Economist: Austin rent decline gives clues about home price direction
AUSTIN (KXAN) — Central Texas is no longer leading the way in housing costs well above what's expected.
A study by Florida Atlantic University compares current housing costs to what you should expect to pay based on historical price data.
The April 2024 study has the Austin market ranked No. 87 in the country, with the average house costing $470,662. That's compared to the expected price of $418,514, a 12.46% premium cost.
As recently as February 2022 the Austin market ranked number two in the country with homebuyers paying a whopping 64.8% more than historical price data indicated they should be spending.
FAU Housing Economist Ken H. Johnson talked with KXAN about the study and the reasons behind Austin's pricing drop.
Tom Miller: Your research examines the premium buyers pay to live in various U.S. cities. Can you explain what that means and what the data shows now?
Ken Johnson: We have a 30-year history, a monthly history of housing prices going back through time, and we can predict where housing prices statistically should be. (We) compare that to where they're actually selling and closing, and then calculating the percentage difference. An easier way to think of this is, suppose the average price in Austin for a loaf of bread was $1 in the supermarket, but you went in and paid $1.25. We clearly see that we were paying a 25% premium.
Miller: Specifically with Austin, in your most recent findings you wrote that it stands out to you as an "ideal option." Why is that?
Johnson: Austin two years ago was the second most overpriced city in America. You topped out somewhere around $565,000 to $570,000. Prices have been moving down significantly for the last two years. Our new data shows you're going to be down about 17 to 18% in terms of price. Now all of a sudden price is barely above the long-term trend. For Austin, you're about 11 to 12% above. Income is very stable and rising, expected growth is at over 30% for the next ten years in terms of population. So many things are lining up.
Miller: It's not just Austin. It's a lot of the Lone Star State that is seeing some positive trends. What are you seeing across Texas?
Johnson: Texas as a whole is probably one of the better states in terms of housing prices for homeownership and for rent. You've set up an environment across the state for projected growth, both in population, jobs, and income, therefore stable housing markets should follow suit. Additionally, going forward no matter where you are in in the state, rents are pretty stable.
Miller: I want to go back to Austin. You wrote that Austin's housing in a way follows its rental market. What do you mean by that?
Johnson: If rents are going down, prices are going to go down, because think of housing as an investment. If I buy and my rents are going down, then the value of my housing is going to go down. So rents are flattening out, and I expect to see prices flatten out. That's another reason why I don't think there'll be a continuous or an ongoing continual deep dive in terms of pricing in Austin. I think you've seen most of the fall in prices right now already.
Miller: In terms of some comparisons, when we look at the premiums people are paying, where are the markets where it's very high right now, and which ones are doing better than Austin?
Johnson: The two most overpriced markets in the country right now are Atlanta, Georgia, and Detroit, Michigan. New Orleans is probably the best buy in the country right now, the price has been falling pretty precipitously for the last couple of years.