There are a few factors that drive real estate prices higher in a normal market. At the top of the list are the performance of the local economy, job growth, and population growth.
While all of this is true in a normal market: today’s real estate market is anything but normal. As many fewer people can now obtain loans — some legitimately and some not — and as borrowers with loans greater than $417K must now pay much higher interest rates due to market liquidity problems, the national real estate market remains highly stressed. Despite these problems, the Austin market seems to be performing quite well relative to just about everywhere else.
One reason for Austin’s relative market strength is that the city skipped the boom that boosted many other national markets. As the national real estate market soared, Austin struggled to recover from the tech bust with its painful job losses and significant outbound migration. A recent report by Forbes points to another source of strength: in their opinion, Austin is expected to have strongest economic growth over the next few years of any of the top-100 metropolitan areas.
The bottom-line is that Austin’s economy is expected to grow by 32% over the next five years. Not only is Austin booming, but it’s growth rate is nearly 50% higher than #2 ranked Fort Myers, Florida. While economic growth is just one magic factor driving real estate prices, Austin’s population is also expected to grow by an equally amazing 15%. While we all know that population growth is a double-edged sword: it’s one of the strongest reasons to advocate development of a dense urban core. Over the long run, these factors provide a solid foundation for real estate price appreciation if and when the market does return to normal.
Here is a summary from the Forbes article:
To compile our list, we looked at all of the country’s 363 metropolitan areas, defined by the U.S. Census Bureau has a geographic region with a “core urban area” of at least 50,000 people. Because many small metro areas are high growth–and because we wanted to show growth in large cities as well–we split the group into two classes: the largest 100 metro areas (with at least 528,000 people) and everyone else. We use projections run for us by Moody’s Economy.com to show growth in GMP between 2007-2012.
Of course, if one looks at economic growth in the country’s largest 100 metros, the usual suspects jump to the top of the list. With an estimated 32% GMP growth from 2007-2012, Austin, Texas, is the winner for big metros. Atlanta, Seattle, Orlando, Houston and San Jose, Calif., also appear high on the list. What do they all have in common? They’re tech hubs with proximity to universities and a healthy increase in population. Austin’s population, for example, is expected to increase by nearly 15% by 2012, according to Moody’s Economy.com forecasts.
The full article and rankings can be found here.