As I sit this morning after having read the newspaper, I am reflecting on how Austin’s economy and housing market are doing compared to back in 2001.  That was when our tech-heavy economy went in the tank after the national tech bubble burst.  That also caused the area’s housing market to take a big hit.

That was a time during which tech stocks had seen massive run-ups in price because of investor speculation.  The internet had taken off and we entered a totally different era in terms of our reliance on internet based businesses.  Of course other tech based products were seeing rapid innovation as well.  Austin was very heavily reliant on technology companies.  We had rapid job growth in the late 90s and massive building of everything from single-family homes to retail space to high-rises downtown.

What I am getting at is that Austin went the same way as the national economy, we just got hit a little later.  So now as we have seen home prices drop dramatically in other markets, the lending mess and a general economic slow-down across the country, will Austin follow like it did in 2001?  I’m not sure that it will.

From the second quarter of 1997 through the end of 2000, the Austin area saw housing prices appreciate more rapidly than was usual for the area.  Appreciation peaked in 2000 at close to 14%.  During the same time, home price appreciation in other markets, specifically California and Florida, got way out of hand.  Between 2003 and 2005, appreciation rates in California and Florida were up over 25%.  Builders were almost out of control in how quickly they were putting up new houses.  Investors were in a speculative frenzy, buying everything they could get their hands on.  Click here and go to pages 20 and 21 for this data and much more from the Real Estate Center at Texas A&M.

That was sort of like the tech stock speculation back in the late 90s and there was definitely a parallel between Austin and other markets, but our numbers weren’t as high.  Fast forward to 2007.  That was a year of record-setting home sales, huge job growth and very low unemployment in Austin.  Then in the middle of the year, the crazy lending market got hit.  Home price appreciation in California and Florida, as well as other markets, had started plummeting in 2006.

Austin ended 2007 slower than it started the year.  Job growth dropped from an annualized rate of over 4.5% to around 3%.  Home sales declined well over 20%.  We have been impacted by the nation’s economy as a whole.  However, underlying economic factors are still very strong in Austin.  There was a pretty positive article in the newspaper this morning and another a few days ago highlighting some things to show this.

Apartments are close to full and rents are rising for the first time in a while.  That may help the rental house market.  Samsung created over 900 jobs in 2007 with average salaries over $60,000 per year.  Silicon Laboratories is hiring and is negotiating to buy another building.  The rumor that Google is bringing some kind of operation here are still floating around.  The third quarter of 2007 saw almost $200 million of venture capital pour into Austin.  These are all healthy signs.

Can Austin stay healthy if the nation enters a recession?  I think we will be hurt like other markets, but not as much.  We have the state government, UT, major medical and other entities that will always help give the area strength.  Home prices haven’t run up hardly as much as they have in other markets so we don’t have as far to drop if we see declining prices.  Builders have pulled back in terms of the amount of new construction they are putting up.

What I expect the Austin area will see 2008 as a slower year for home sales compared to 2007.  The lending mess will have a continued effect and the local housing market, like the national housing market, may not start to recover before 2009.  I also expect to see prices flatten and then decline a bit.