Austin Real Estate Blog

So in a number of recent conversations I have heard something along the lines of "Well I don't know about the rest of the country but the Austin real estate market is back". And yes usually I have heard this from realtors. Is this true? In a word "no". There are some very preliminary signs the market is improving but assertions that suggest the market has moved out of the slump are not based on the data. Announcements that the market has recovered are often accompanied by the statement "we are seeing multiple offer situations again". (This is when a seller has more than one offer to choose from). Here is a little secret. There are always multiple offer situations. If a seller prices a property significantly lower than the market average, they will usually receive multiple offers. Here are the stats.

We had 1707 sales in May 2009. This is down 19% from a year ago and down 37% from two years ago. The fact that we are down 19% from May 2008 (which was considered a down market) doesn't really fit my definition of the market having "recovered".

So is the Austin market seeing some signs of improvement? Maybe? The stats from April and May of this year are somewhat improved from what we saw in January, February, and March of 2009.

The number of sales in May 2009 is twice what we saw in January 2009. But this has more to do with seasonal variations. There are always more sales in the summer. It's better to look at sales from one month and compare it to the same month from one and two years ago. So for January 2009 we see

Month Sales One Year Decline Two Year Decline
January 839 -36% -43%

Compared to April and May we see:

Month Sales One Year Decline Two Year Decline
April 1,550 -20% -32%
May 1,707 -19% -37%

So there are some signs of an improvement but we are without a doubt in a depressed real estate market.

While we are talking about overly optimistic predictions, here is another one: "Due to pent up demand, once the economy recovers the Austin real estate market is going to be red hot". I don't think this is likely. Basically once the economy recovers mortgage rates should increase, which should slow down the market. (although once mortgage rates eventually start to move back down I expect prices to increase as we talked about in inflation and real estate). So if one is looking to buy, in the short term I would be more concerned with buying before mortgage rates increase rather than before prices increase.

Oh and winner of crazy real estate pronouncements. "The condo market is going to have a scarcity of supply soon". I heard this last week. There is actually some bizarre logic behind this. Basically so many condos are having extreme difficultly with sales that they are moving toward leasing the units instead of selling them. The problem I have with this is that there is such a huge oversupply of condos right now that even taking out some of the condo buildings by leasing them is unlikely to lead to a normal volume of condos much less to a scarcity of condos. The second issue is that a number of out of town investors purchased Austin condos that are still being constructed. Once the condos are completed, it's likely we are going to see a number of these units back on the market.

So is now a bad time to purchase something? If the plan is to buy a property and sell it in a short period of time maybe so. The time on market is pretty high right now. When flipping a property, holding it for several months can eat through potential profit. I would also not be looking at buying land to immediately develop for the same reason. If the plan is to buy and hold for a few years before selling, the outlook is more positive. Prices and mortgage rates are both pretty low. The trick of course is getting a mortgage. While mortgage rates are quite low, banks are more restrictive than they have been in a long time.

So let's look at some other sectors of the market:

Basically the condo, farm, multifamily and commercial markets are all doing worse than the residential market. While part of this has to do with demand, it's also due to lending. While the lending market for residential has tightened the lending market for other property types like commercial and multifamily has seen more restrictions.

As always if you have any questions about the market in general or a property in particular feel free to contact us. If you want to search for properties on market here is our Austin home search

Posted by escapeso at 07:23 PM | Permalink | Comments (0) | TrackBacks (0)

The stats are out for April for the Austin real estate market. First let's look at residential sales.

Sales are down 18% compared to last year. This is an improvement over the last few months. For January, February and March we saw one year declines of 36, 29 and 24 percent. But there are two big caveats to that. First, by any other comparison (other than the last few months), the market is still pretty terrible. And second, the increased sales are partially coming from an increased number of foreclosure sales. That said it still seems that the Austin market is in a better position than it was in January. Historically low mortgage rates are part of the reason for this increased activity.

