September stats for the Austin real estate market
The September stats are out. So what is going on with the Austin real estate market? September was pretty slow. The number of sales was down 22 percent from last year. The number of listings was up 22 percent compared to last year.
So what is happening to cause the Austin slowdown? Is Austin losing jobs? Nope. Austin recently posted some of the best job growth numbers in 6 years. So what is happening? Lenders are tightening their lending policies. Although this is in response to the problems in places like California, the effects of the tighter lending policies are being felt everywhere including Austin.
I want to go through a few of the numbers in more detail. According to the stats released, prices are up 6 percent. This is a little misleading. Lenders are making it more difficult for subprime borrowers to get loans. Since subprime borrowers are more likely to purchase homes under 200k, we are seeing a bigger slowdown on less expensive homes. This slowdown in the under 200k real estate market is inflating the average prices.
In actuality the prices are currently coming down a bit. So buyers that are able to get a loan are finding better home prices than what we saw a few months ago. In addition, we are seeing a lot of California investors selling off their investment properties. So with the extra supply, we are seeing prices for investment properties come down in areas like 10N (just south of Ben White). And consequently we are seeing properties with cashflow in those areas. So in summary, the market is a little better for buyers and for investors looking for positive cashflow properties. But it's more competitive for sellers.
Let’s break out the numbers a little more. First let's break out the changes in the number of sales by price range. The two major factors that are affecting loans right now is reluctance by lenders to give out loans to subprime borrowers which is having an effect on homes under $200k, and 2) lenders have also raised rates on jumbo loans which are loans over $417k. If we look at the number of sales compared to last year we see the bottom and top end of the market more heavily affected.
Less than $200k..... -22.8%
$200 to $399,999..... -9.3%
$400 to $599,999..... -22.7%
For inventory we have 22 percent more inventory than we did last year. Let’s break out the amount of inventory into 4 different areas: the suburbs, central Austin west, central Austin east, and all of Austin (total).
6792..... 8189..... +21% (suburbs)
1115..... 1311..... +18% (central Austin west)
296..... 479..... +62% (central Austin east)
8203..... 9979..... +22% (total)
Another way to look at the numbers is the months of inventory on the market. This is basically the amount of inventory divided by sales. So if nothing new was put on the market, it gives an indication of how long it would take to sell everything on the market. Here's those stats:
5.57 months (suburbs)
4.49 months (central Austin west)
6.94 months (central Austin east)
5.47 months (overall)
In general when there is less than 6 months of inventory you are in a sellers market. If there is more than 6 months you are in a buyers market. Even though overall we have 5.47 months of inventory at this point I think we are in a buyers market.
So the thing that jumps out at us is that East Austin has an incredible amount of inventory on the market. There are a few things going on causing East Austin to have such an increase in inventory. 1) Due to construction the amount of homes in East Austin is increasing. 2) A lot of outside investors are pulling out so areas where a lot of investors bought real estate are seeing more homes on the market. 3) East Austin has seen a rapid rise in prices recently and a number of retired homeowners who are living on fixed incomes are looking to sell because they cannot afford the higher taxes coupled with the opportunity for hefty profits.
So now we are left with the million dollar question. What is going to happen? And to be honest I don't know. The major banks are busy trying to find a way to fix the mortgage issues. And the US government seems interested in helping them with Fed Rate cuts. So if the credit markets ease up this should be a boon to real estate markets everywhere. And while I can't look into the future, the twin forces of an easier credit market and Austin's positive job numbers would certainly be positive forces for the Austin real estate market.
If the credit markets continue to have problems, Austin along with other markets will continue to see a weak market. According to the experts, California is about to see some serious price declines. Recently it was predicted that California still has a 20% decline in prices in store for it. The reason is that California had very sketchy lending practices which allowed real estate prices to get far out of whack with incomes. Experts are saying Austin should be better off because we had relatively flat appreciation from 2001 to 2005 and our real estate prices are more in line with local incomes. That said as long as lenders continue to practice strict lending practices it will be difficult for the Austin real estate market to see strong appreciation.
Ok so now the next question is whether the credit markets are going to ease. There are a number of strategies being employed:
1) FHA Secure - A new program initiated by the government which will offer home loans to borrowers.
2) Lenders banding together to offset risk
3) Lowering interest rates
But will any of this work? It's obvious the lending industry and the government are both hoping to help fix the credit crisis. But just because they want to fix it does not mean they will be successful. My feeling is eventually the credit market will ease. Credit markets tend to run in cycles. But the question is whether the credit markets will ease up in the next few months or the next few years.
I realize this was a pretty long entry blog and if anyone has any particular questions about the Austin real estate market , even if you are not planning on buying or selling real estate anytime soon, feel free to send us an email.