- As most people know by now, Tesla recently announced that it would build a Gigafactory in southeast Austin, near the Austin-Bergstrom Airport. Tesla plans to build its factory on an approximately 2000 acre site, where it will build its cybertruck, Model Y, and Model 3.
- While there was some objection to the tax breaks that Tesla secured, its hard to object to the up to 5000 jobs that Tesla says it will bring to Central Texas. Indeed, Tesla has already starting hiring in the Austin area.
This week, Erin Edgemon wrote in the Austin Business Journal that Tesla executives were already starting to hunt for homes here. In the article, a local real estate agent explained how the Tesla executives had to learn that there is not much haggling to do currently in the Austin market. Why? Because it is so incredibly hot. Houses are routinely going for above asking price. Its not unusual to see a house get 10 or 12 offers within two weeks of being listed. Why is this happening? Why is the market so hot?
A couple of theories may help to explain that:
1. Lack of Supply
2. COVID-19
3. People and businesses keep moving here
Lack of Supply
I am sure all of you already know this as you are loyal listeners, but each Tuesday I co-host the Real Estate Zone on KLBJ with John McClellan at Supreme Lending and Kevin Bown of Twelve Rivers Realty. Every week Kevin tracks the stats in Central Texas – the number of houses listed on the market versus the number of houses under contract. For weeks now we have been discussing how historically low the listing numbers are out there. People are just not putting their houses up for sale in Austin. Kevin has been in residential real estate in this area for over 20 years and he has never seen numbers like this. The obvious follow up question – why aren’t people listing their house? That brings us to our second point.
COVID-19
It appears that COVID-19 has had a big effect on whether people want to move. Moving is always a big endeavor, of course. Its quite possible that people do not want to put up with the hassle of it during a pandemic. There is enough uncertainty as it is – adding a move on top of that may complicate things.
COVID may also be changing where and how people live. As we are working from home more often, your commute may not be as important. And if you are in a home with a nice home office – perhaps you do not want to move and give that office space up.
Finally, where are you going to go? This is a difficult question for Central Texans right now in the market. If you sell your house, you have to move some place. With fewer listings out there, its harder to move somewhere. Which makes you less likely to want to leave your house. Which compounds the problem, and it begins to snowball.
People Keep Moving to Austin
Despite the fact that housing is in short supply, its still a great place to live. And we have a great workforce. As a result, people and companies keep relocating here. Which is great for Austin – more jobs, more people, and a more robust economy.
But that increased demand contributes to rising prices. It’s a first year economics problem – we have increasing demand and dwindling supply. As a result, the Central Texas residential housing market is on fire.
So how long will this continue? What is the future of the Austin residential market? As with so many things right now, that’s a bit of an unknown. We do not know what long term changes will come with COVID. What we do know now is that the Austin residential market is overheated – and that has resulted in rapidly rising prices.
One final question as we move forward – how will this also affect the multifamily industry? Maybe that’s a question we can discuss next week.
