Yesterday, I wrote part 1 of my article on the Texas real estate bust that was based on hearing war stories from real estate agents and mortgage brokers who were in the business in the 1980s.
So with the 1980s not being very far away, have we learned anything?
- Reports from the Austin Board of REALTORS shows that about 1 in every 3 or 4 homes are a secondary purchases (non owner-occupied). Most local agents can tell you that about 20-40% of their business been out-of-town buyers and investors.
- Homes are being built at a ratio of more than 1:1(one home for every 1 job). See our previous forecast.
- Properties in some areas are being purchased for greater than asking price because "they will appreciate". No thought is given to debt burden, cash flow, or profitability. Previous article.
Although interest rates are still at historic lows, one thing is true. Real estate goes through a constant cycle of inflation and recession. Houston and San Antonio are flatter markets while Austin and Dallas have higher peaks and lows.
SO I ASK...
- If 20-30% of buyers in Texas are from other states, what happens when the economies in those states worsen OR get better? The answer: there will be a flood of homes on the market because those owners will sell.
- If home builders keep getting ahead of themselves an overbuild, what happens? The answer:both new and resale homes will sit on the market due to greater availability of inventory.
Like the Texas A&M Research Center, I do not believe Texas will experience a colossal bust like other states this year because our economy is more robust. We have job growth combined with population growth. The problem is that buyers in high-demand cities like Austin and Dallas may get ahead of themselves, leaving us to wonder where we will be when the Texas real estate market sees a correction.
Read more about the Buyer Market Apocalypse.
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