So what happened? November and December showed steady improvement compared to the rest of the year. Is this a temporarily glitch or will the next few months be slow as well. I am going to argue this from both angles. In favor of a temporary glitch the preliminary indicators on February look somewhat better. Additionally investors account for a higher percentage of sales in January (regular buyers, distracted by the holidays are looking in January but not going to closing yet). Because of the lending environment investors are far and few between.

On the other side we had a massive slowdown that I don’t think can be explained away simply by the lack of investors. Additionally, the tax credit is still in place and mortgage rates are still near all time lows. When the tax credit is removed and interest rates rise they will have a depressing effect on home sales.

Here are the stats for Austin real estate market for the last few years.

I hate when news outlets quote average and median prices. Basically they are widely inaccurate. If median prices move up or down it could mean prices are moving up or down, but it more often is an indicator that the high or low end of the market has heated up or slowed down. Basically if the high end market heats up average prices skyrocket even though the average house has not increased in value. That said average and median prices are down and my feeling is that the average property in Austin has lost value.

Let’s look at some different sub markets for Austin.

After a year in the doldrums the condo market is showing signs of improvement. But most of the sales are in the lower end market. The median priced condo that sold in January 2008 was 170k the median priced condo that sold in January 2010 was 130k. In January we saw 45 condos sell for under 100k and we saw 0 condos sell that were over 500k. It makes one wonder how a development like the Austonian, that is targeting the upper end condo market, is going to do.

The multifamily market is still slow. It’s better than this time last year but again January 2009 was the worst month in a decade. The multifamily market continues to be plagued by lenders that are not interested in working with investors. For those that can get loans we continue to see better deals than we saw a few years ago.

The market for lots continues to do worse than the market for single family properties in Austin. Basically developers are trying to unload current inventory and so are not interested in buying up lots. For the same reason the number of houses that are being demolished has dropped.

The Austin commercial real estate market is doing very poorly. Lenders (who think the commercial market is going to get worse) are not interested in giving out commercial loans. Since it’s hard to get commercial loans we are seeing very few sales (there were only 9 commercial sales in the mls this month). While there is speculation about what is going on with the residential market the general expectation is that the commercial market is in trouble and it’s just going to get worse. I still like the multifamily market over the commercial market because of the loans available. If someone buys a duplex they can lock into historically low rates for 30 years. On the other hand for commercial loans it’s rare to lock in for more than 5 years. And after 5 years when the rates start to adjust rates will probably be much higher.

As far as the different areas of Austin, here are sales numbers for the different mls areas of Austin.

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 MLS search.

After adjusting for seasonal variations, December had strong numbers compared to most of 2009. But it was much weaker than what we saw in the previous two months. October (1783 sales) and November (1542 sales) were incredibly strong. Below are monthly statistics for the last few years.

So all the numbers still look pretty strong. So the market is about to set on fire right? I am not so sure. I think the last few months the market has been incredibly strong because of the housing tax credit and historically low interest rates. Even if interest rates stay down for awhile longer, the tax credit is going to expire. And once the tax credit expires, I doubt the market will be moving as slow as it was this time last year (when people were talking about a possible economic depression). Rather, it's probably going to be slower than what we are seeing today. For buyers the trade off is that later there might be less buyers to compete with in the market later but interest rates might be higher. For sellers there is no real trade off. Waiting a few months for higher interest rates and less buyers is probably far from ideal.

Moving on let's look at different market segments. Here is the numbers for the year broken down by market segment.

The Austin condo market looks likes it's finally seeing some improvement. Sales are up 31% compared to last year. The number of condos on the market has fallen from 1569 to 1287. Austin was spared from some of what we saw in Florida because the condo boom hit right before the market meltdown in late 2007. While there were a lot of Austin condo projects planned many of them fell apart. That said the condo market is still worse than the single family market. I have heard a few people say that the condo market is actually stronger than the residential market, which I disagree. The months of inventory shows the number of months it would take to sell everything currently on the market (assuming nothing new was added). The lower the number the better the market is doing. Looking at months of inventory for December 2009, we see condos with more inventory / less strong:

Condos - 8.52
Homes - 5.884

The second part of the pro-condo argument is that the months of inventory is higher but that’s always true, and if we take that into account we will see the condo market has recovered from the downturn faster than the residential market. So I looked at numbers from January 2007 before the market started to slow down and compared them to today's numbers.