There has been a lot of talk that Austin's prices are not dropping. They are. Part of reason this is not reflected in the official statistics has to do with banking. When the banking industry imploded, financing became stricter. This affected average prices in two ways. First people who got no documentation loans are now routinely denied. This has lowered the sales in the low end of the market. In addition, and perhaps more importantly, rough houses are more difficult to get financing on. Banks are not interested in giving loans for that house with the shaky foundation and a few roof leaks. Since rough houses are not selling as frequently, this is also pushing average prices up. So while statistical average prices are holding steady, a house that is sold today in general is selling for less than it would have 1 or two years ago. So what does this mean for the many areas of the country that have reported average sales prices that are down 20%? In a nutshell they are probably down quite a bit more.

While we are talking about values, the county appraisals have come out with some of the biggest increases we have seen in the last few years. Travis CAD values don't mean anything. In general tax values have more to do with politics than actual values.

The question for the Austin market is of course: What is going to happen moving forward? Do the slightly improving sales numbers point to a slowly improving market?

Personally I don't see prices increasing very soon even with an economic recovery. Once the economy recovers, I would expect to see mortgage rates move up perhaps into the double digits. This should counter the effect of a more robust economy. We have already seen mortgage rates start to rise with a half point increase this week. If the economy starts to recover and mortgage rates start their march up to 10% it would be hard to see prices moving up. (Once mortgage rates/inflation peaks out and start its way down, I could see a rise in prices as I talked about in inflation effects on real estate)

Therefore when I am looking into properties I am not too concerned with buying something before prices move up, but I am concerned with buying something before mortgage rates move up. So I would recommend people looking to purchase to pay more attention to mortgage rates than prices as they are expected to be more volatile in the next few months.

Enough about the general market. How are the different areas of Austin doing? Here are the statistics on the different Austin MLS areas

10N-8E
8W-HD
HH-NE
NW-WW

along with a map of the different Austin MLS areas for reference. In a nutshell, the suburbs are looking better based on sales volume but they have a disproportionate number of foreclosures. For instance Pflugerville has the same sales this month as April 2008. But around 19% of all sales in Pflugerville are from foreclosures.

Let's move on to other market segments.

The condo, lot, and multifamily markets are all doing much worse than residential. Commercial seems to be doing about as equally bad as residential.

I don't like the commercial market. My basic problem is not with the market but with mortgages. One of the main benefits of buying a house now is locking in at historical low interest rates. While mortgage rates are low for commercial properties, in general they are only locked in for 5 years. We looked at a commercial property and this was the main drawback. Especially because I think mortgage rates could be substantially higher in 5 years. It would be pretty annoying in 5 years to transfer from a 6 percent interest rate to a 13 percent interest rate. This could have a pretty negative affect on cash flow. To make matters worse, most of the commercial loans are balloons. I hate balloons. (Balloons basically require you to get a new loan).

I am not much fonder of the condo market. Basically the condo developers overbuilt. So when the market recovers we are still left with a ton of inventory. So after the economy recovers, it will take some time for the Austin market to work its way through the excess inventory of Austin condos. Also for an update on the high end condo market their were 178 condos for sale over 500k. Out of those 1 sold this month.

The market for vacant lots is deader than a doornail. Nobody wants to buy a lot when the market is down. Basically builders are frequently selling houses for less than cost. They are not really in the mood to go buy more vacant lots. So is it therefore a good time to buy lots? I am a little mixed on this. Basically if you have a lot of spare cash and are comfortable waiting out the downturn, the lot will probably be worth quite a bit more. But at the same time the cost of holding a lot can be quite high. So if you buy a lot for cheap right before the market recovers it's probably a good play. But if you buy a lot and have to pay a mortgage and taxes on it for a few years that could wipe out a significant chunk of future gains. And I would expect the residential market to improve before the lot market.

I like multifamily because it's less risky than lots. The length of the downturn is not as problematic as long as the property cash flows. Also we have not overbuilt multifamily properties recently like we did with the condo market.

As always if you have any questions about the market in general or a property in particular feel free to contact us.. If you want to search for properties on market here is our Austin home search

Posted by escapeso at 11:47 PM | Permalink | Comments (1) | TrackBacks (0)

The stats are out for the Austin real estate market. The market is still down. Sales are maybe doing slightly better than the last two months but prices are down so I would still consider the Austin market pretty weak. First let's look at house sales for the last few months.

