The Austin Real Estate Market falls off a Cliff for July
To put it simply the sales for the Austin real estate market were horrible. Compared to last year we saw a 25% decrease. To be eligible for the tax credit contracts had to be signed by April 30th. Since contracts usually take 30 days to close it was thought that June would be mostly free of the effects of the tax credit. In fact after the June results were reported ABOR had a press release about how there was "Life After the Tax Credit".
After the tax credit ended the results for June were low (6% drop compared to June 2009). It looks like sales from the tax credit boosted the numbers for June. This was probably due to the lending environment. While contracts usually take 30 days to close due to current lending restrictions contracts are being delayed and taking much longer to close. Therefore there were probably a lot of contracts signed in April that didn't actually close until June. But now the July statistics are showing us the first month truly free of the effects of the tax credit and it's not pretty.
The average and median prices are both up (16 and 15 percent respectively). But I don't think that is a sign of market strength. Instead I think we are simply seeing fewer lower priced homes selling. For the most part anyone that was going to buy a home for 150k bought it while the tax credit was active. In markets like this one with a lot of atypical forces I feel like average and median prices are almost pointless to look at as a valid indicator of the market. From what we have seen looking at properties, prices are certainly lower than they were a year ago.
Moving on the number of active listings is pretty high, again another sign of a weak market. The number of listing is 18% above this time last year. The number of active listings 1174 is the highest number of listings we have seen ever in the Austin market.
So is this a temporary drop? There are two main factors to look at. First we are having a negative effect on sales from the tax credit. Basically people planning to buy mostly bought while the tax credit was active. So some say moving forward sales should increase as we get farther away from this dead period after the tax credit ended. But on the other hand mortgage rates are at an all time historic low and they can't stay this low forever. Once they increase that will have a negative effect on sales.
So let’s look at different segments of the market beyond residential. While the residential market dropped 25 percent compared to this time last year we saw an even bigger drop in the condo market which fell 38 percent. The Austin multifamily market also saw a large drop falling 40% from this time last year. The commercial market fell 17% but the commercial market has been dead for awhile and all the expectations is that things are simply going to get worse.
So in all this doom and gloom what am I doing? It might seem counter intuitive but I am about to close on two properties. I am not sure if prices are going to fall further so why am I looking at properties? There are two reasons. First off prices are lower than what I have seen in a while. And perhaps more importantly mortgage rates are incredibly low. In fact, 5 weeks ago mortgage rates hit an all time low and every week since then rates have fallen further. The mortgage payment on a 200k loan just dropped below $1000 (it’s at $996.80 now, chart below). Before 2009 it was rarely below $1200. So cash flow on properties is starting to look pretty attractive.