Plunging Home Prices, Fleeing Companies: Austin's Glow Is Fading
bloomberg.com46 points by petethomas 14 days ago
46 points by petethomas 14 days ago
It's amazing that Bloomberg presents falling housing prices are presented as bad, rather than as an opportunity!
There are a million morons online who claim that increasing the supply of housing somehow never moderates or lowers prices. Then it clearly happens.
The problem with falling prices is that it stalls the market. If you think you could wait an year to get the same house 10% (+ inflation) cheaper, why would you buy now?
Because you want to move in this year. Predicting another 2007 is a fool's game. Thanks to our system of mortgages that are implicitly backed by the government, house prices usually only go up. At worse the price just plateaus for a while. https://fred.stlouisfed.org/series/MSPUS
> house prices usually only go up. At worse the price just plateaus
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.
My home value has dropped 10% since I purchased it, but I sleep slightly better b/c even if I bought my home at the current market price, I would have a higher mortgage payment than what I do now.
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.
Is that "value" real though if nobody will actually pay for it at that "value"? The only thing that is real about that "value" is the property taxes assessed. Also, if you're not actively trying to sell the house, the "value" is meaningless. Unless you're trying to get some sort of loan against the equity, it's just a number on a paper like most of modern finance
If you have a mortgage, it is so meaningless it can bankrupt you.
If you don't have a mortgage, it is money you could spend. What, sadly, a lot of people consider "free money".
If you took out a loan on a meaningless value where the value is later "corrected" to a more sane "value" that forces one to be underwater is not anyone else's fault but the person taking out the mortgage at the higher "value".
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.
> Just because someone doesn't have a mortgage doesn't mean they magically have free money.
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)
> If you have a mortgage, it is so meaningless it can bankrupt you.
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.
And then interest rates drop, the market clears, housing prices go back up and you just miss timed the market.
I live in the Bay Area (East Bay) and feel like it presents such an interesting view into this.
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.
That's a weird starting point. Half of the East Bay SFH have appreciated 30% since 2020, that was a relative low point...
People who need to move to places and will want to buy a house regardless, not merely wait until the price drops further. Being priced out by your logic also "stalls the market" but no one ever complains about that at least from that sort of argument.
What exactly is "stalling the market" and why is it a bad thing? The point of housing is to give people access to shelter in a reasonable location near to their family and work.
1. Some people who aren't time sensitive but intend to buy may wait to see if prices drop more.
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.
If people are scared to buy because the price might drop even more, that means prices are still too high as a percentage of net worth. 60-80 years ago, nobody thought like this. You bought a place and didn't think twice about it. You wouldn't pay attention to the real estate market because there wasn't any point, housing wasn't 15-20x your annual after-tax income where one small mistake and 5 years of your life is down the drain. This obsession with price is a byproduct of high prices.
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.
> 60-80 years ago ... didn't think twice about it
probably because those who bought at that time were rich, and didnt need a mortgage, or their mortgage was small.
Like stalling a plane: the useful momentum is lost. I.e. no one wants to buy (they wait for lower prices) or sell (facing uncertainity at how long it's going to take, and what price they'll get). Only people desperate to move will buy or sell anything.
It's bad because it directly eats into the purpose of housing you stated.
Do you know how happy gen z and lower income people would be if they had the option of doing what you're talking about? Having the ability to buy a house but choosing not to because the market might go down? You are either rich or a homeowner because clearly you don't know the circumstances of being priced out of the market. Tell a low income person "it's worse for your housing affordability if house prices go down" and they will laugh in your face, and deservedly so.
> You are either rich or a homeowner because clearly you don't know the circumstances of being priced out of the market.
That feels like a reach from me simply answering a market dynamics question you asked. Chill maybe?
Because people are throwing a lot money into the rent black hole and even a little equity is an improvement over that and mortgage interest tax deduction can be huge
Mortgage interest is tax deductible in the US?!?!!
“Home mortgage interest.
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.”
This was my first year paying taxes with a full year's worth of paying a mortgage (which means it's also the year with the most mortgage interest paid). The mortgage deduction didn't matter, the standard deduction was still higher.
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.
You could say the inverse about sellers.
Yes, and that only strenghtens the effect: if prices are dropping and they try to sell sooner, there’s more supply, prices drop even more. In a market with increasing prices, if they wait to benefit from increasing prices, supply decreases, and prices rise even more.
Austin is just a bit too hot for the average person. Their summers are fine if you grew up in the desert. But people who move from WhereEversville America to Austin - they're gonna have a rough time in Austin in August. If you've been to Las Vegas in the summer then imagine that temperature.
