Whats going on: the national and local market

Over the last few months, much has transpired in the real estate world across the country. Once-hot markets have cooled, foreclosures have risen, and the real estate industry has affected even larger financial markets. It’s easy, without putting things into perspective, to think that even the local real estate market could be headed for real trouble. But a more careful look at what has led to this scenario in the national market, and at what is happening in our local market, leads to a different conclusion.

As with any financial market, there is a natural ebb and flow in the real estate market, and when things go up drastically for sustained periods, it is inevitable that they will come down eventually. This is what has happened nationally over the last few years: many markets rose drastically, seeing increases of 50% in a few years time.

Unfortunately, this meteoric rise in housing meant that in many markets across the country, affordability well-outpaced the median income. Many people could not afford to buy in their market, so lenders and investors adopted sub prime lending practices as a means to provide loans to individuals who couldn’t otherwise qualify. But as these sub prime notes with adjustable rate mortgages rose, homeowners could no longer afford their housing payments. Worse, with prices having dropped even slightly- around 5-10% nationally, these homes became worth considerably less than what the owners owed because of their ever-growing interest. And so the inevitable end to this strategy came to pass: one in five people nationally lost their homes, and the market as a whole suffered.

While Central Texas certainly hasn’t been unaffected by these market swings, it has come out considerably less scathed than other areas of the country. The reasons for this are multiple: in the past few years, our median home price had not risen as quickly or as drastically as other cities, and even between September 06 and 07 it still went up 5.8%. Additionally, our local economy remains strong, and there is still solid in-migration into the Austin area. As a result, our foreclosure rates are lower than most of the rest of the nation.

That being said, there are more homes on the market at the time of this writing then there were just 30 days ago and less general activity. But on the whole, our local real estate market remains healthy.