The ABJ reported that Austin had the second strongest job market in Texas for the year 2009. McAllen which is considerably smaller, was number one. Since job growth is the number one driver for real estate values, Austin’s ability to keep its workforce employed through the recession has allowed its real estate market to hold its value relatively well compared with the largest 50 metro areas in the US.
Orthopedics manufacturer Hanger recently announced it is planning to sign a 75,000 SF lease and grow it’s Austin area office. LegalZoom.com also just confirmed they are finalizing state and local tax incentives in exchange for opening an Austin office and bringing 600 jobs to our area over the next several years. These corporate relocations and expansions should serve the local real estate market well in the years ahead.
CWS Capital, the developer of the Sabine condominiums, is scheduled to auction the remaining units in the 80 unit building during the last week of February. Kennedy Wilson will be handling the auction, and I imagine it will occur in the conference room at the Hilton downtown just as their other auctions have. No confirmed dates or locations have been set, but email us if you are interested and we’ll forward details as soon as they become available.
Model unit living room
The Sabine is a 10 story office building that has been converted to 80 residential condominiums. The building is located at 5th & Sabine, just west of I-35 along Waller Creek. Unit interiors afford high ceilings, sealed concrete floors, maple cabinetry, stainless appliances, Silestone counters, subway tile baths and large windows. More information about the property is available on the project website www.thesabine.com
Original pricing started in the low $200,’s and topped out around $530,000 for the premium downtown facing unit on the top floor. On average, the units were originally priced in the $280/SF – $320/SF range. We anticipate substantial discounts at auction of approximately 25 – 40% off the original list price.
Year end summary: Without a thorough analysis, the 2009 year end stats appear to give mixed signals about the Austin real estate market. Year over year, area median sales prices declined and sales volumes were lower than in 2008. Upon closer inspection, however, the numbers reflect the market was slow during the first4 months of the year but began to quickly gain steam during the last 5 months.
The last quarter of 2009 ended with the market showing signs of stability and potential strengthening with higher year over year sales in December, decreasing inventory levels and price declines leveling off. When comparing Dec. 09 vs. Dec. 08, inventory levels declined substantially from 2008 levels and the median sales price rose 4.8%. In short, 2009 numbers averaged lower than 2008, but the market stats during the last 6 months of the year were significantly stronger.
Looking forward to 2010:
First Time Buyers – The home buyer tax credit was extended until April 30th. As such, we expect sales in that price sector to remain strong through spring and into summer (buyers have until June 30th to close so long as they are under contract by April 30th). Areas that already have low inventory such as areas 10N & 10S in South Austin (south of Ben White), Circle C Ranch and Round Rock should continue to thrive and prices will likely hold or increase. If you own in an area that is priced within reach of first time buyers and qualify for the move up credit, this is a good time to consider capitalizing on the large number of first buyers using the tax credit while using the “move up” credit for yourself (receive up to $6500).
Move Ups - The expansion of the tax credit to “move up” buyers should bolster sales in the $300K – $650K range. As such, the move up credit should help to reduce excess inventory in those price ranges for areas such as Steiner Ranch, Lakeway, River Place and South Austin, particularly north of $400,000. Price declines may cease but significant discounts off list price will continue to be possible with short sales and sellers that cannot wait out the job market.
Luxury Sector - The luxury market ($750K+) will continue to struggle as financing remains difficult and inventory remains high. On an interesting note, we saw many corporate relocations and moves from out of state during the fourth quarter of 2009. We believe many companies are positioning themselves for anticipated growth as the economy recovers. Some pick up may occur in the luxury sector this year, but inventory is high enough that great opportunities will remain for buyers in this sector throughout 2010. It’s likely many builders will continue to cut pricing on new construction in an attempt to get inventory off their books. Discounts will directly correlate with inventory levels, so we expect steeper discounts in areas around Lake Travis where inventory remains high, whereas areas such as Westlake and Tarrytown will begin to see fewer discounts as increased year end sales helped reduce inventory, although it presently remains with an oversupply.
Investment Property - Investment financing will continue to be difficult to obtain, but ample opportunities exist for those with cash or substantial equity. Most investors we work with are seeking CAP rates around 8%. Rental rates for multi-family and residential will likely decline in the year ahead with a large number of newly constructed rental units coming online and still leasing up from last year in the central areas.
