As Chamath Palihapitiya likes to say, if you want to bet on tech, the best “trade” is a pair trade by going long Google and short Facebook (Meta). You still capture the beta of the tech indices but you get the alpha play of google, compounded by shorting the negative alpha from Facebook (or the previously over-hyped nature of the stock). If you want to make a similar play on TX, here’s my take.
I’m long Texas but I’m still a man who seeks value despite a hype story. Texas was a clear economic winner over the last few years and no market more so than the capital, Austin. Heck, it swept me up in the furry and brought me away from the coastal heavens and down to the third coast, but it also pushed me away just as fast. When my wife and I made the decision to stop renting and start building equity through our primary residence we tried to make sense of the Austin market, but it just left us dumbfounded. If you’re like me and trying to make a long term life play on Texas, you might say that Dallas is undervalued and that Austin is over heated. That’s the bet that we are making - we’re choosing Dallas as the “relative value winner” as it still has room to run to close the hype and housing gap between itself and Austin. Texas ain’t going anywhere and Dallas is the next stop.
Austin is spectacular, make no mistake of that. It’s bite sized and compact, it’s got fantastic cultural treasures, it’s got a care-free attitude and it’s a gem of a city. That said, according to the Austin Board of Realtors, the housing market increased 29% Year over year and the average median home is $470,000. That’s the largest YoY gain of any housing market in America - on the tail of numerous years of home value growth. That leads me to believe, there’s very little meat left on the bone in a rising interest rate environment and a lower wage growth to inflationary environment.
This is what a $1mm buys you in Austin - Zillow Link Here
A 1964 built home in a mediocre area called Wooten about 25 minutes from downtown. Not the best schools, not a nice area but it’s Austin so someone will become sold on the dream of living in A-Town for $595/sqft in the hopes of selling out at +$750/sqft in future years.
This is what a $1mm buys you in Dallas - Zillow Link Here (Not my house)
A 1996 built home in a good area of North Dallas about 15 minutes from Uptown. $263/sqft for Dallas ISD, central to everything and plenty of space. Is Dallas as cool and hip as Austin? No. Does Dallas have the exact same tax structure as Austin, Yes. Does Dallas have all the same restaurants and amenities (Lakes, trails, BBQ, Music, Sports, etc.)? Yes. Does Dallas have SXSW and ACL? No. Day to day though, Dallas offers many of the same benefits as Austin but lacks the pizzaz or the visual appeal in certain sub-markets and is much more sophisticated in other regards.
This is what a $1mm buys you in Oklahoma City - Zillow Link Here
A brand new construction 5BR/5BA home in the best area of Oklahoma City about 5 minutes from downtown. There’s one catch, IT’S OKLAHOMA CITY! There’s a reason why your money goes a lot further…The desirability of OKC is significantly lower than places like Dallas, Austin or any other notable city.
Trammell Crow once coined the phrase: “You would rather traffic and congestion than recession.” That’s certainly the rebuttle to what is happening in Austin. You wouldn’t want the growth to slow down - growing pains are better than staying still aren’t they?
Home prices and rental rates are skyrocketing, employers are rolling their trucks in, taking huge blocks of space and wages in certain sectors are exploding. Tech behemoths are planting their flags and it’s been a great run if you’re a real estate broker. The growth here in Austin has been overwhelming and it’s suffocating out many of the long time Austinites and/or aspirational middle or lower class looking to enter the market. I’m not a proponent of NIMBY’ism though, I want to see the building continue, I’m just calling it like it is. The meteoric rise in housing prices comes with its own set of challenges - and ultimately puts it on a fast track to lose the younger or less affluent talent that seek a high quality, affordable life-style. It feels reminiscent of the run away cost of living that places like Palo Alto suffered while creating a walled garden for the elite. While I love the growth story of Austin, all great runs must start to taper - as gas leaks from a high pressure vessel migrate to voluminous areas of less pressure.
Dallas will become the beneficiary of the pair trade as more people vacate Austin and seek the similar quality of life within the state of Texas. While the allure of a beautiful house in OKC is thought-provoking - most will want to stay within the state boundaries as they plan their moves. Long Dallas, Hold (or short) Austin is the bet we’re taking as the chips shuffle and start to balance out.
Cheers to steady eddy Dallas and to the state of Texas!