For many years the Austin real estate market has been one of the best places to invest in real estate in the US. The reasons are numerous. However, what’s of even more interest to property investors that why the Austin housing market has been so profitable is whether this trend will continue in 2020. The short answer to this important question is YES! But now let’s have a look at a more detailed Austin real estate market forecast for 2020. This article will help both beginner real estate investors and experienced ones find a top location for buying their first or next investment property.
Related: How to Start a Real Estate Business: A 10-Step Guide
Drivers of the Austin Housing Market for Real Estate Investing
So that investors can understand where the following forecasts come from, we will first identify and quickly analyze the main factors which set the stage for Austin real estate investments.
Large Young Population
Anyone in the real estate industry knows that demographics is one of the leading determinants of the performance of a housing market in the US or elsewhere. Austin is the 4th largest city in Texas and the 11th most populous one in all of the US with its population of 940,000 residents. Moreover, Austin’s population grows 3 times faster than the national average – mostly owing to high in-migration – and comprises of many young people, including numerous fresh graduates of the universities and colleges located in the city.
Importantly, U.S News & World Report ranked the capital of Texas as the best place to live in the US in 3 consecutive years: 2017, 2018, and 2019. All these facts and indicators come together to determine the strong performance of the Austin real estate market in recent years which is expected to continue in 2020 and beyond.
Economic Growth and High-Paying Jobs
The economy is another major factor for how well a housing market does. All necessary prerequisites for a strong Austin, Texas real estate market are present. Austin enjoys a diverse economy which is somewhat dominated by high-tech, supported by the influx of fresh engineering graduates and above average labor productivity. This means that wages are high compared to the rest of the nation. Furthermore, Austin benefits from a high business startup activity rate.
All these factors come together to lead to Austin’s being ranked as the #1 Market to Watch for Overall Real Estate Perspectives in the PwC’s annual Emerging Trends in Real Estate: United States and Canada 2020 report. This is a major improvement from position #6 last year, sending a strong signal to real estate investors that Austin is not only the hottest real estate market in Texas but potentially in the entire US.
However, the state capital of Texas has not reached its economic peak yet, and Forbes highlighted it as #1 among America’s Cities of the Future as well as America’s Next Boom Towns in 2016. This boom will continue in the coming years, driving the positive Austin, TX forecast 2020 for real estate investments.
Tourism Industry
Yet another key factor for the performance of a market is the state of the local tourism sector. Annually Austin welcomes over 27.4 visitors including both leisure tourists and business travellers. This number makes it one of the most visited cities across the US and drives demand for Airbnb Austin rentals.
The State of the Austin, TX Real Estate Market 2019
Next, let’s take a quick glance at the performance of the Austin housing market in Q4 of 2019. Following are the most important numbers which real estate investors should have in mind before making a decision to buy an investment property or not:
Austin Real Estate Market 2019 Figures
- Median Property Price: $523,100
- Price per Square Foot: $272
- Real Estate Listings: 673
- Days on Market: 70
- Price to Rent Ratio: 21
- Traditional Rental Income: $2,090
- Traditional Cap Rate: 0.7%
- Airbnb Rental Income: $3,430
- Airbnb Occupancy Rate: 54.7%
- Airbnb Cap Rate: 3.0%
To learn all you need to know about the current state of the Austin housing market, read our comprehensive Austin Real Estate Market Report 2019.
Expected Austin Real Estate Market Trends 2020
Without further ado, we will dive right into the core of the Austin real estate market 2020 forecast. This overview of the most significant trends in the Texas’s capital housing market is based on a review of the forecasts of various Texas real estate experts in addition to Mashvisor’s own real estate market analysis.
1. Austin, Texas Real Estate Prices Will Continue to Rise
With a median property price of $523,100 according to Austin real estate market statistics available at Mashvisor, houses for sale in Austin, TX are already listed for 128% more than in the rest of the US. Actually, affordability is expected to become an issue in Austin in 2020 as local real estate experts forecast a continuous upward trend. A housing crisis might occur as early as 2020, but an Austin real estate market bubble is not expected in the foreseen future.
Actually, contrary to the Austin real estate market forecast 2019, homebuilding activities did not pick up at any significant pace this year. Naturally, this turned into one of the major factors driving the high average home price in the capital of Texas. Indeed, many consider Austin to the hottest real estate market in Texas in 2019 and moving forward to 2020.
If Austin investment properties are above your budget, have a look at How to Easily Find Affordable Houses for Sale for Real Estate Investment.
Tip: Investing in a foreclosure or off market properties can be one of the best ways to buy an investment property on a low budget.
2. Natural Appreciation Will Attract Investors
The upward trend in Austin real estate prices means that appreciation will be strong in the Austin housing market. Since the beginning of 2000, natural appreciation in the Austin real estate market has exceeded 148%, which is significantly above the Texas level and the US average. The 2020 forecast is that this movement will continue. This means that Austin will be one of the top locations for real estate investing for appreciation in 2020 and beyond.
3. A Shift Towards a Buyer’s Market Might Take Place
The current Austin, Texas real estate market 2019 is definitely a seller’s one. At the moment there are only 673 Austin, Texas homes for sale on Mashvisor’s platform, while Austin real estate agents report a shortage in property inventory all across. Currently real estate transactions in the Austin housing market are characterized by quick sales – closing takes just about 15 days.
