Every January, the local Home Builders Association hosts the Economic Outlook forum for the year. For 18 years, Eldon Rude, with 360 Real Estate Analytics, has presented the statistics and economics for this forum, along with a few guest speakers.

A Look Back

Last year, Eldon spoke to a group of almost 800. He summarized his findings. He, along with Julia Coronado, an esteemed economist with the McCombs Business School at the University of Texas, revisited the 2019 forecast. Amid rates which were up to 4.5%, a DOW that was down 15%, and recent government shutdowns, we still had the best real estate market we have had since 2006!

Where We Are

The 2019 GDP number sits at 2.3% for the year (minus the December numbers), which is basically even from the year prior. The inverted yield curve prompted the Federal Reserve to pivot and cut rates. In fact, they cut rates three times in 2019. This surprised everyone but, also, it worked. So, despite the appearance of some economic cooling in the marketplace, the economy actually performed really well.

Outlook for 2020

The global economy may be cooling in 2020. Economists believe it will be a mild cooling, “with a soft landing,” according to Julia Coronado. The U.S. is still tied to global growth, and Chine is stabilizing. The first trade deal with China should help stabilize further. However, there is still more work to do.

Along with this is the uncertainty of an election year. In several geographic areas, businesses are preparing for a slowdown around the months leading up to the election. In short, there are too many uncertainties for a large year of capital expenditure by American businesses. Julia Coronado calls this a “wait and see year”, especially in certain geographic regions.

Having said all that, Julia immediately shifted as she turned to talk about the Austin market. “However, this isn’t the rest of the economy we’re talking about,” she said. “This is Austin.” Austin is, in a sense, the beneficiary of other weakening economies in places like California, New York, and Chicago. In those areas, people are leaving in large numbers. For instance, 270 people a day, on average, are leaving New York and 200 people are leaving Los Angeles. Many of those people are moving to Austin, where approximately 150 people a day are moving in.

Companies like Google, Apple, Facebook, and Schwab continue to move large divisions to Austin and build new office space downtown for their staff. These companies are also relocating employees and creating stability in the Austin economy like never before.

In fact, it is the jobs that have been created in Austin which have led the economic strength of the area. Over the past 10 years, 50,000 new jobs have been created in Austin, and the unemployment rate has gone from 7% to 2%. In that time, 117,000 new homes have been built. Unfortunately, this hasn’t quite been able to keep pace with the demand.

Luxury Market

In the luxury market, Eldon predicts a slight tightening of the market, which will yield a continuing increase in prices. Looking at homes over $750,000 and comparing them to last year’s sales, the number of months of inventory have reduced at almost every price point. Comparing 2019 to today, the months of supply have gone from 4.3 to 3.0 for homes in the $750K range, stayed at 3.7 in the $1M to $1.5M range, gone down from 7.4 to 5.4 in the $1.5M to $2M range, and gone from 13.1 to 12.6 in the over $2M range. So, this represents a tightening in the supply, which may drive prices up a little more than last year.

Major Themes in New Home Market

We had a great start to the year. The lowered interest rates by the Fed have fueled sales. Many builders have faced price escalation by the labor shortage, but that hasn’t faced much resistance by buyers. Land challenges and an overall shortage of lots continue to persist and are even more challenging than years prior.

2020 Forecast

The major concern for 2020 is the lack of land. We will need 18,000 – 20,000 new lots in 2020. Can developers deliver on that demand? Economists believe that interest rates will stay low, and that should continue to fuel new home sales. The jobs market in Austin should be roughly the same as it was last year but may see a mild slowdown in the rate of growth.

The bottom line, according to Eldon Rude, is “I don’t see anything getting in the way of another robust year.”