Real Estate As An Asset Class


“There is nothing like staying at home for real comfort.” – Jane Austen, (British novelist and Writer (1775-1817)

The Central Texas residential real estate market, and in particular, the Austin market have withstood the pressure of the recent unique economic downturn very well. Sales data compiled by the Austin Board of Realtors shows that a number of areas in the greater Austin metropolitan area showed positive gains in market value. In central Austin, for example, the median sales price in April 2008 for a single family home was $267,500 and by April 2009 rose to $280,000 – a 4.7% increase in price. Central Austin data also showed an increase in average sales prices going from $342,854 in April 2008 to $362,511 in April 2009 – a 5.7% increase. Compare these gains to over 35% losses in both the Dow Jones Industrial Average and the S&P 500 over the same period.

There are many benefits to owning your own home including the security, privacy, and serenity of living in your own space. Many of us enjoy the freedom to decorate (and redecorate!) or the investment in remodeling and landscaping to enhance your home’s aesthetic value. One of the most rewarding benefits of home ownership is the potential for financial gain, including:

> Investment value – as your property’s value increases, so does your potential long-term gain;

> Equity value – as your investment value increases and you reduce your loan value through principal payments, you are left with equity in your home which is the current market value of the property less any outstanding loans;

Tax deductions unique to homeowners;

>  mortgage interest payments on first and second homes;

>  real estate taxes (in Texas these are the annual property taxes collected by the county where your home
is located);

>  certain loan origination fees; and,

>  certain loan discount points.

Keep in mind, however, there are some risks associated with homeownership, including the common necessity of increasing your debt by taking on a mortgage, potential illiquidity of the investment as you look to sell a property, adverse changes in economic or local market conditions, changes in governmental, tax, real estate and zoning laws or regulations.

According to Jay Gohil, Chairman of the Austin Board of Realtors, Austin has a very healthy supply of housing inventory – the most reliable indicator of future home price trends in Central Texas. “Months of inventory” is calculated by dividing the number of homes for sale by the average sales over the prior 12 months. Economists at the Real Estate Center at Texas A&M University predict that 6.5 months or so of inventory is a “balanced market” – meaning homes are being sold and prices continue to increase at a moderate pace.

According to the Austin Board of Realtors the Central Texas market in April 2009 held 6.4 months of single family inventory, where the national average is 10 months. It is clear that even during this time of economic pressure overall home values in central Texas, and Austin in particular, are stable.
According to the Austin Business Journal, Austin ranks as the number one big city for employment potential – the city’s job growth in 2008, along with its affordability and long-term job growth potential, accounted for the city’s high ranking. This factor is likely to support continued steady increases in the value of Austin residential real estate.

There are many factors that could make this the perfect time to diversify your investment mix and add real estate to your portfolio. So, now “flip” the magazine over and we will cover a way that the government might be able to add to your down payment on your dream home!


Sources: Nance, Cheryl; modern real estate practice in Texas, 12th ed., ch. 4, pp. 38-40 (2006), Austin Board of Realtors (press releases: 2009) and Industry Updates (may 2009).