Austin Real Estate Blog

Let's start off high level. For the general Austin real estate market we saw 1455 sales in October. That is up from 1219 sales in October 2010 for an increase of 19.4%. I would say looking at those numbers out of context exaggerates the strength of the market. At the beginning of 2010 we had the housing credit so anyone that was going to buy bought and it sapped out the strength of the last half of 2010. That said I do think 2011 in general is stronger than 2010. In fact if we look at year to date we are up 7% from Jan-Oct 2011 compared to Jan-Oct 2010. I would expect that by the end of the year 2011 will have around 8% more sales than 2010. So in summary the market is improved compared to 2010 but it's not a wild everything is wonderful kind of the improvement that the numbers from October might suggest.

What I am a little more excited about is inventory. Inventory is down. Currently we have 7926 homes on the market. Looking at the last few years

Oct 2009 8948
Oct 2010 9703
Oct 2011 7926

The current months of inventory is 5.45. Generally anything below 6 is a sign of a healthy market. Now part of sales we are seeing are due to foreclosures. But all in all from what I am seeing in the field and looking at the numbers the Austin market is doing ok. So looking down the road there are a few things to be worried about. The first is interest rates. Mortgage rates are hovering near all time lows again. We broke below 4% recently which is unprecedented. If rates start to rise that could sap some strength out of the market. Additionally, there is the shadow inventory problem. Shadow inventory is basically homes held by lenders that have not hit the market. Lenders are holding back inventory all over the country to avoid flooding the market. Instead they are slowly letting it leak onto the market. Shadow inventory is probably a bigger problem in markets like California and Florida that are seeing more foreclosures. Austin does have some shadow inventory it's just not as great as other markets. The third thing is a drop in the stock market. If the market has another rapid fall that is going to sap some strength out of the market.

So currently the market is improving but it's not the same red hot market that we saw in 2006 and 2007 and to be honest I don't see that type of market returning for a long long long time.

Ok so submarkets what are we seeing. First off abor has something called a hotness ratio that they assign to areas. More or less totally ignore that. Why? Basically it's based on the time properties sit on the market before selling. The problem is that foreclosures tend to sell quickly. So submarkets with lots of foreclosures have low days on market and are considered "hot". Also builders tend to build expense houses and they tend to sit on the market for a bit. That pushes the number of days on the market up. But an area with lots of foreclosures is not actually hotter than an area where houses are being renovated or built.

So what areas are stronger right now. Central Austin is outperforming the suburbs. I don't see that trend reversing especially with high gas and energy prices.

I am seeing a tepid recovery in demand for vacant lots. Here are the number of vacant lots that sold in August and September for the last 3 years.

Aug-Oct 2009 - 295
Aug - Oct 2010 - 316
Aug - Oct 2011 - 344

Before anyone gets too excited the numbers of lots that sold this month was 114. There are 4631 lots on the market. So the months of inventory on the market for lots is 40.6. So the market for lots has recovered from flatlining to being in a stable coma.

The market for multifamily is improved but there is simply nothing on the market. Here are the number of sales for the last few years

Aug-Oct 2009 - 94
Aug-Oct 2010 - 131
Aug-Oct 2011 - 135

What's interesting is if we look at standing inventory

Oct 2009 - 417
Oct 2010 - 411
Oct 2011 - 244

Part of this is due to multifamily owners refinancing at lower interest rates (and increasing cashflow) instead of selling.

The only section of the market which seems down compared to last year is Commercial. The commercial market remains pretty weak. The problem I have with the commercial market relates to interest rates. Basically one of the benefits of buying in the current market is locking in at incredibly low mortgage rates. The problem with commercial properties is in general you can only lock in your interest rate from 5-7 years. So basically in 5-7 years your mortgage is going to go up some unspecified amount lowering or possibly eliminating cashflow. Additionally, if the commercial market does crash it could be difficult to sell or refinance in 5-7 years. So long story short we have looked at commercial properties this year but in the end buying multiple 1-4 family rentals seems more attractive in the current market.

As always if you have any specific questions about the market feel free to contact me. If you want to search for properties in the Austin MLS you can use our search here. If you are looking for a knowledgeable realtor in Austin you can contact me here.

Posted by escapeso at 12:24 PM | Permalink | TrackBacks (0)

The February statistics are out for the Austin real estate market. First off sorry I have not been posting recently. In addition to real estate I have been doing some consulting for real estate related organizations.

There is a lot of interesting stuff going on in the market but first let's look at some stats.

So for February 2011 we had 1112 sales in Austin. This is almost exactly what we saw for the last 2 years. In February 2010 we had 1115 sales and in 2009 we saw 1106 sales. So for all pratical purposes the market for sales is flat. A somewhat positive note for the market is that the number of active listings is down with 8605 listings for sale in February 2011 vs 9335 listings for sale in February 2010. According to the statistics, average and median prices are up slightly compared to a year ago. I am simply not seeing this in the market. I believe what is happening is that last year we had the tax credit which encouraged first time home buyers to purchase which pushed average prices down a little.

So what is going to happen moving forward. There has been some positive press about the Austin market, but there are still a lot of downward pressures in the national market. So I thought it would be fun to argue both sides.

The Pro Argument

-The Austin Real Estate market is stronger than it seems
Sales are flat compared to last year. But last year we had the tax credits which artificially pushed the number of sales up. So most likely the market today is stronger than this time last year.

-The Real Estate market always recovers last
In addition, it looks like the US is slowly pulling out of a deep recession. Yes the national real estate market is in shambles but in general real estate is the last thing to recover from a recession (the stock market usually recovers first).

-Things look bright for Austin moving forward
There are multiple positive signs for Austin. Not only has Austin been cited as one of the real estate markets to recover the fastest, but we just landed a slot on the national F1 racing circuit which by some estimates should bring in more money to the Austin economy than all the UT football games and SXSW combined.

-The number of active listings is down 7.8% from last year. This is exactly what we would expect to see in a recovering market.

The Negative Argument

-Foreclosures
So I am going to admit that without the tax credit, sales would have been lower last year. But a lot of the sales we are currently seeing are foreclosures. Also mortgage rates have been hovering around all time lows for the last few years. If the economy starts to recover mortgage rates should move up.

-Japan = Higher Mortgage Rates
And more importantly the events in Japan should push mortgage rates up. What does Japan have to do with mortgage rates? Japan has been buying US Treasuries. Now that Japan has to deal with rebuilding their country it's doubtful they will have much of an appetite for buying US debt. Japan and China tend to be the two largest buyers of US Debt. And, because they need cash for rebuilding, as the treasury notes they hold come due, they will probably cash out instead of reinvesting. In essence we now have have less buyers for US debt and more debt to service. In the end interest rates will have to rise. And consequently US mortgage rates will have to rise.

-Pending Sales
The number of pendings is way down compared to last year. In February 2011 the number of pendings was 1543 and in February 2010 was 1738. Given - the tax credit was going on last year. But the number of pendings don't indicate that the market is about to heat up.

Ok. So where does that leave us? I don't know. For the plus side I think the things that matter the most is that the Austin market seems to have more positive things going for it than the rest of the country. On the negative side the things that worry me the most are Japan and mortgage rates.

So what am I doing? In 2011 we have bought 3 properties so far. My basic thinking is that if rates increase there will be a downward pressure on prices. But if prices fall and rates increase the mortgage payment on a house would likely increase. So I would avoid buying a house in cash (because one would not benefit from low rates) and I would not buy a house if the plan was to sell it in 1-3 years. But long term buy and holds do make sense, at least for me, at this time.

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 the market, here is our search of the Austin MLS.

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