Some experts on the Austin real estate market are observing the first signs that it might be transitioning towards a buyer’s market in 2020. However, it is still early to say whether this will happen. It depends on whether inventory will be able to catch up and if prices will rise at only a reasonable rate. The main determinant will be homebuilding activities.
4. The Austin Real Estate Market Will Enjoy Strong Rental Demand
This real estate trend will carry on from previous years into 2020 and beyond. With a high proportion of renters (55%), Austin has over 517,000 residents who rent rather than own a home. The decision of people to rent rather than own is driven by the high price to rent ratio of 21. This means that vacancies are low, which is one of the main factors determining the return on investment for long term rental properties. Moreover, as the population continues to increase, this number will only go up in 2020. Thus, traditional rental demand will follow suit.
In addition to its large population, the Texas capital hosts as many as 27.4 million tourists per year. What this means from the point of view of real estate investors is that an Airbnb Austin rental business can be highly profitable. The high Airbnb occupancy rate will push up both the expected cash on cash return and cap rate.
5. Single Family Homes Will Dominate the Austin Housing Market
Similarly to the rest of the best places to invest in real estate, the Austin real estate market 2019 is dominated by single family homes. This property type constitutes of all Austin homes for sale. This will be one of the real estate trends will be carry on into 2020 as Austin, TX single family homes for sale will remain the most numerous. The best news for real estate investors considering an Austin investment property is that single family homes bring the best rate of return for traditional Austin rental properties and Airbnb Austin rentals, together with condos.
Related: A Beginner’s Guide to the Single Family Rental Market of 2019
6. Return on Investment Will Be High for Austin Rental Properties
Regardless of which rental strategy Austin real estate investors go for, they will enjoy a return on investment (cap rate and cash on cash return) which exceeds the levels offered in other top real estate investing markets. Investing in traditional rentals in Austin generates an average rental income of $2,090 and a cap rate of 0.7%. The corresponding values for Airbnb Austin properties are $3,430 and 3.0%.
Real estate experts will immediately point out that this does not sound like a good cap rate for rental properties as it’s much below the recommended value of 8%. However, beginner investors should keep in mind that this is only the city-level average while the best neighborhoods in Austin offer much more. In addition, this return on investment exceeds what the vast majority of other top real estate markets will offer in 2020, based on Mashvisor’s real estate data analysis.
7. Airbnb Austin Activities Will Slow Down
Not unlike other US and global major cities, the City of Austin imposed some draconian measures on Airbnb rentals in 2016. According to this Airbnb ordinance, non-owner occupied single family homes and duplexes in residential Austin neighborhoods will not be allowed as of 1 April 2022. Meanwhile, owner-occupied properties, other property types, and rentals in non-residential neighborhoods can operate as Austin vacation rentals but will need to pay a 9% city and a 6% state hotel occupancy tax.
What do these Airbnb regulations mean for the Airbnb Austin rental business? Basically, demand for single family homes and duplexes from full-time and out of state real estate investors will drop as they will be limited to the traditional rental strategy only. This might turn into a leading trend in the Austin real estate market forecast 2020.
If you’ve already decided to buy an Airbnb rental property, check out Airbnb Regulations 2018 – Invest in These Cities Where Airbnb Is Legal.
Best Neighborhoods in Austin for Buying Rental Properties 2020
Despite some affordability issues, real estate investors should be considering buying an Austin investment property based on the present Austin real estate market forecast for 2020. In order to help them focus and improve their neighborhood analysis and property search, following are the top Austin neighborhoods for both traditional and Airbnb rentals. Those investors who are leaning towards the latter should remember that single family homes and duplexes will not be allowed to operate as non-owner occupied short term rentals in Austin as of the spring of 2022.
Best Austin Neighborhoods for Traditional Rentals
1. MLK
- Median Property Price: $478,600
- Price per Square Foot: $545
- Average Monthly Traditional Rental Income: $2,400
- Average Traditional Cap Rate: 3.0%
2. McKinney
- Median Property Price: $246,200
- Price per Square Foot: $161
- Average Monthly Traditional Rental Income: $1,680
- Average Traditional Cap Rate: 2.0%
3. Johnston Terrace
- Median Property Price: $340,600
- Price per Square Foot: $196
- Average Monthly Traditional Rental Income: $1,830
- Average Traditional Cap Rate: 1.8%
Best Austin Neighborhoods for Airbnb Rentals
1. Windsor Road
- Median Property Price: $1,266,100
- Price per Square Foot: $425
- Average Monthly Airbnb Rental Income: $2,790
- Average Airbnb Cap Rate: 7.0%
- Average Airbnb Occupancy Rate: 65.8%
2. West University
- Median Property Price: $323,300
- Price per Square Foot: $343
- Average Monthly Airbnb Rental Income: $4,010
- Average Airbnb Cap Rate: 6.5%
- Average Airbnb Occupancy Rate: 65.9%
3. North Burnett
- Median Property Price: $262,300
- Price per Square Foot: $211
- Average Monthly Airbnb Rental Income: $8,000
- Average Airbnb Cap Rate: 5.9%
- Average Airbnb Occupancy Rate: 62.7%
The Austin real estate market forecast 2020 is all looking good for property investors. Demand, return on investment, and appreciation are all going to be high. Moreover, Austin has an investor-friendly regulatory environment with low tax rates and landlord-friendly rules. The trust which PwC showed in Austin real estate is a factor which should not be dismissed either. If you are looking for one of the top US housing markets to buy an investment property in 2020, give Austin some serious consideration. All you need to get started is Mashvisor’s real estate investment tools.
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