Why Austin is the hottest housing market of 2021

Austin Board of Realtors’ Job Hammond joins Yahoo Finance Live to explain why the Texas city has seen explosive growth in recent years and what that means for homebuyers.

Video transcript

AKIKO FUJITA: US housing starts rose sharply in November, hitting an eight-month high, even as supply shortages and a tight labor market continue to hamper progress there. Residential starts rose nearly 12% last month. All this comes, of course, as homes continue to sell at a record pace. Prices continue to soar, but one city in particular stood out to homebuyers. Austin, Texas is on track to become the least affordable major metro region outside of California by the end of the year. That's according to Zillow.

And Austin is Yahoo Finance's hottest housing market of the year. Let's bring in Joe Hammond, Austin Board of Realtors. Joe, it's good to talk to you today. In many ways, what we're seeing in Austin feels reminiscent of some of the major tech hubs we have seen, like a Seattle, like a San Francisco. You've got the companies migrating in, the employees following and pushing the prices higher.

JOE HAMMOND: Hi, Akiko. Thanks for having me on. And it's certainly a dynamic market. You know, Austin, Texas is not new to being successful. For the last 20 years, it's been a place where people want to live, grow a family, work. And I think it offers a fantastic climate and environment for those who want to be here.

ZACK GUZMAN: Yeah, I mean, my uncle lives down there. I was out in Dallas for a lot of the pandemic. I was visiting quite a bit. I mean, it's exploding right now. And there's no shortage of reasons as to why we've seen a lot of companies, including Apple and Tesla, really focusing in on the Austin market. I mean, how much of that, do you think, is really driving some of the price action we've seen, as so many people have relocated in the pandemic?

JOE HAMMOND: Hey, Zack, and it's certainly a place that people want to go to. We have about 184 people per day moving to the Austin area. When the census was released earlier this year and in April, it showed Austin as the number one growing MSA, Metropolitan Statistical Area, in the United States with more than a million population.

It's continued to grow from interest for companies that want to move here. We have a beneficial tax situation. There's an environment called Chapter 313 which allows for property tax abatements for companies that are willing to build buildings and offer jobs to employees, which really helps out the Austin economy. So it's a great place to live, great place to work.

AKIKO FUJITA: With that said, I'm looking at some of the numbers that you have here in November. More than half of the homes sold between $250,000 and half a million dollars. I mean, maybe my perception here is skewed, but that doesn't seem like a very high price point for a market that's in so much demand. How much higher do you anticipate it'll go over the next several months, especially as more homebuyers try to come in to lock in those rates before the rates go up?

JOE HAMMOND: You know, there's certainly going to be demand on houses. We're up. We're at a median price with MSA at $470,000. But there are a lot of affordability options that are out there. Houses that are typically geared towards first-time buyers or those that are moving up between 250,000 and 500,000 are out there. It represents more than half the sales that we're doing. So there are deals to be had. There are houses that are out there that are affordable for all price points. The point really is you need to hire a professional licensed realtor who has experience to be able to help you guide you through the process.

ZACK GUZMAN: Yeah, to Akiko's point there, Joe, Zillow predicting by the end of the year, Austin's going to be the least affordable major metro outside of California, already surpassing Boston, Miami, New York City, some of these other cities that get quite a lot of attention. So I mean, it's been pretty wild to watch that happen in Austin, Texas. I mean, does that maybe carry over to some of the other surrounding cities in Texas-- people are drawn into Austin? Or is it the case that maybe it's the only, I guess-- I don't know if we want to say leaning left bastion there in Texas. I mean, what do you see playing out on that front?

JOE HAMMOND: Well, the short story is that we need more houses nationally. I mean, the estimates are that we're about 5 million houses short nationwide. So we do continue to expect housing stock need for 2022 and beyond. You know, affordability can certainly be an issue. There's no silver bullet to be able to fix the affordability challenge.

But we have a concept called the all of the above strategy, which can really help promote competitive environment and a healthy access to the real estate market. And you do that by collaborating with local governments and officials, streamlining the permit process, and allow the local government leadership to develop a land use code that will allow for things like density. And when we do that, we'll bring affordability and we bring houses that are closer in so that people can be closer to work.

AKIKO FUJITA: Inventory is certainly something that so many cities are struggling with right now. I mean, how does that look for you? And specifically, on some of these newer homes, how much of the backlog are you starting to see ease up because of the supplies flowing through? Or is it about to get worse?

JOE HAMMOND: You know, 2021 was kind of a perfect year of economic success. The stock market increased. We saw gains in the crypto market, record low unemployment numbers. Many families had excess cash in their bank accounts, and interest rates were low. So this was all a good thing. But the need of homebuyers have changed ever since COVID. So the tiny home movement was put on hold. People were seeking houses that were slightly larger to accommodate things like home offices and gyms. And additional living space was preferred over going to downtown area.

So I think that migration from the city to the suburbs is happening. And we're also seeing a lot of generational buyers, too. So you think about millennials. Millennials are now our largest home buying segment. And-- you know, and they're becoming a real economic force when it comes out there. They're expected to take on smaller homes closer to the cities. And now what they're doing instead is creating families and moving out to the suburbs.

We're also seeing other generations, you know, hold onto their houses a little bit older. Older generations are staying in place, as opposed to downsizing. And when they downsize, they're only downsizing 100 or 200 square feet. So we're also seeing multigenerational families move together to be able to save money and afford things.

AKIKO FUJITA: Yeah, that seems to suggest still tight inventory going into next year. Joe Hammond, Austin Board of Realtors, good to talk to you today. Appreciate the time.