city full of some really great people.

  5. I hope I didn’t tramp on any feelings.l I think it’s a great house, in a great location at a good price and I suspect the days on market would back that up.

    people pick listing prices for different reasons, some are willing to list at a “crazy” price and wait, hope for the right buyer. some have personal reasons to list at a reasonable or realistic price to shorten the process that can be painful to some people. some are more “motivated” and ready to move now.

    I have no idea of the situation on the wild basin home but I like it and that is a reflection of my personal opinion, not professional. taste is very subjective. many buyers want that mcmansion look, or that “tuscan” or the dreaded “french chateau”. I like that house and if I were a buyer, I’d be VERY interested. to me, that makes it a buyer’s market (if I were a buyer)

    if that contract falls through, contact me!

  6. MisterM says:

    Paul – I’m in agreement with everything in your last post. Especially your thoughts on the Wild Basin place.

    Of course I’m biased, b/c I’m the person with the offer in on it. We love the house for what it is, and have full intentions of staying true to the original with any updates.

  7. Mister M,

    congratulations! we almost bought a lot on wild basin to build the house we are in. and I was over that way for dinner at a friend’s house friday night. it’s a great area.

  8. B Jentley says:

    RE: Asking prices

    I think it has less to do with motivation, and more to do with sound pragmatism when a seller lists a house for a realistic price. Very often a property sits for over 200 days. I wonder why that is? If/when it does finally sell, any buyer trying to do his/her homework never gets to see the actual numbers.

    Meanwhile, ‘the right buyer’ as described above reads like a euphemism for greater fool. I wonder how long this guy will hold for the right buyer:

    http://www.zillow.com/homedetails/701-Barton-Blvd-Austin-TX-78704/29325497_zpid/#{scid=hdp-site-map-list-address}

    Sold for 105K in 2001…that must be one hell of a breezeway/garage conversion.

  9. yet people do buy into the greater fool theory. a realtor once told me “I’m gonna find one of those rich californians with money falling out of their pockets and I’ll sell it to them”. as if people from california are gullible and have no real estate experience.

    value is a moving target. something is only worth what somebody else is willing to pay to own it, not what somebody wants to get for it or what an appraisal says it’s worth. until money and title trade hands, it’s a game of guessing.

  10. B Jentley says:

    Supply and demand dictate the value of an asset in a normal, open market; however, if supply is manipulated and demand is aggressively incentivized, it distorts the market and prevents real price discovery. The housing/credit bubble was an extreme example.

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