Overall, we feel the Austin residential market is not out of the woods, but 2010 should be a stable year baring any unforeseen catastrophes. This year will likely prove the best opportunity for buyers before interest rates rise and prices begin to recover. The true sign of a recovering real estate market will be positive job growth. Expect increases in the real estate market to lag positive numbers in the job growth realm by 6 – 8 months, so long as interest rates remain reasonable.
We knew the time was coming, and the experts said it would happen most likely in the first quarter of 2010, and it looks like they were right. The good news is that this is another signal that the economy is improving.
During the first quarter of 2010 will be an optimal time for first-time buyers and move ups, with first timers cashing in $8000 per transaction and move ups getting $6500 – all while the interest rates are still relatively low.
Austin Business Journal – by Jeff Clabaugh Staff Reporter
Mortgage rates moved higher for the second week in a row, financial experts reported today.
“Mortgage rates followed bond yields higher once again this week amid signs of an improving economy,” says Freddie Mac (NYSE: FRE) chief economist Frank Nothaft.
Freddie Mac said a 30-year, fixed-rate mortgage averaged 4.94 percent for the week ending today, up from 4.81 percent. A year ago, 30-year mortgages averaged 5.19 percent.
A one-year, adjustable-rate mortgage averaged 4.34 percent this week, up from 4.24 percent last week.
Despite moving higher, long-term mortgage rates continued below five percent for seven consecutive weeks, contributing to a wave of refinance activity. Three out of every four mortgage applications were for refinancing an existing mortgage during the first two weeks of December, according to the Mortgage Bankers Association.
November housing starts were up 8.9 percent from October, with building permits issued in November up 6 percent.
If you’re a buyer wanting to get the best deal, then your best opportunities to negotiate may be in the winter months. This is a broad generalization that does not take into account individual circumstances. However, generally speaking buyers are able to negotiate larger amounts off the list price in the winter months. This chart illustrates our point by comparing July and January sales for the last three years.
From Marcus & Millichap: Recent overbuilding and employers’ thinning space requirements have widened the Austin office supply/demand imbalance in recent months, driving metrowide vacancy close to 20 percent for the first time since 2004, according to a fourth-quarter Office Research Report by Marcus & Millichap.
Despite projections for further weakening into the first half of 2010, this downturn will likely be shallower than the tech bust earlier in the decade, as job losses are expected to ease through the end of this year.
“Buyers will remain cautious when approaching deals and continue to hold out for price corrections, given projections for further fundamental weakening,” says J. Michael Watson, regional manager of the Austin office of Marcus & Millichap.
Following are some of the most significant findings from the report:
Hiring is projected to pick up by year end. In 2009, employers are forecasted to reduce payrolls in Austin by 6,000 positions, a 0.8 percent decline. Office-using businesses are expected to eliminate 700 jobs.
Office construction will drop off significantly this year as developers are on pace to bring only 650,000 sf online, down from 2008, when 2.7 million sf was added to stock.
Although office development activity will slow in 2009, contracting demand and oversupply issues are expected to push up metrowide vacancy 200 basis points to 20.8 percent. Last year, vacancy increased 430 basis points.
This year, more moderate tenant demand will prompt owners to reduce rental rates in an attempt to stabilize operations. Asking rents are forecast to decrease 3.7 percent to $25.29 per sf, and effective rents will end the year at $20.59 per sf, a 7.5 percent annual drop.
The Central Texas region posted over 14,000 properties for foreclosure in 2009. That’s a record for the decade, although many properties were repeat listings which were re-posted in subsequent months while the lender negotiated with the owner.
The last foreclosure auction of the year will take place Tuesday December 1st. Email us for a current foreclosure list or for foreclosure postings in a specific area.
The fall market has met some of our expectations and exceeded others.
