If you have been in the rental market lately, you know what I am talking about. Except for certain part of Austin, populated by high rise buildings, our rents are not as high as most metropolitan areas, but the are high for Austin. This is true, especially if you have rented for a few years and now confronted with rate hikes and are looking for a more affordable place to live. Regardless of the motivation to rent, one can not overlook the high rents. So, why the rents are so high? Or if the rents are high, why not get out of the rental market and start paying mortgage and build equity instead of paying hight rents? The easy answer is that there is a housing shortage and demand for rental unit is high, so the rents are going up! But that is just one part of the story. The real answer lies in the ‘affordability’ of buying a house in Austin.
Let’s examine how much a household earning equivalent to the median income in Austin is expected to pay, if they were to buy a house. According to the latest (June 2015) statistics the median household income in Austin is $52,431. Austin board of Realtor’s statistics reports that the median price of a house in Austin during the same month was 272,250.
So, at this income level, with a %4.25 interest rate and a 2.2% property tax rate, this family is expected to pay a monthly mortgage of $1771.46. That is about %40.5 of the family income, well above the %28-%33 range that most bank qualify a person for a loan and even above the %38 total debt ratio (ratio of total debt payments, car payment, credit card payments, etc.) which is another qualifying ratio. This explains why people can’t afford to buy a house and, wanted or unwanted, need to rent.
So, unless the housing prices comes down (anyone thinking a housing downturn is around the corner!), or the income level rises the equation is not going to change dramatically. If anything, with talk or interest rate stabilizing or even going up, things may get even worse.
So, when this is upward trend is going to end? The answer is more ‘affordable’ housing built and, with improving economy, a rise in household income. Both factors help the equation. You can see the signs of the first part all over the suburbs. Houses built in Cedar Park, Leander, Round Rock, Georgetown in the nOrth and Manor and Kyle and Buda in the south. Not all of houses under construction is to be considered ‘affordable’ but enough of them are below that ‘median’ price to make a difference.
One last variable in this equation is the influx of new people into Austin. Every article mentioning Austin as desirable place to live adds to that influx. No matter how one thinks about the new people moving into Austin, it is the life blood of a vibrant city and should continue. With the right planning and infrastructure put in place, it should be managed correctly.