Condos Jan 2007 - 5.31
Condos Dec 2009 - 8.52
Homes Jan 2007 - 4.786
Homes Dec 2009 - 5.884

So the condo market has suffered more over the last few years than the residential market. But that said, the condo market is doing better than it was 6 months ago.

The Austin commercial market is up this month but still struggling. I have been mixed on the commercial market. On the one hand it’s appealing because prices are down. The problem I see with the commercial market deals with loans. One of the main benefits of buying now is locking into a long term loan at today's abnormally low interest rates. So if I buy multifamily I can get a low rate locked in for 30 years. With commercial in general it’s rare to get a rate locked for more than 5 years. So when we are looking at commercial properties, the question is always "the numbers look great today but what is my mortgage going to be in 5 years when the rate starts adjusting."

The multifamily market is also up for the month. The multifamily market is still struggling. A lot of the problems with the multifamily market have to do with difficulty in financing. Currently banks like residential properties but they are less interested in multifamily properties. Currently it’s difficult to get a loan for a multifamily property with less than 30% down. A few years ago investors were picking up multifamily properties with 5 to 10% down.

As far as the different areas of Austin, here are sales numbers for the different mls areas of Austin.

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.

In addition to having more sales compared to last year there are fewer properties on the market. We currently have 8,551 active listings which is down 7 percent from last year.

So why are we seeing more sales? There are two obvious factors. First the government tax credits are certainly increasing sales numbers. Second historically low mortgage rates are pushing sales numbers up. In addition, I would not call the national mood positive today, but it is without a doubt better than what it was this time last year when people were regularly talking about a total economic collapse. Below are the numbers for the last 3 years.

The average price is up 2 percent from last year and the median price is down 2 percent from last year. Average and median prices are notoriously unreliable since more or less sales in certain market segments (luxury properties or first time homes) can have more of an effect on prices than actual changes in the prices.

As far as prices, here are a few things we are seeing. Residential homes prices are holding steady or falling slightly. Houses that need repairs are selling for substantially less than what they sold for a few years ago because lenders are hesitant to give loans on these properties. Vacant lots and properties with teardown houses are selling for substantially less. Basically this is because we are seeing less building as builders try to get rid of excess inventory.

So moving beyond residential let’s look at some of the different market segments.

As we can see, residential saw 58% more sales than this time last year. We are also seeing more condo sales. I am still not too positive about condos as we still have a decent amount of excess inventory to move through. The condo situation in Austin is better than in Florida though. The downturn arrived in Austin in the midst of the condo boom so a lot of planned projects were cancelled. So while we have too much inventory it could have been worse if (like Florida) the condo building craze started a year or two earlier. All that said even with rising condo sales I still am not too positive about the health of the condo market.

The Austin commercial market as we have been talking about is on life support. It’s down 24 percent from last year and last year was bad. It’s down 46 percent from 2 years ago. Basically lenders are avoiding commercial loans like the black plague for the time being.

We are starting to see more activity in the Austin luxury market. The luxury market had been pretty dead for the year. For the first 6 months of the year, sales of properties over 1 million was down 28 percent compared to 2008. But in November 2009 we saw twice as many sales as we saw in November 2008.

As far as the different areas of Austin, here are sales numbers for the different mls areas of Austin.

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.

There were 1823 single family sales in October; this is 38% higher than what we saw this time last year. It’s also higher than what we saw last month (1733). It’s extremely rare to see an increase in sales as the market moves into winter. Another way to look at it is that October 2008 was slower than February, March, April, May, June, July, August and September. This October had more sales than every month in 2009 except just June and July.

