Plunging Home Prices, Fleeing Companies: Austin's Glow Is Fading
bloomberg.com
bloomberg.com
There are a million morons online who claim that increasing the supply of housing somehow never moderates or lowers prices. Then it clearly happens.
From the article:
> Home prices have dropped 18% from the pandemic highs seen in May 2022, the most among the 50 largest US metro areas
If I lived in Austin, I would wait another year before buying a house even if I wanted to buy one soon. To the parent's point - it might get even cheaper.
Watching the "value" of your home drop 18% is emotionally hard for people, even people who don't intend to sell. It's risky if you just bought the house because it could put your loan underwater.
Obviously, this isn't ideal and buying a home today at 7% interest rates (with no plans to increase rates further) would be a tough to pill to swallow if your value will drop further.
If you don't have a mortgage, it is money you could spend. What, sadly, a lot of people consider "free money".
Just because someone doesn't have a mortgage doesn't mean they magically have free money. More than likely, they paying rent. Unless you're a zillenial that's moved back in with the parental units, but that's a tangential conversation.
I'm talking about people who have paid off their mortgage. They can re-mortgage their house, which would make a large sum available to them right then and there. I've even heard of people doing this when a house gains value: "extend" the mortgage, which gets you the gain of the house value in spendable cash ...
(and I definitely agree that's a horrible, terrible, no-good, even potentially financial-system-destroying idea, but people will, 100% certainly, do this)
Not sure what this means?
Once you have the mortgage, if you can keep paying it you're fine. Whether the house value on paper is higher or lower doesn't make any difference.
My house has twice gone down in paper value below what the mortgage balance was at the time. As long as I want to keep living there, that doesn't mean anything.
2 years ago: “Wow, I can’t believe that house went for 20% above asking!”
Now: “Wow, I can’t believe that house went for 20% above asking and has appreciated since 2020.”
If you want a house now and can afford it, you will buy it now.
2. Home builders obviously care about the price of houses they may build and sell. If the estimated prices of their future construction drop a lot from previous plans, they may abandon plans to build additional homes. Like all businesses, they buy in bulk, they deal with debt markets, they have multi-year forecasting, etc, and dramatic changes in the market may cause them to reevaluate profitability of future construction.
Point 1 may cause further drop in prices, and point 2 may restrict supply from growing.
We need to rip this bandaid off and get it over with. There will be a temporary economic dip due to the wealth effect, but that painful transition only has to happen once.
probably because those who bought at that time were rich, and didnt need a mortgage, or their mortgage was small.
It's bad because it directly eats into the purpose of housing you stated.
That feels like a reach from me simply answering a market dynamics question you asked. Chill maybe?
You can deduct home mortgage interest on the first $750,000 ($375,000 if married filing separately) of indebtedness. However, higher limitations ($1 million ($500,000 if married filing separately)) apply if you are deducting mortgage interest from indebtedness incurred before December 16, 2017.”
It used to matter more, before the Trump tax plan significantly increased the standard deduction. The mortgage deduction is bad tax policy but it's hard to get rid of.
Deserts are low precipitation, not necessarily hot. Austin is not arid. It's not West Texas.
> If you've been to Las Vegas in the summer then imagine that temperature
In the midwest we say "it's not the heat; it's the humidity." Vegas is hotter and dryer than Austin. They might "feel" similar, but how people stay hydrated and how they stay cool will be noticeably different.
Tucson is also hot, but I love dry heat. Wear a hat and hydrate, you’ll be fine. Austin had some really cool swimming holes though, it wasn’t a bad place nature wise.
Also, the article references how Nashville is providing some competition. Pretty sure Tennessee is not really any better than Texas in many respects.
Oracle is following a tax incentive. Any company willing to move today is also willing to move in 3-5 years when your tax incentives go away. Playing the tax incentive game is stupid for the populace, but the politicians love the press when somebody comes in. None of these big companies that are playing tax incentive games are employing people that require advanced degrees--they're just body shops.
2) Individuals, however, are finding out that they care more than they thought
While Austin is an oasis of sanity in Texas, it is still in Texas.
