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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.
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