Ok, so October had a high number of sales. Why? There are a number of factors. Although unemployment is still high their is an emerging feeling that the economy is recovering (the stock market is up 57% since March). We are also experiencing historically low mortgage rates. But the most important factor is probably the 8k and 6.5 home buying tax credit. Additionally, before the tax credit was extended there was a rush of buyers looking to buy before the tax credit expired.

Without the tax credit I would expect stronger sales than what we have been seeing over the last year but we would certainly not be seeing a 38% from this time last year.

Beyond sales the number of listings is down 10% from a year ago. This is roughly in line with what we have been seeing. The average price is down 2% and the median price is down 5%. In contrast for the last few months we have seen prices flat or higher than what we saw at the same time last year. So it seems weird that as the market moved faster, prices went down. If we look into the numbers a little more we see that the average size house that sold in October 2008 was 2713 and in October 2009 it was 2669. And for October 2008 and October 2009 the price per square feet was 114 square foot. So it looks like instead of prices going down compared to last year instead smaller houses are selling. This might be due to the fact that an 8k tax credit is more motivating for people looking at a smaller less expensive houses than people looking at large more expensive houses.

Although we saw more sales in the lower end of the market its also interesting that the upper end of the market finally started moving again. The market for homes over 1 million has been dead. Before October there were only 136 sales in 2009. October saw the highest number of 1 million+ home sales all year with 30.

Moving beyond the single family Austin real estate market lets look at some other market segments

The condo market is also up compared to last year. In fact there were 39% more condo sales than this time last year. Does this mean the Austin condo market is doing better than the single family market? Not really. The condo market was just much worse last year. Below are the sales and inventory numbers for both markets.

Sales Inventory Months of Inventory on Market
1823 8947 4.91
170 1353 7.96

So if we stopped putting in new listings it would take 7.96 months to sell off all the condos on the market and it would only take 4.91 months to sell off all the single family homes on the market. So while the condo market is not doing as well as the single family market its still doing much much better than this time last year.

The Austin commercial market is still anemic. Sales are down 25% compared to this time last year and 50% compared to 2 years ago. So why is the Austin commercial suffering while residential and condos markets are thriving? First the tax credit which is helping the residential market is not a factor for the commercial market. Second the commercial market has some serious long term problems which boil down to the fact that lenders are looking for any way to exit the commercial market because they are expecting a meltdown. It’s expected to be worse than the residential problems although it probably won't receive as much press as the residential market problems did because it affects less people.

The multifamily market had the same number of sales as last year at 36 it is down 54% from two years ago when it had 78 sales. This is better than the last two months when we saw one year declines of 38 and 32 percent. What’s been interesting with multifamily properties is that although sales are flat are down so is inventory. One would have expected that after the low number of sales the last 2 months inventory would have built up. Instead inventory is down 6 percent compared to last year. So although properties are not selling we are not seeing a lot of owners put their properties on the market.

The Lot market is down 30% compared to last year. Lots right now are like the hot potatoes in that game hot potato. Basically no one wants vacant lots. It’s going to take a little while for builders to clear out inventory and start building again, and in the meantime no one is buying lots. So the market for vacant lots is pretty much dead.

For the different areas of Austin here are sales based on the different mls areas of Austin.

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.

There are some important caveats to the mostly positive numbers. First although we are not seeing as much news about it, mortgage rates are near historical lows. Additionally the expiration of the $8000 tax credit is causing an increase in sales, so basically two short term factors are helping to push sales. It would be interesting to see where we would be without historically low interest rates and the $8000 tax credit.

So the last question is what happens when rates rise and the tax credit expires (note: a new tax credit of $6500 was enacted today which lasts until April 2010). It really depends on the economy. Most signs point that the economy is improving (unemployment is still high but that is a lagging indicator and unemployment usually peaks as the economy is moving out of a recession). The question is whether the recession is a V, U or W. A V shaped recession means a quick recovery. Most signs don't seem to be pointing toward a V shaped recovery. We are going to talk about how that relates to inflation and interest rates in a bit. The two left are a U and W. A U shaped recession is one with a slow recovery and a W shaped recovery points to a double dip recession. So if we are in a U shaped recession (which seems to be the general consensus by April when the tax credit expires real estate should be moving along due to a better economy. If we experience a double dip recession though, we can expect the real estate market to have further problems in April when the tax credit expires.

