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Austin Real Estate Market For October

Let's start off high level. For the general Austin real estate market we saw 1455 sales in October. That is up from 1219 sales in October 2010 for an increase of 19.4%. I would say looking at those numbers out of context exaggerates the strength of the market. At the beginning of 2010 we had the housing credit so anyone that was going to buy bought and it sapped out the strength of the last half of 2010. That said I do think 2011 in general is stronger than 2010. In fact if we look at year to date we are up 7% from Jan-Oct 2011 compared to Jan-Oct 2010. I would expect that by the end of the year 2011 will have around 8% more sales than 2010. So in summary the market is improved compared to 2010 but it's not a wild everything is wonderful kind of the improvement that the numbers from October might suggest.

What I am a little more excited about is inventory. Inventory is down. Currently we have 7926 homes on the market. Looking at the last few years

Oct 2009 8948
Oct 2010 9703
Oct 2011 7926

The current months of inventory is 5.45. Generally anything below 6 is a sign of a healthy market. Now part of sales we are seeing are due to foreclosures. But all in all from what I am seeing in the field and looking at the numbers the Austin market is doing ok. So looking down the road there are a few things to be worried about. The first is interest rates. Mortgage rates are hovering near all time lows again. We broke below 4% recently which is unprecedented. If rates start to rise that could sap some strength out of the market. Additionally, there is the shadow inventory problem. Shadow inventory is basically homes held by lenders that have not hit the market. Lenders are holding back inventory all over the country to avoid flooding the market. Instead they are slowly letting it leak onto the market. Shadow inventory is probably a bigger problem in markets like California and Florida that are seeing more foreclosures. Austin does have some shadow inventory it's just not as great as other markets. The third thing is a drop in the stock market. If the market has another rapid fall that is going to sap some strength out of the market.

So currently the market is improving but it's not the same red hot market that we saw in 2006 and 2007 and to be honest I don't see that type of market returning for a long long long time.

Ok so submarkets what are we seeing. First off abor has something called a hotness ratio that they assign to areas. More or less totally ignore that. Why? Basically it's based on the time properties sit on the market before selling. The problem is that foreclosures tend to sell quickly. So submarkets with lots of foreclosures have low days on market and are considered "hot". Also builders tend to build expense houses and they tend to sit on the market for a bit. That pushes the number of days on the market up. But an area with lots of foreclosures is not actually hotter than an area where houses are being renovated or built.

So what areas are stronger right now. Central Austin is outperforming the suburbs. I don't see that trend reversing especially with high gas and energy prices.

I am seeing a tepid recovery in demand for vacant lots. Here are the number of vacant lots that sold in August and September for the last 3 years.

Aug-Oct 2009 - 295
Aug - Oct 2010 - 316
Aug - Oct 2011 - 344

Before anyone gets too excited the numbers of lots that sold this month was 114. There are 4631 lots on the market. So the months of inventory on the market for lots is 40.6. So the market for lots has recovered from flatlining to being in a stable coma.

The market for multifamily is improved but there is simply nothing on the market. Here are the number of sales for the last few years

Aug-Oct 2009 - 94
Aug-Oct 2010 - 131
Aug-Oct 2011 - 135

What's interesting is if we look at standing inventory

Oct 2009 - 417
Oct 2010 - 411
Oct 2011 - 244

Part of this is due to multifamily owners refinancing at lower interest rates (and increasing cashflow) instead of selling.

The only section of the market which seems down compared to last year is Commercial. The commercial market remains pretty weak. The problem I have with the commercial market relates to interest rates. Basically one of the benefits of buying in the current market is locking in at incredibly low mortgage rates. The problem with commercial properties is in general you can only lock in your interest rate from 5-7 years. So basically in 5-7 years your mortgage is going to go up some unspecified amount lowering or possibly eliminating cashflow. Additionally, if the commercial market does crash it could be difficult to sell or refinance in 5-7 years. So long story short we have looked at commercial properties this year but in the end buying multiple 1-4 family rentals seems more attractive in the current market.

As always if you have any specific questions about the market feel free to contact me. If you want to search for properties in the Austin MLS you can use our search here. If you are looking for a knowledgeable realtor in Austin you can contact me here.


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