Austin Real Estate Blog

The stats are out for August for the Austin real estate market. There have been a lot of stories that the real estate market is improving. So is it?

Last month we saw some signs of improvement in the Austin market. When we look at sales we always like to look at year over year numbers (August 2009 compared to August 2008) to avoid normal seasonal variations. In July 2009 the number of sales was roughly equal to sales from a year ago (the first time we had seen that in over 2 years). This month sales are back down

After the improved numbers in July the question was whether the numbers would continue to steadily improve in August or if July was more of an anomaly. Although August was a stronger month than what we saw for the first 5 months of the year, the strong sales in July seems to be somewhat of an anomaly.

For August 2009 sales are down 10% compared to August 2008 and down 28% compared to August 2007. Again this is worse than what we saw in June and July but better than what we were seeing from January 2009 to May 2009.

If the Austin real estate market is experiencing a recovery it’s similar to what we are seeing with the national real estate market. Instead of a quick and steady recovery we are seeing a choppy, slow, and uncertain one.

So what is helping sales the last few months? The market has been helped by the $8000 tax credit for first time home buyers. Additionally, the Federal Reserve’s continued purchasing of mortgage backed securities has kept mortgage rates low. It’s interesting that rates today are almost identical to what we saw 9 months ago. So why was their more coverage of mortgage rates 9 months ago? Basically at the time we reached new all time lows which made for grabbing headlines. Since that time rates fell even lower in April. So now even though mortgage rates are very, very low by historical standards there are no grabbing headlines to be had since we are only at 5 month lows.

So the question is that if low mortgage rates and the $8000 tax credit are what is pushing sales in the market, what is going to happen when those are taken away. The Fed is trying to play a balancing game of helping the housing market but trying to pull back quickly when the market starts to recover so they we don't have run away inflation like we did in the 1970's. Whether they can pull off that balancing act remains to be seen.

Ok so let’s look at the submarkets for the Austin real estate market.

The single family market is down 10% and seems to be the strongest market in Austin.

Sales for the multifamily market (generally duplexes, triplexes, and fourplexes) are down 40% from last year and down 70% from two years ago. This is caused by lending being more restrictive and the number of active investors has fallen.

The market for vacant lots is down 14% from a year ago and 50% from 2 years ago. Basically since very few people are building, vacant lots are not seeing that much interest. This might make lots seem appealing as an investment. If the plan is to buy a lot and then sell it once the market recovers it could be profitable. If the plan is to buy it and build a house it's still a problem. When people buy a lot and build a house with a builder and then have to sell in a year they almost always lose money. Why? Basically large builders can build a 2500 square foot house significantly cheaper than an individual. They are getting the labor and the supplies at a substantial discount due to volume. My advice is too always run a comparative market analysis on the finished product (before buying the lot). Then one can see if "price of lot" + "estimate from builder" is greater or less than what the house is worth. Generally buying a lot and building is something one will do because they are going to love the finished product more than something to do as an investment.

OK enough talk about lots, let's move on to the commercial market. The commercial market in Austin is down 28% compared to last year. I would enter the commercial real estate market with extreme caution. There is a significant risk the commercial market is going to implode. In a nutshell there was a boom in the commercial market 3-5 years ago. Those balloon loans are now coming due (although commercial loans are paid like they are 30 year loan, you have to get new financing every 3 to 5 years) The banks are not interested in refinancing these loans. We are already seeing a number of individuals and businesses (that are profitable) facing foreclosure because they can not find new financing. So as we watch the residential market improve, we could be watching the first signs of disaster in the commercial real estate 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.