Meeting Expectations: We had anticipated that this fall would see higher numbers of sales than usual due to the looming November 30th deadline for the first time home buyer tax credit. The credit, which was extended and expanded last week (see details here) has added fuel to the entry level market which is evidenced by the plummetting inventory in affordable pockets of central Austin such as 10N and 10S (central south Austin between Ben White and Slaughter, Mopac & I-35). Allandale and Mueller have continued to see inventory decline significantly from this time last year (Mueller’s inventory is less than half this time last year). Round Rock continues to be a strong submarket as well due to its affordability and proximity to large employers. While we favor the tax credit to help jump start the economy and promote home ownership, we have stressed due diligence with our first time buyer clients. The tax credit coupled with a significant decline in builder production has put price pressure on the entry level market. In some instances we have found there is so much competition amongst first time buyers that they are actually driving up the sales price more than the $8,000 they are receiving as a credit from the government. It’s still a great time for first time buyers, but be sure to perform a thorough price analysis of the neighborhood before placing a contract on a property. Overall, the central Austin sales volume is up 22% versus this time one year ago.
A Few Surprises: Sales are picking up in the luxury market. Inventory remains high at the upper end of the market and jumbo loans (over $417K) remain difficult to qualify for, although guidelines have loosened from earlier in the year. The million dollar market remains with over 2 years of inventory, however the availability varies greatly depending on the part of town. More luxury properties went pending in Old West Austin in October than closed in the previous four months combined. It’s not yet clear what is driving the uptick in buyer activity, but I suspect it’s a combination of motivated sellers and builders lowering asking prices so they can sell before year end, and buyers beginning to feel comfortable that the market has bottomed. $750k+ availability remains high in areas such as Westlake, Spanish Oaks, and Lakeway. Our experience has been that highly qualified buyers can negotiate signficant discounts to original list price – in many cases 20% or more. For all intensive purposes the luxury end of the market seems to have returned to pricing levels seen around 2002-2003. Builder incentives remain high in areas such as Steiner Ranch, bringing down prices and making it difficult for re-sales in the area to remain competitive. Buyer activity has remained high in Steiner, however, and buyers seem to be capitalizing on the lower prices because inventory is falling from a year ago.
Another surprise has been the return of relocations. This quarter we experienced many clients moving to Austin from cities such as San Diego, San Jose, Miami, Washington D.C. and New York. Some buyers have even had corporate relocation packages which we have not seen since early 2008. My interpretation is that companies are beginning to hire and move employees again, and other buyers are leaving jobs with struggling companies in the coastal regions to work with strong companies positioned for growth in Austin.
Expectations for 2010: With last week’s expansion of the tax credit to move-up buyers, we expect significant movement in the spring in the $300,000 – $600,000 price range. It’s too soon to tell if the movement will continue after the credit expires. Fewer buyers will be able to qualify for the “move up” credit because it requires that a person has lived in their home for five years, but we still expect it to impact inventory because builders will be unable to produce hardly any new product before the April 30th deadline. The lower end of the market will remain robust and inventory at the upper end will remain high but should decline. Keep an eye on job growth and builder production to predict when a bottle neck will occur that places upward pressure on pricing as has already occurred in the < $200,000 market. We believe a strong buyer’s market will remain in the luxury realm until lender restrictions for jumbo loans loosen and more of the existing inventory is absorbed.
The Federal Tax Credit for homebuyers was officially extended on Friday. Changes have been made to expand the credit to higher income brackets as well as repeat buyers. Here are the quick facts:
First time buyers who have not owned a home for at least 3 years remain eligible for the $8,000 credit
Income limits have been increased to $125,000 for a single person or $225,000 for a couple (previously $75K and $150K, respectively)
Repeat (“move up”) buyers who have owned their home for a minimum of 5 years (must have owned their home 5 out of the last 8 years) can receive up to $6,500
The credit is not a loan and is not a deduction but a direct income tax credit
The home buyer tax credit is likely going to be extended to higher income individuals as well as existing home owners through April 30, 2010. The extension which should be finalized this week, will extend the existing $8,000 tax credit for first time buyers until the end of April and will increase the income limits to $125,000 as an individual or $225,000 as a couple.
Additionally, a credit of up to $6,500 will be extended to repeat home buyers who have owned their current home 5 years or more.
The Senate is scheduled to vote on the final bill this week and it is expected to be passed in the House soon after. We will update our page with more details as they become available.
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