Adelle Brewer, 43, and her husband, Daniel, decided they needed to leave Portland, Ore., last year. After their home insulation business faltered, the couple started researching less expensive cities in the Carolinas and Texas. In December they plunked down $149,000 in cash for a four-bedroom ranch house in an Austin suburb. "If this house were in Portland, it would be $400,000," says Adelle.
Although prices have dropped nationwide, affordability remains a key factor in the housing market. Transplants seeking a low cost of living and cultural amenities likely will gravitate to cities such as Austin, Minneapolis, and Ann Arbor. In the Texas state capital, the median home price of $191,000 is just under three times the median family income of roughly $69,100—a ratio that's in line with Ann Arbor and Minneapolis and below the national average. Ironically, the influx of new arrivals seeking cheaper housing will only drive up prices in those areas. Price increases, though, should be modest compared with the rest of the country since prices in those areas never saw the same lows. For example, Austin rose 4.4% in 2008 and is expected to fall off only modestly this year.
By Texas standards, Austin may seem pricey. But it's a bargain compared with cities such as San Francisco, New York, and Los Angeles. In Los Angeles, home prices are six times greater than the area's median income; they're seven times as much in New York and San Francisco. While the major urban areas on both coasts likely will remain expensive by comparison, the high-priced housing could keep a lid on values. In New York, the market isn't expected to turn around until 2012.
Why does Austin look so affordable? The city's economy lagged the U.S. for much of the boom as one big driver, the tech industry, struggled. First, the dot-com bubble imploded in 2000; Intel's (INTC) chip design center stood half-built as a painful reminder of the tech bust until it was demolished in 2007. Then big local companies such as Dell (DELL) and Freescale Semiconductor ran into trouble.
But Austin is on the upswing, with major employers, including the state government and health-care sectors, hiring. Job seekers are moving there in droves. Last year some 25,000 people relocated to Austin while cities such as Los Angeles and Chicago saw an exodus. Austin economist Angelos Angelou predicts that 38,000 more people will arrive over the next two years: "Even during a recession, people move to Austin."
The decision to relocate to Austin was an easy one for Kevin Hopke, 36, a technical writer for Sun Microsystems (JAVA) in Los Angeles. His boss gave him the option to move to Austin or Silicon Valley. After he found condos running at around $500,000 in Northern California, Hopke opted for Texas. In January, Hopke and his wife, Carmelita, 36, paid $176,000 for a 2,300-square-foot home in the suburb Round Rock. Now the Hopkes devote just 25% of their income to housing costs, vs. the 50% they would have paid in California.
Tempting real estate, plus a lively cultural scene, is a draw for people from both coasts
2007 MEDIAN HOME PRICE
2008 MEDIAN HOME PRICE
Numbers reflect metropolitan area; Data: Fiserv