For March we saw 1421 sales which gives us a 22 % decline in sales from a year ago. In January and February we saw year over year declines of 37 and 30 %. The two year decline for March is 39 %. In January and February we saw two year declines of 44 and 37 %. So in essence last year was a slow market and we seem to be doing worse this year. Median and Average prices are down 4 %. The last few months we talked about how even though official prices were up in reality most houses lost value. The only difference is that now we should not see any more headlines from the statesman about prices holding steady. The number of active listings is up 1 % from last year.

One misconception I wanted to talk about is multiple offers. I keep hearing the refrain of "There are multiple offers in our market therefore our market must be doing well". This is simply not true. If someone lists a property for way under market value there are going to be multiple offers. The number of total sales is a much better indicator of market strength than anecdotal evidence about multiple offer situations.

So for me the more interesting question is, why are there not more sales? Prices are down and mortgage rates are down. Last year a house that was selling for 220k would have a mortgage rate of around 6.25 %. That would correspond to a mortgage payment of $1354.57. Today that same house would probably sell for around 200k with a mortgage rate of 4.5 % corresponding to a monthly mortgage payment of $1013.37. With a mortgage payment drop of over 25 % one would expect to see more sales than we are currently seeing.

The first explanation is that buyers are less inclined to buy in a down market. This explains part of the drop in sales but I don't think it is the only reason we have seen a 39 % drop in sales from 2 years ago. Instead we have seen a lot of interest from potential buyers who simply cannot get a loan in the current market. Basically banks are taking the bailout money that is supposed to be an incentive for them to lend. And, according to press releases they are lending. The CEO of Bank of America recently said, “the company is lending as if the good times never ended." But if you look at the numbers this statement simply isn't true. Lending from Bank of America is up only 1.6% from a year ago when the credit markets fell apart. Other banks are doing the same thing. They are talking up how they are willing to lend. In realty they are avoiding everyone but buyers in the most straightforward circumstances with decent credit scores.

How are banks limiting credit? Basically there are a number of circumstances where one could have gotten a loan a few years ago but now would be turned away. And it's not limited to simply subprime borrowers who should never have gotten loans in the first place. For instance, properties that are not tear downs are being classified as tear downs by bank appraisers and getting rejected for loan approval. We have also seen multiple cases where someone moves to Austin with a new job. Although they have a stable employment history elsewhere for the last several years, banks will say they have not gotten pay stubs from their new job in Austin. This is one of the reasons we encourage clients to start looking at lending options early on in the home buying process. Since the banks all have different criteria to turn away loans we can sometimes find one bank that will give out a loan in a certain circumstance even if the others won't. In the end the banks are engaging in doublespeak. Publicly they are playing the role of the enthusiastic patriot willing to give loans in tough times. But in reality, they are looking for any reasonable excuse they can find to deny loans. In the end the current reluctance of banks puts people with stable income and decent credit scores in the unique position. They are able to buy properties with minimal competition because so many other potential buyers have been pushed out of the current marketplace.

Ok enough about banks lets go back to analyzing the market. Now let's look at some different property types

So while the single family market is down the market for condos, multifamily and land is teetering on life support. The number of condo sales is down 59% from last year and 69 percent from two years ago. I don't have high hopes for the condo market. Below are sales for the last few years.

Basically the problem is sales have slowed down dramatically from two years ago while at the same time the amount of inventory has increased by more than 50 % in the same period. Even after the market recovers there is a lot of excess inventory that the market will have to move through. The Brazos condos recently had a foreclosure auction. I have not seen much reduction in prices. However, if we start to see multiple foreclosure auctions at the same time in the next 6 months the number of buyers enough to see pretty decent price reductions.

The multifamily market has seen an even more dramatic drop in sales. We have seen a 70% drop from 2 years ago (sales have gone from 100 in March 07 to 30 in March 09). But the number of active listings is not that high. The number of listings is actually down 16% from a year ago and up only 15% from two years ago. This is a much different situation than the condo market.

While the condo market has a problem with too many listings the multifamily market mostly has a problem with lending. Lenders are more reluctant to give loans on multifamily properties than single family properties. Therefore when the market recovers if lenders lift some of there restrictions we expect the multifamily market to recover quicker than the condo market.

