Austin Real Estate Market Update
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
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.
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.