Ok enough about the recessions and the economy let's look at the Austin real estate market. The residential market is up 6%. The condo market is up 24%. While this is good sign, there is still a lot of inventory on the market before we can start seeing a true recovery or rising prices.

The market for vacant lots is down 20%. To look at how difficult it is to sell a vacant lot right now, there were 102 sales this month and 4725 lots on the market. Compared to two years ago, there were 195 sales and 3315 lots on the market. In other words, lots are semi-toxic still. It’s probably going to take longer for the lot market to recover than the residential market. Builders are going to want to wait until at least they burn through their existing inventory (which is going to take awhile) before they start buying more vacant land.

The commercial market with 5 sales is down 52% from a year ago and down 63% from two years ago. As bad as this is, the reality of the commercial market might be worse. As we talked about in the coming implosion of the commercial real estate market there are a lot of balloon notes coming due and most banks have almost no interest in refinancing them.

For the areas of Austin here are sales based on the different mls areas of Austin.

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.

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.

The July Stats are out for the Austin real estate market. The stats are generally more positive this month. Below is a breakdown of monthly sales stats for the last few years.

Sales are pretty much even compared to a year ago (July 08 = 2068 sales vs July 09 = 2069 sales). This is the first time in over a year and a half that the sales numbers for a month have not been down. It’s also much better than the average 22 percent year to year decline we have seen in the first 6 months of the year. So all this begs the question: Why are sales up?

Foreclosures certainly play a role. We are seeing an increased number of foreclosures but that doesn't account for all of the increased sales compared to the last few months. Low interest rates are certainly helping sales. However rates were lower in March, April, and May. I would say the two things that helped sales the most specifically in July were lending and the mood of the economy. Although lending is still extremely tight it has started to loosen up a little bit. Also the mood on the economy while not great is better than it was in the beginning of the year. Here is the number of times "economic depression" was mentioned in news sources this year. Basically besides a few spikes the general level has gone down from the beginning of the year.

So is the market going to continue to get better? Over the next few months the three volatile factors are the economy, interest rates, and the willingness of banks to lend. If two of these factors are positive I would expect the housing market to continue to improve.

So moving beyond sales let’s look at the number of active listings. We are seeing 8 percent fewer homes on the market this month than at this time last year. We have been seeing lower inventory compared to 2008 the last few months but this month is probably better. For the last 4 months we have seen year to year decreases in inventory of 1, 6, 7 and 8 percent respectively. So it looks like the inventory numbers are slightly improving.

With more sales and less inventory obviously the months of inventory ratio has improved. We are currently at 4.827. This is the lowest months of inventory we have seen since August 2007.

So let’s look at market segments.

Sales in the condo market improved. So am I hot on the condo market? In a word - no. There were 219 sales this month. This is down 2 percent from last month. The problem is there are still a lot of condos on the market (1461 condos on the market giving us 6.67 months of inventory). In addition, we are seeing condo foreclosure auctions (most recently the Bel Air and the Brazos) and expect to see more. While it’s good to see the condo market improving I don't see a full scale recovery.

The Austin commercial market saw an increase of 28% compared to a year ago. This is a little misleading since the sample size is so low (there were 23 sales this month). I am a little wary of the commercial market. I previously wrote about how there is a chance the commercial real estate market might implode. Basically the residential real estate market had problems because 3 to 5 years before the residential crash people were getting balloon mortgages. When those balloon mortgage started to expire (and the owners could not get new financing) the number of foreclosures started to spike.

There were a ton of people that bought commercial properties 3 to 5 years ago during a commercial real estate market boom and those loans are about to start expiring. To make matters worse, in the commercial real estate market pretty much everyone has a 3 to 5 year balloon payment because 30 year fixed mortgages are not available. So now most of the banks don't want to help refinance these loans because they are worried that the commercial real estate market is about to implode.