Below is a breakdown for the different mls areas.

MLS Area 10N-8E
MLS Area 8W-HD
MLS Area HH-NE
MLS Area NW-WW

One thing we have noticed is that the suburbs have more sales than expected. Part of the reason for this is foreclosures.

Recently, we are seeing more activity in the suburbs and a lot of that increased activity comes from an increased number of foreclosures. For instance in MLS Area PF (Plfugerville) there were 259 sales this year but 50 of those sales were properties in foreclosure. Below are a few more mls areas and the number of 1) total sales 2) foreclosure sales 3) % of sales that are foreclosed properties.

So it looks like a decent amount of the sales in the suburbs are happening on foreclosure properties. In Pflugerville almost 1 in every 5 sales is on a foreclosed property. While we are seeing a few foreclosures in central Austin the percent of total sales is much smaller.

The number of foreclosures has increased recently because lenders ended the moratorium on foreclosure proceedings. If you are interested in foreclosures we have a map search of Austin Foreclosures. I expect to see more foreclosures filings over the next few months.

So what is my advice for everyone? First, be wary of "great deals". When I recently looked at foreclosures I noticed that I had researched quite a few of these same properties a few years ago. At the time they were cheaper than average or had extremely high cashflow and therefore popped up on my radar. After some investigation I would discover various problems with them (being in the floodplain, hidden structural problems). Looking at the history it seems the new owners bought it, put it on the market 2 months later once they found the problems, and then went into foreclosure after a year or two.

Although there are a lot of foreclosures in the suburbs I would be wary of those areas. There are a lot of foreclosures because there is lower demand out there. Basically you are getting it for cheap because less people are interested in those areas and in a few years when you sell you will have the same problem.

In most cases I don't think this a good time to buy a property and plan to flip it in the next 6 months or a year. One of the big expenses with flipping is holding time. Holding time is the amount of time you are sitting on a property making payments waiting for it to sale. Currently with few sales the average time on market is pretty high.

I would say if you are looking for a long term investment either for a home or investment property now is not a bad time to buy. We are currently making offers on properties. Prices and mortgage rates are low. So as previously mentioned mortgage payments are significantly lower than they would have been a few years ago. I have heard some people say they want to buy before prices move up. I am less concerned about prices moving up than mortgage rates moving up. While I think eventually prices will recover in the short term, I am more concerned with getting a few properties while mortgage rates are down.

Also I would for the most part avoid the condo market. I don't see it recovering for awhile even after the economy turns around. Single family homes and the multifamily market look like they will recover faster once the economy recovers.

As always if you have any questions about the market in general or a property in particular feel free to contact us.. If you want to search for properties on market here is our Austin home search

Posted by escapeso at 09:19 PM | Permalink | Comments (0) | TrackBacks (0)

Recently we talked about the case for hyperinflation. So what does that mean for real estate (an appropriate topic since this is, after all, a real estate blog)? Before we get started, I want to make clear I do not have a magic crystal ball. I am making no guarantees that hyperinflation will occur or that it will play out the way I outline below. But I am currently basing my financial decisions on the below assumptions so I thought it would make sense to share.

This blog started as a response to a few friends. My blogs on the current state of the real estate market are negative. And recently I have been actively making offers on properties. The question they had was: "Why?".

First off, the National Association of Realtors (NAR) has been saying for awhile now the great recovery is just around the corner. And everything is going to return to just how it was a few years ago. I would still pretty much ignore NAR. They are like some bizarre form of adult cheerleaders.

I don't know when the recovery is going to happen. But when it does I don't think it will be a nice clean recovery. I talked about it more in depth here Hyper Inflation is Coming. Basically, since the government has been pouring money into the economy, once the economy recovers, we should experience hyper inflation.

Let's run a few different scenarios. For all the scenarios, let's assume inflation doubles. I don't know if the effects of inflation will be more, or less (I think most likely it will be less), but it is an easy number to work with and it doesn't affect the percent gain or percent loss. Also for this (adjusted) means adjusted for inflation and dollar or (d) means non adjusted dollar value.

