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Austin Real Estate Market Report

As I write the current Austin market report I am in a dilemma.  As I have read scores of articles on the future of the US economy and housing market I have found numerous conflicting sentiments regarding the state of our economy, the potential for inflation, the future of interest rates, etc…  Additionally, Texas and Austin, more specifically, have not followed the national trends that are so often reported.  After much reading the following is my short on our current situation.
 
But first, check out our appearances on TV!  We have uploaded a number of spots we did on News 8 Austin, walking you through how to prepare your house for sale.  We hope you enjoy!
 
Stop the madness!  The total US economy (Gross Domestic Product – GDP) is $14.1 trillion this year.  The new administration is pushing through a staggering $3.1 trillion budget starting October 1st.    Since the end of World War II the budget deficit has hovered between 2.5% to 3.5% of GDP.  This new budget will result in a deficit exceeding $1.8 trillion (a white house estimate) or an unsustainable 13% of GDP.  An alarming decrease in tax revenues shows the deficit could be as high as $2.5 trillion, or nearly 18% of GDP!  The Casey Report notes that in 2007 and 2008 the government tax revenues averaged about $633.15 billion per quarter.  In the first quarter of 2009 tax receipts totaled a mere $442.39 billion, a decline of 30%.  This trend has gotten worse as April, the grand daddy of tax months, shows individual income tax returns down 40% and corporate income tax down 67%.  Of all revenues collected by our government this year over 30% will be spent on interest payments for our debt!  So how do we pay for a budget that is more than double the government’s revenue?  We borrow it!  Half of this year’s budget will be borrowed from primarily China and Japan.
 
The Washington Post notes that the non-partisan Congressional Budget Office (CBO) predicts deficits, under current policies and after all TARP and bail-out money has ceased, would exceed 4% of the overall economy over the next 10 years; a level White House budget director Peter R. Orszag acknowledged would “not be sustainable”.  The result, according to the CBO, would be an ever-expanding national debt that would exceed 82 percent of the overall economy by 2019 (double last year’s level), and would threaten the nation’s financial stability. “This clearly creates a scenario where the country’s going to go bankrupt. It’s almost that simple”, said Sen. Judd Gregg (N.H.), a senior member of the Senate Budget Committee.
 
The big gamble! The White House is banking on their policies growing GDP at an optimistic rate of 2.8%, a much brighter outlook than the CBO predictions of 2.5% and the Blue Chip economic consensus of 2.3%.  If the US is unable to maintain this rate of growth we will not be able to stay ahead of our debt load.  We will have spent ourselves into bankruptcy.
 
Warning from China! A solution other countries have leveraged to circumvent their fiscal irresponsibility is to “monetize” their spending deficit.  This means to simply print more money.  The result of this action is inflation.  The dollar in your pocket is watered down by the dollars printed, the costs of goods and services go up, and the dollar is weakened abroad.  China recently warned the US against this activity fearing erosion of their investment in the US.  Monetizing results in lost credibility.  Governments and investors alike will not continue to buy government treasuries, ending the government’s ability to borrow more money.
 
Where does that leave us?  I think inflation will begin in earnest in the next 6 months and will increase significantly in 2010. Inflation will undermine the bond market resulting in higher interest rates and the end of cheap money for the foreseeable future.  Home values will not decrease significantly more in Austin due to the population growth, the lack of new building starts, and the fact that home values in Austin never became grossly inflated.  Remember, a 1% increase in interest rates decreases your buying power by 7 to 10%.  That said, if you have good job security and are looking to buy a home or are wanting to move up to a nicer home do it in the next few months and lock in on the current interest rates.  However, if you are not in a solid financial situation this is a bad time to take a leap of faith.  Find a place to rent and hold on!

If you have questions related to Austin real estate, please call or email us at 512.275.9675 and info@yorkgroupaustin.com.  Also, you can click here to search for homes.


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