Are Austin Homes Overvalued?

According to this article, the answer is yes. It’s suggested that the Austin housing market is overvalued and that, instead of buying a new home, potential buyers should invest or rent for the time being. Let’s look at what they’re actually saying, though. They didn’t tell us anything we didn’t know.  We already knew that Austin experienced among the highest appreciation in the nation this past year. As far as I can tell, all this study did is compare our prices now to what they were recently. Their measure of over or under value is merely how much or how quickly prices have gone up. It doesn’t say anything about the strength of the economy, the real migration numbers coming here, the relative Austin price compared to other tech focused cities, etc. To me “where prices are now compared to where they were recently” is only one, and arguably a bad, measure of value.

What’s more, during the pandemic our whole value assessment changed in regard to housing. With basically the whole country opening up to remote working, the Californians (among others) have decided to move here in droves. They assess Austin to be a good value, as they are running on a different value equation. They are looking at all their options NATIONALLY, whereas before, people primarily thought about value LOCALLY. Yes, Austin is the most expensive real estate in Texas, so much that it even turns the stomach of people in bigger cities like Dallas, Houston, and San Antonio. From only a Texan perspective, Austin is indeed overvalued.

The pandemic changed everything, though. It no longer matters as much if Texan migrants think we’re overvalued. What matters just as much, if not more these days, is what our value looks like to those around the nation. The graphic below makes this point well:

This is the value equation in which people are using to assess Austin. It’s not “how does Austin compare to Dallas or San Antonio?” Rather, the question is “how does it compare to a dozen other cities in the US that are viable options for tech workers to live?” Also, note that this graph analyzes Austin’s value AFTER a 30% increase compared to the competitors. Those other cities don’t stand still while Austin appreciates, so that 30% relative increase can take a long time to achieve. Albeit not as fast, the other competitor cities have definitely been appreciating rapidly this past year as well, and so Austin still compares pretty well, relatively speaking.

Another study worth mentioning is by WalletHub, in which they recently looked at 18 different metrics (including things like job growth) and concluded it to be the “second most attractive housing market in the US.”

A good question to ask when gauging if Austin is overvalued is, what do you think goes into a value assessment? Is it only based on where we were a year or two ago, or does it factor in other things as well, which make it more or less attractive to migration from other states. Does your value metric factor in job growth, economic strength, etc? If so, I think Austin’s standings are much stronger.