First, let's assume one has $100k, and keeps it in cash.

This is what has me freaked out. I don't like the idea of losing a large amount of savings.

I looked at the stock market from 1978 - 1981, which is the last time we experience hyper inflation. In those 4 years the Dow went from 793 to 866 for an average one year gain of 2.3 percent, which is worse than average.

Next, let's assume one buys a house for $100k in cash.

Lastly, let's assume one buys a $100k property with a 20% down payment and an $80k loan. First, look at the value of the property:

Next let's take out the mortgage and see the equity in the property.

In absolute value the equity increased from 20k to 90k. After you adjust for inflation it increased from 20k to 45k.

Next, instead of looking at property values, let's look at the numbers from a rental/cashflow perspective.

So while taxes and rent go up the mortgage (as long as it's a fixed rate mortgage) should stay fixed. Another way of looking at this is that with inflation adjusted values rents and taxes are stable but your mortgage goes down.

In the example we had the value of a house going from 100k to 170k in actual dollars. I don't expect this to happen evenly during a period of hyper inflation. Instead based on what happened during the last period of hyper inflation, I would expect prices to stay even or rise slightly in the beginning. I would expect to see prices experience most of the increase as rates start to come down.

So why don't we wait until then to buy properties. The problem is that currently prices are low and rates are low. After inflation kicks in prices might still be low but rates will be higher.

So, moving beyond real estate, I think hyper inflation could have a pretty negative effect on a large segment of the population. Basically, a lot of people saving for retirement lost half of their life savings due to a falling stock market. Now their already lowered savings could be cut in half again through hyperinflation. Not a pretty picture. It also hurts people who live on fixed incomes as well as causing general instability in people's lives.

I am hoping to get some good comments on what other people think is going to happen. I would also like to hear some other investments that would be a good hedge against inflation.

Another one that might be good is putting money into bonds or CDs when rates hit their peak. In the first example we talked about how keeping money in cash during a period of high inflation might be a bad idea. But if you lock into long term bonds at the peak of inflation hopefully you could recieve a high rate of return even after inflation has subsided.

As always if you want to see what is currently on the market you can look here Austin Property Search. If you have any questions about the market or a particular house feel free to contact us.

Posted by escapeso at 11:08 PM | Permalink | Comments (4) | TrackBacks (0)

The National Association of Realtors has been telling us for the last few years the real estate recovery is just around the corner. I don't know when the market will recover but when it does it's not going to be a clean recovery.

Here is a graph of the monetary base since 1959.

The first time I looked at it, I didn't notice the crazy spike at the end. That is the growth in the monetary base in the last year while the Fed has been trying to stimulate the economy. So why are we not currently experiencing double digit inflation?

A recession pushes down inflation, and a very strong recession has an ever stronger effect on keeping down inflation. During the Great Depression we experienced the opposite of inflation, which is called appropriately, deflation. Here is a historical chart of inflation showing the deflation we experienced during the Great Depression.

Currently we have two powerful and opposite forces: 1. a heavy recession pushing inflation down; and 2. a large amount of money being pushed into the economy, forcing inflation up. When the economy starts to recover, the mechanism keeping inflation in check will disappear.

The question, of course, is how high inflation and interest rates could go. The last time we experienced hyper-inflation was the period from 1978-1982. Looking at the above chart, inflation hit 15 percent. Below we have a chart showing mortgage rates from 1974 to 2009. Mortgage rates hit a high of 18.5 in 1981.

The forces at play currently seem stronger than what was experienced in the late 70s and early 80s, but it's hard to know exactly how high rates will go. Regardless of the exact rates: hyper inflation is coming. Our next blog will look at how this will effect the real estate market.

Posted by escapeso at 06:42 PM | Permalink | Comments (2) | TrackBacks (0)

So what happened in the Austin real estate market in February? For a recap, the Austin market first slowed down in around August 2007 due to the national subprime issues. The market held steady at its new slower pace for around a year. Then we experienced another slow down in October 2008.

So how was Febuary 2009. Adjusting for time of year, the market improved in February 2009 compared to January. But the market is not what it was 2 years ago or even what it was before the most recent slowdown.

