Angelos Angelou, a local Austin economic guru, commented recently on the long-term effects of the current housing slow down. With tight credit, reduced transaction volume, and a slight dip in housing prices, builders have reacted by dramatically cutting the number of new housing units under development. From 2007 to 2008, Austin housing started plunged 55% from 18,000 to 8,100. This number is predicted to be as low as 6,000 this year.
With more than 40,000 new residents arriving in Austin each year, new housing units are very quickly absorbed. Since housing prices are determined by supply and demand, reduced supply relative to population will help restore market equilibrium, and may eventually cause prices to rise again.
Here is a summary of the very interesting article from Community Impact News:
National builders’ woes will halt new home construction in a still-vibrant Austin market, Angelos Angelou predicted in his 2009 economic forecast, released in January.
“My fear is that national developers may have overreacted, and Austin may be penalized in the form of lower home starts, which eventually can create an artificial shortage,” said Angelou, principal executive officer for AngelouEconomics.
Central Austin housing market data
According to Angelou’s math, Austin has grown by about 60,000 people annually in recent years, with a natural growth (the difference between births and deaths) of about 18,000 per year. That means 42,000 people are newcomers to the area in need of housing.
In 2007, Austin had 18,000 home starts, but in 2008 only 8,100 housing units were built. He said 6,000 units are expected in 2009.
“That’s not enough. The ideal number of home starts for Austin is 11,000. Obviously, business conditions dictate that only so many units are being built because the credit markets are frozen,” Angelou said.
The largest decline in home starts has been in the $200,000 and under price range since fourth quarter 2006, according to data from housing data analysis firm MetroStudy.
“Capital constraints faced by builders and the tightening in credit for buyers played large roles in this decline,” said Eldon Rude, head of MetroStudy in Austin. “While starts of homes priced below $200,000 will likely continue to slow in 2009, most of the decrease in activity will be in the higher price points.”
Wait, wait — don’t sell me
Angelou said that now is an ideal time to buy, but those thinking of selling should wait for the housing shortage.
“You don’t want to be selling now. This is not a seller’s market at all; it’s a buyer’s market,” he said. “I would not even think of selling a house until two years from now, at least.”
Owners whose home values have dropped should not panic and sell, said Mark Sprague, Austin partner for Residential Strategies.
“You haven’t lost any equity if you haven’t sold your house,” he said. “It’s like a stock. You have to wait for that equity to come back.”
Renting out homes instead of selling them could be a viable option for homeowners wanting to move immediately, Angelou said. Rental prices are expected to remain stable, and the rent money collected should help cover the payments on a new home.
Read the full story here