Austin Real Estate Blog

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.