One way of looking at it is that the number of sales. January 2009 has the lowest monthly sales we had seen since January 1998. February 2009 had the lowest sales for a February since February 2001. So while it's an improvement, we are still in a very slow market.

Here are sales statistics for the last few years.

Let's look through a few of the numbers. We had 35% less sales than 2 years ago and 28% less sales than last year. Average Price's are up 4% and Median Price's are up 5%. Personally I just don't buy this. Average prices tend to change alot from month to month based on what is selling. If homes under 200k are selling less frequently because of lending restrictions average prices will in turn move up. And in the current market where lenders are changing their restrictions on a regular basis and therefore affecting what price range houses are selling, I would take average prices with a grain of salt.

One positive stat is the number of active listings is roughly steady compared to last year. So while sales are down 28% compared to last year, the number of listings is only up 3 percent.

The next stat is something I get alot of questions about which is list to sold price. Last month we were at 94.6%. This means a house listed for 100k on average would sell for 94.6K. I have alot of people that see a house for 300k and think the market is down so the seller will accept 180k. The short answer is probably not.

[[So what about all these stories of homes selling for next to nothing in places like Detriot, and why don't we see that here. Basically the market is down in Austin but the general expectation is that at some point the Austin market is going to recover. People don't seem to have that expectation about Detriot. Detriot was on a downward spiral before the current national economic mess started. Once the national economy recovers there is no particular reason to think Detriot will be a thriving metropolis. If anything when the national real estate market recovers, Detriot is likely to continue the slow downward spiral it was experiencing before.]]

So lets look at some other property types besides single family houses.

Compared to this time last year condo sales are down 49%. Here are condos sales and inventory for the last 3 years for February

I am not a big fan of condos from an investment perspective. We simply built way too many condos over a short period of time and it's going to take awhile to work itself out. In addition, even though our inventory levels are currently quite high alot more condos are going to come online in the next 2 or 3 years.

Next let's look at the same statistics for multifamily properties for the last 3 years

From an investment perspective I like multifamily alot more. If you simply look at the months of inventory on the market, the condo and multifamily market look pretty similar. They were both low in 2007 and have gone up in 2008 and 2009. But the condo market has an inventory problem. Inventory is up 73% in the last two years. In addition, with all the condos coming online the inventory level is likely to go up more in the next year or two.

In contrast, the inventory in the multifamily market is only up 14% in the last two years. With multifamily we have a problem with the number of sales. Sales are down 74.7% in the last two years. This is basically because over the last year banks have done whatever they can to avoid lending money to investors. These restrictions are in response to the high rate of foreclosures from investor owneed properties. Because of the lending restrictions sales of multifamily properties have plummetted. When the economy recovers it's likely some of these restrictions will be pulled back.

One of the restrictions was recently taken out. For the last year most banks would not give more than 4 loans to a single person. They have recently upped that number to 10. It's too early to tell what effect that will have on the market but I would not be surprised if the number of sales in the multifamily market increased over the next few months.

Here are the stats for the different mls areas. We also have a map of the different Austin MLS areas. For the most part, areas with high average prices had very few sales. This is because the high end of the market has been pretty slow the last few months.

MLS Map

10N - 8E
8w - HH
HS - PF
RN - WW

As always if you want to see what is currently on the market you can look here Austin Property Search. If you have any questions about the market or a particular house feel free to contact us.

Posted by escapeso at 05:11 PM | Permalink | Comments (0) | TrackBacks (0)

The stats are out for January for the Austin real estate market. Sales were very very slow. January 1998 was the last time we saw this few sales in a month. And no that is not a typo.

January is usually the slowest month of the year, and if you adjust for time of the year, November 2008's stats were probably equally as bad or worse. But market stats are usually lower in November on election years. There is no such excuse for the horrible numbers we are seeing this January. Below are the single family home sales stats for the last years:

There were 834 sales in January. It's a 36% decline from a year ago and a 43% decline compared to two years ago.

In essence, starting in September 2007, the Austin real estate market, along with the rest of the country, slowed down because of the subprime issues. For a year the market held steady at its new slower pace. But in October 2008, the market slowed down again. We are also seeing this slow down in other Texas cities.