This means that your healthcare is abnormally affected by the existence of nitwits. This means that anti-vax is rampant around you, and you are more likely to get Covid, measles, etc. Education is affected by religious dorkbags of varying sanity unless you can completely opt out for private schools. Your dating pool has a much larger chunk of religious people for better and worse. And the cost of living isn't that much worse than California--which generally has better weather.
Gee I keep wondering why California keeps losing people to Texas
I kinda can't believe I'm saying something positive about Greg Abbott, but in early and mid-2020, his Covid policies were quite sensible. He locked down for a short while but understood that long term lockdowns weren't a viable solution and opened back up pretty quickly. He then instituted a statewate mask mandate, but he said that the rules would at least be based on some scientifically rational thinking - that the mandates would be in response to infection levels and the capacity at hospitals. This, to me anyway, seemed a lot more rational than some coastal liberal bastions that were closing beaches, etc.
But Abbott got absolutely pilloried by the far right GOP for his mandates, so then he tacked hard to the right and passed laws prohibiting any kind of restrictions by local authorities. It was a clear and undeniable capitulation to the far right, and I think that experience probably kinda spooked him. Since then he has only doubled down on policies favorable to the MAGA crowd, etc.
I guess you hate freedom or something?
What will be the optimal urban shape and size in a much more digitally interconnected world? It still an open question. The pandemic forced people to recognize this is a major new dynamic but we are far from a new equilibrium. The Austin boom and (purported) bust might be seen as exploring the new efficient frontier.
The conjecture would be that smaller cities, sized and organized to offer the amenities and opportunities of the traditional metropolises of the 20th century but where people are not forced to pay disproportionate noise, polution and overcrowding penalties will eventually become the standard pattern.
Much will depend on the precise non-linear dependencies on scale (both negative and positive factors).
Like Heidi Klum would say: the one day you’re in. The next day you’re out.
As a (relatively) long time Austinite, a big part of the appeal of Austin for a long time was that it might not have all the amenities or infrastructure of a big metropolis like NYC, LA, SF or Chicago, but because it was so much cheaper, you could actually afford to take advantage of what the city had to offer. That tradeoff has gotten significantly worse recently. I.e. Austin never had the cultural attractions (major museums, first class theater, architecture, etc.), big league sports teams, perfect weather, great geography, etc. of various bigger cities, but it did have good "2nd tier options": Lady Bird Lake (Town Lake to us oldies), Lake Travis, great music scene, etc. These made Austin a great option if you wanted more of a career/life balance.
But while Austin really started getting ridiculously unaffordable (for what it offers) I'd say starting in the early 2010s, it just got into plain stupid "meme stock" territory during the pandemic. I'm not sure if it was some combination of Elon Musk/Joe Rogan/etc., but people elsewhere got this silly hyped up vision of Austin. When I first moved to Austin I was worried none of my friends from the coasts would want to visit me, and then for the past couple years if I told people I was from Austin I'd always hear "Oh, I hear that it's such an awesome city!" which honestly was a bit weird to me. Don't get me wrong, I always really liked Austin and it has a ton to offer, but the negatives have started to outweigh the positives: it's always been crazy hot during the summer, but 2023 was insane and probably a peek of what climate change has in store; public transportation is pretty abysmal so if you don't live close in to the city you'll be stuck in horrendous traffic; but the crazy explosion in housing prices mean that anything remotely central is egregiously expensive; being a woman of reproductive age can simply be dangerous in Texas (even if you desperately want to have kids).
So I think what is happening is a much, much needed correction. Austin still has a ton to offer, but not at the stupid prices of the past couple years. And if anything, housing has really started falling because there recently has been a ton of multi-family projects that have come online. I mean, say what you want about the lack of regulation in Texas, but at least we're solving our housing problem here with the only solution that really works - building more housing.
I think you're right, though, that there's been a tipping point. Austin used to be the "Slacker" city, where you could afford to live there while waiting tables and playing in your middling indie band. But the last few times I've been there since moving away, that roughness seems to have disappeared, with a certain branded sameness everywhere. The Alamo Drafthouse is great for the city when it's unique, but when every business is trying to artificially mimic that kind of ironic detachment, it gets boring.
You mean Intel :)
The alternative is relocating back to SF, which is an unlivable city at this point.