During the last few years, a lot of people throughout the country saw their friends and neighbors moving into home ownership or becoming real estate investors. They saw real estate values rising and became aware of the endless supply of low-interest credit. So, to a great many people, it seemed to be the right time to get in.
Unfortunately, a lot of mortgages were set at teaser rates, with the need to refinance later in order to avoid higher rates. Home buyers did not appreciate the risk of making a highly leveraged bet on short-term market gains. The only downside that home buyers could imagine was a leveling off of home prices - not a fall in prices.
Homebuyers did not realize how many other people were making similar bets on increases in housing values. And, they did not appreciate the destabilizing effect that foreclosures could have on home prices.
When foreclosures began to happen, they undermined many real estate markets across the country. The widespread fall in home values has mushroomed into a crisis for our financial system, and economy as a whole.
How is the Austin market weathering this crisis?
In Austin we are not entirely immune from the turmoil in the financial and credit markets. Demand for homes has slowed. When people can't sell in other states, they can't buy in Austin. We have some areas of oversupply of homes and some foreclosures - mostly in suburban areas that were targeted by investors. But on the whole, Austin has escaped the devastating effect of foreclosures, excess inventory, and falling prices that many cities are experiencing.
The important thing is that values in Austin did not rise exceptionally during the last few years and are not falling precipitously. Housing Predictor, a market research company, has identified 10 markets where the strong regional economies have the best potential for increased prosperity. These are listed below:
Top cities, with the percentage of price appreciation in 2008:
Biloxi, Miss. - 4.9 percent
Salem, Ore. - 4.7 percent
Bismarck, N.D. - 4.6 percent
Spokane, Wash. - 4.4 percent
Yakima, Wash. - 4.1 percent
Austin, Texas - 4.0 percent
Grand Junction, Colo. - 4.0 percent
Fargo, N.D. - 4.0 percent
Mobile, Ala. - 3.9 percent
Albuquerque, N.M. - 3.5 percent
Source: Housing Predictor (11/15/08)
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