All of last year we saw no price declines in the Austin market reflected in "official" stats. This occured because less homes in lower price ranges were selling, which artificially inflated median prices. So, in reality, prices were actually down. Now the official stats are showing price declines. The average and median price both are down 6% compared to a year ago.

All of last year we saw no price declines in the Austin market reflected in "official" stats. This occured because less homes in lower price ranges were selling, which artificially inflated median prices. So, in reality, prices were actually down. Now the official stats are showing price declines. The average and median price both are down 6% compared to a year ago.

The list to sold price is down to 94.4%. That means on average a house listed for $100,000 is selling for $94,400. Clearly sellers are becoming more flexible. But as we have said before, in your purchases, it's best to somewhat ignore listing price. You often hear people around the water cooler saying they got a house for 20k less than list. This is meaningless. If the house was overpriced by 40k, it's still a bad deal. You want to get a house under market value not under list price.

So, I have been getting some questions about the condo market. And, yes, although the residential market is doing poorly, the condo market is doing much worse. In particular the high end condo market is moving very slowly. Below is a graph of condo sales broken down by price range. Last month 1 condo priced over 400k sold. There were 363 condos priced over 400k on the market last month. We are seeing more sales with lower priced condos.

The multifamily market is also pretty slow. Two years ago we had 67 sales and last month we had 22 for a 67 percent decline

As far as different areas of Austin are concerned, we continue to see central Austin outperform the suburbs. Lakeway and Lago Vista are doing particularly poorly. The area south of Ben White is strong. Below are links to stats for the different mls areas along with a map of Austin showing the different mls areas.

MLS Map

10N - 8E
8w - HH
HS - PF
RN - WW

Ok, so what is my advice? First for sellers, I keep running into sellers who are a little nuts. We keep running into sellers who only want to show their house when "it's convenient". If we are calling to look at a bunch of houses on a Saturday, it's convenient for the seller to show it at Tuesday at 3pm. With over 10,000 houses on the market a lot of buyers are going to say thanks, but no thanks. With a lot of sellers and few buyers, it's not the time to ask buyers to come back tomorrow, they probably won't.

Also, we are seeing appointment with agent/office person or appointment with owner houses. As a seller, if you run into a listing agent who wants to personally show your property, you need to run from that person. That tactic can help an agent get more clients (basically by peeling them away from the buyer's agent). But, it's also going to affect a house by drastically reducing the number of showings and the chance it's going to sell. It's more convenient, but it's also more convenient to simply not list the house.

For buyers I would say look at houses that need a little work. The buyers in the market now want immaculate houses. Rougher houses are having a harder time selling which is translating to lower prices. Second, lock in your mortgage rate as soon as possible. Mortgage rates are near 40 year lows. They might go down more, but I am more worried about them going up.

So what are we doing? We are currently looking at putting in an offer on a property. I don't see an imminent recovery in the market. I wish I did, but I don't. But, during the down market, I hope to pick up a few properties at low prices and with low interest rates.

As always if you want to see what is currently on the market you can look here Austin Property Search. If you have any questions about the market or a particular house feel free to contact us.

Posted by escapeso at 07:02 PM | Permalink | TrackBacks (0)

The December Stats are out for the Austin real estate market. The December stats were an improvement over November but that is not saying much. If you were here last month you might remember that November had the lowest monthly house sales in 8 years.

Let's look at the sales for the last few years.

First let's talk about the number of sales. I generally think this is probably the best indicator of how the market is doing. Other data points like average price can be pushed up or down based on what segments of the market are doing well.

I want to look at the 2 year change because the end of 2007 was pretty unstable due to the sub prime issues starting to mess with the market. Since 2006 was more stable, it makes more sense to compare current sales to 2006 as a baseline.

In November we saw an incredible 49% decline in sales compared to 2 years ago. The December stats showed an improvement with a 35% 2 year decline in sales.

To put the last 2 months in context, let's go back a little farther. Although all of 2008 was slow, the market seemed to slow down in August of 2008. From January 2008 to December 2008 on average we saw a 2 year decline of 18%. Since August 2008 every month (besides November) has seen a 2 year sales decline from 30% to 36%.