And here are the stats for the different areas around Austin.

June 2009 Stats By MLS Area

Compared to last year we are seeing more sales in the central areas. The areas 10n,10s,1a,1b,2,4,6,7,UT which roughly comprise central Austin collectively saw an increase of 11 percent in sales compared to a year ago. However, we are seeing fewer sales in some of the suburbs. We saw a 22% decline in Round Rock. We are also seeing an improvement in East Austin.

In summary, July was a good month for the Austin market. The commercial and condo market are in a difficult position but the residential market seems stronger than it has been for the last few months. Of course we will have to wait and see if the Austin residential market continues to improve.

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.

Three to five years ago there was a boom in commercial sales with a lot of buyers taking 3 to 5 year balloon notes. We know that a lot of the problems with the residential market were that a few years before the market crashed, people also got balloon loans. When their mortgage term expired, they had to get a new loan but they were not able to get financing anymore and were forced into foreclosure.

So the situation is repeated with the commercial real estate market. However in the residential market only a small percent of borrowers got a balloon loan. In the commercial market pretty much everyone gets a balloon loan. The 30 year fixed rate mortgage is basically not available for commercial loans and with the balloon note financing option the problem is compounded.

3 to 5 years ago there was a large number of commercial sales, now all those balloons are going to start expiring. When asked about the economy Atlanta Fed president, Dennis Lockhart said

"The risk I’m watching most closely is commercial real estate. There is a heavy schedule of commercial real estate financings coming due in 2009, 2010, and 2011.”

What will make matters worse are the banks themselves. Fearing the potential problems in the commercial market they are pretty much avoiding commercial loans. In fact it’s interesting that when you mention getting a commercial loan many banks will often point you in the direction of a competitor down the street.

What this means is that when many of these balloon loans start to expire the borrowers are going to find a lot of closed doors when they start to look for a bank to help them refinance. Its hard to know how many of the expiring loans will not be able to obtain financing. A report recently released by Deutsche Bank estimated that half of the loans expiring in the next 3 years will not qualify for financing. One of the authors Richard Parkus wrote "People are only now beginning to realize there is a looming crisis".

A case in point is the collapse of General Growth Partners, a real estate investment trust that owns or manages 200 regional shopping malls. The company filed for bankruptcy in April 2009. The reason they were forced into bankruptcy was not because their income had dropped off, but instead they had several balloon payments expire and were not able to find banks willing to refinance those loans.

So basically the doomsday scenario is this. Current owners have balloons that will expire. The current owners are not able to find new financing because banks are scared of being more exposed to a dicey commercial real estate market. As owners declare bankruptcy more and more properties are dumped on the commercial market. At the same time it’s more difficult for potential buyers to get properties because again banks don't want to give them loans.

To make matters worse, the banks can drop any pretence about wanting to stay in the market. In 2007 and 2008 banks had to strike a balance between wanting to limit their exposure to the real estate market and wanting to protect their long term brand. Being a bank, they didn't want to exit the market altogether.

If for instance Chase Bank had simply stopped giving out residential loans during 2008 it would have done significant damage to there long term brand. So instead they had numerous restrictions to limit their loans and exposure to the market, while publicly saying they were lending like they always had. However, if the banks want to limit their exposure to the commercial market they don't have to worry about playing such a balancing act since limiting commercial loans has less of a risk of hurting their long term brand.

The federal government could provide some kind of bailout to try and improve the commercial lending market but I don't think it’s that likely for a few reasons.

The public is pretty fatigued with the idea of bailouts so I don't see another large scale bailout moving through Congress. The government spent a lot of money in the last few years, so providing more funds for bailouts is pretty risky. In addition, the fear of an economic depression which helped push the first few bailouts through is pretty much gone. Lastly the average person will notice that their neighbor is facing foreclosure but the commercial real estate market is removed from most people.

So the negative factors for the commercial market are greater than the problems the residential market faced in the past few years. Over the next 12 months it will be interesting to see how this plays out