Austin has a high amount of humidity and is nowhere near being a nice arid desert like say El Paso. I lived in Austin during the summer of 2001, and my dashboard melted. I didn’t know you needed those sun thingies to block the sun. I got one quick after that. Not sure how bad it is now.
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.
> summers are fine if you grew up in the desert
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.
There are very few deserts that are arid without being hot because the primary factor limiting temperature in most habitable parts of the globe is the heat capacity of water in the area vs solar energy. That's why most of the counterexamples are polar deserts.
People will point to a lot of things about Austin to explain this but this is the biggest one in my opinion. I have lived here for 12 years, and the summers are still fucking brutal. I was born and grew up in Ohio, and I just can't get used to it. I like a lot of other things about Texas and the Austin area but the summer heat is not one of them.
Only going to get worse as CO2 levels rise.
Can we be reasonably certain about this? I was aware climate models were showing overall global averages being higher (say 2C) but do we know with any clarity where a specific place, like Austin TX, will fall on that increase? 0C? 1C? 2C? 3C?
Houston, you are a problem (existing at 36ft, being next to the gulf, building in your flood plains. Where are the Houstonians moving to?
I guess folks are realizing that Austin actually is in Texas after all.
I wonder how much of an impact that has. It isn't mentioned in the article, and I don't really know how large of an impact that has in aggregate.
Also, the article references how Nashville is providing some competition. Pretty sure Tennessee is not really any better than Texas in many respects.
That comment was actually meant to be a joke. (Well, mostly.)
1) Big businesses by and large don't give a damn about being in Texas
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.
-Vs in California where beaches and businesses were selectively forced to close and ruined during Covid. - Vaxxed for Covid does not prevent you from spreading it. -Having a choice of schooling for your kids is something most parents want.
Gee I keep wondering why California keeps losing people to Texas
The sad thing is that you and the comment you are responding to are pretty much both right.
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.
It drastically reduces the viral load you have available to spread because you're reproducing so much less of it.
You might have meant it in jest, but it's an actual thing to consider. I want to get the F out, but have things tying me down at the moment. Why? Because I am not respected by my government, and it will not change any time soon. I no longer agree with what the government represents--I haven't agreed for a really long time now--so it's no longer something I feel good about living in. The problem is I don't have a good solution yet on where to land when I do move
> I no longer agree with what the government represents
I guess you hate freedom or something?
When did the Texas government start representing freedom? The current governor and legislature openly pass laws with the express purpose of punishing people and companies that disagree with their ideology. They pass laws seeking to control what women do with their bodies, interfering in medical decisions to the extent that women have had to fly to other states for necessary medical procedures. What part of that is freedom?
Flying is still an option, but some towns/counties have gone so far to pass laws that make it illegal to travel through their jurisdiction to/from receiving care from out of state. This is level of absurdity the local governments have debased themselves.
Is it a coincidence Austin home prices peaked literally the exact month, June 2022, that the Supreme Court overruled Roe v. Wade?
San Francisco home values have come down as well, so no I don’t think so. Likely Austin was just overheated more than others due to the masses of people moving there over the past 5 years
It is interesting that competition seems to come from another mid-sized city (Nashville) rather than a return to megacities. There are plenty of such smaller cities and if there is indeed a move away from 10mln+ sized cities toward 1mln+ sized cities there will be no shortage of offering.
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).
For me the most interesting about all this is that there are so many people that at the same time treat a city as fashionable for a hot minute but then dump it when the algotrend is on the rise.
Like Heidi Klum would say: the one day you’re in. The next day you’re out.
The article itself is actually pretty balanced despite the "doomer" headline.
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.
Austin has been through this before. If you've been around for a while, you know about the building frame that used to sit downtown for years that was supposed to be occupied by Dell.
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.
> the building frame that used to sit downtown for years that was supposed to be occupied by Dell.
You mean Intel :)
A lot of these boomtowns were the result of ZIRP and Section 174. Not saying they will collapse any time soon though, just that the growth phase is over.
The alternative is relocating back to SF, which is an unlivable city at this point.
I made a comment about this 12 months ago. How close is my projection?
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I feel this in my bones. We drove people to vote, worked the rallies, gave every spare penny we could to the point that we met the spending cap of what we could give, and this state is either rigged, or populated with an incredibly slim majority of people whose values are so far from what I consider moral it turns my stomach to look at them and wonder are you someone that supports this madness when I go grocery shopping. Either way, it's time to leave, I can't raise a family in a state that doesn't value education, or peoples bodily autonomy.
I'm always shocked more people don't vote by just leaving crappy states with crappy human rights records.
The people that have the most need to leave are the ones with the least capacity to do so, the ones with the most capacity to leave are generally (not entirely, but broadly) those with the least to fear from the problems.