Ok so what does all this mean? Basically we are in a slow market. The market slowed down even more in August but November still seemed to be kind of a freak slow month. This is partially due to the election. (We actually ran statistics on sales in October, November and December for the last 24 years. Sales usually dip in November on election years but this only accounts for about half of the drop we saw in November 2008). Based on preliminary data, we are seeing more activity since January 1st which should mean we should see more sales in February (although this doesn't mean we are headed for a recovery just yet but we will get to that later).

Ok let's look at some other data points. We have been seeing year to year price declines for the last few months and this month is no exception. The Average and Median prices are both down this month. Average prices are down 2 percent and Median prices are down 4 percent.

Basically it looks like sellers are starting to negotiate more in the Austin real estate market. The Sold to List Price (basically on average how much less sellers are taking than list price) is 94.1 percent. This is the lowest we have seen in the last 3 years of data.

The number of houses on the market came down in November which was a good sign. We actually have less inventory on the market now than we did this time last year. This is probably due to sellers simply pulling their houses off the market without selling them. But it's still good because the market can't recover with everyone trying to sell at the same time.

If you are interested in how the single family market is doing in different part of Austin we have the breakdown by mls area here MLS Area 10N - 8E 8W - HD HH - NW OT - WW and here is a map of the different mls areas.

Let's see how the market is doing for different property types.

So while the single family market is down in Austin, the commercial and multifamily are all much worse. As we talked about before the market for single family homes is down 30% from 2 year ago. Here are the numbers for commercial and multifamily.

And yes, you are reading that correctly. The multifamily market saw a 83% decline in sales compared to 2 years ago. So what is going on here? Banks for the most part don't want to lend to investors. They have implemented a rule where investors can only get 4 loans regardless of credit scores. In addition, mortgage rates for loans to people that will not occupy the property are much higher than typical loans. And most banks are requiring investors to have 30% down payments. All this is basically because banks don't want to deal with investors.

Ok so now back to the question of what is going to happen with the market moving forward. I want to first put in a disclaimer I don't have a crystal ball and all my predictions could be wrong.

Based on preliminary data and talking to various realtors at different companies, it looks like January and February should be stronger months in the Austin real estate market than December.

On the one hand sales are improving. Even if you factor out the election and seasonal effects (by comparing to 2 years ago) December was a better month than November. We are also seeing a drop in inventory. So does that mean the market is turning? I don't think so for a few reasons.

There was a poll done recently of economists working in different industries.

Basically although there were different ideas about how bad the first quarter of 2009 would be and how much improvement we would see by the third quarter of 2009, there were a few things that were constant. First across the board, economists didn't see the economy recovering until the third quarter of 2009.

And it's not just economists, no one (except for realtors) is expecting the economy to recover in the beginning of 2009. And because expectations often influence realty that would make it very difficult for a recovery to materialize in the next few months

Second like the rest of the country, Austin is experiencing a lot of layoffs. I don't see the real estate market making a strong recovery right after we just shed a bunch of jobs.

Ok so why was December stronger than November and January stronger than December. I think there are 3 words that led to this: "low mortgage rates". Mortgage rates have not just been low. They are the lowest they have been since 1972 when we first started tracking them. They went up last week. So as of today they are the lowest they have ever been except for the 2 previous weeks.

But unless mortgage rates keep dropping (they won't) I don't think we are starting a true recovery. Instead I think low rates spurred a bunch of buyers to get into the market.

Ok so what is my advice. First it's probably a good time to think about refinancing. Mortgage rates are still pretty low. You might want to run the numbers and see if it's worth it.

If you are thinking of buying in 2009 it might be a good idea to start looking now. When the market recovers I don't expect prices to shoot up. But the general expectation is that when the market recovers we are going to see a spike in interest rates. So before that happens it makes sense to start getting a feel for the market and different neighborhoods.

As always if you want to see what is currently on the market you can look here Austin Property Search. If you have any questions about the market or a particular house feel free to contact us.

Posted by escapeso at 08:22 PM | Permalink | Comments (1) | TrackBacks (0)