Austin Rental Market Update – October 2006

Austin’s rental market for single family homes looks like it might finish the year with a slight upturn from last year. This would break a four year downward slide in Austin rental rates that started in 2002 after the tech bust and 9/11. We still have November and December to factor in, but we’re a bit ahead of the year-to-date rates for this time last year.
Austin Rental Market Oct 2006 graph

The problem continues to be ample supply being provided by new investors. As you can see on the chart below, 26% more homes were leased through the Austin MLS this October over October a year ago. That’s 610 leased homes Oct 2006 compared to 485 leased homes Oct 2005. So the demand is there, but supply is keeping up. Year to date, we’ve leased 38% more homes this year than last year. That’s a lot of new renters being absorbed by the rental market.

Austin Leasing Stats October 2006
Previous Month and Year Comparison
All MLS Areas - Houses Only

 
Sept 2006
Oct 2006
Oct 2005
Yr % Change
# Leased
606
610
485
+26%
Avg List Price
$1270
$1271
$1214
+4.7%
Median List Price
$1185
$1150
$1100
+4.5%
Avg Leased Price
$1255
$1257
$1199
+4.8%
Med Leased Price
$1175
$1150
$1100
+4.5%
Avg Size SQFT
1842
1872
1788
+4.7%
Median SQFT
1734
1775
1704
+4.2%
Avg $ per SQFT
$0.68
$0.67
$0.67
0%
Avg Days on Mkt
51
52
52
0%
Median Days on Mkt
42
45
43
+4.7%

Austin Leasing Stats October 2006
Year to Date Previous Year Comparison
All MLS Areas - Houses Only

 
YTD Oct
2006
YTD Oct 2005
Yr % Change
# Leased
6872
4976
+38%
Avg List Price
$1270
$1256
+1.1%
Median List Price
$1150
$1150
0%
Avg Leased Price
$1258
$1243
+1.2%
Med Leased Price
$1150
$1150
0%
Avg Size SQFT
1847
1802
+2.5%
Median SQFT
1750
1695
+3.2%
Avg $ per SQFT
$0.68
$0.69
-1.4%
Avg Days on Mkt
54
60
-10%
Median Days on Mkt
42
47
-11%

Below is the breakdown of Austin leasing activity by MLS area year to date. It’s interesting to note that, with the lone exception of Area RN, which is more affluent (and JA which has a sample size of only 2, so we discard it), all of the areas with an average year built of 2000 or newer have average rental rates and prices per square foot well below the Austin MLS average overall. Most of those areas also have higher days on market, which means those homes take longer to lease.

The question is – did those investors purchase those homes at a substantial enough discount, or a good enough price, that they produce a better cash flow than could have been obtained closer in. In many cases, I suspect they did, provided they are able to keep the home rented and avoid prolonged vacancy.

The more important question is – will those mostly newer homes appreciate in value over the next 5 years as well as homes closer in. I suspect they won’t due to continued compitition for years to come from new home sales. I still advise investors to stay as close in to Austin as you can afford and to avoid these far flung areas. This means you have to be valuing long term appreciation more than cash flow.

Austin Leasing Stats October 2006 Year-to-Date
by MLS Areas- Houses Only

MLS Area
# Leased
Avg $
Leased
Avg
SQFT

Avg $
Per
SQFT

Avg
Days
Avg Yr Built
Area 1A
20
$2175
2293
$0.95
46
1975
Area 1B
143
$1887
1620
$1.65
38
1945
Area 1N
154
$1393
1866
$0.75
34
1983
Area 2
118
$1146
1221
$0.94
30
1957
Area 2N
104
$1066
1447
$0.74
52
1974
Area 3
137
$1119
1403
$0.80
47
1962
Area 3E
51
$1074
1465
$0.73
60
1994
Area 4
130
$1587
1352
$1.17
43
1953
Area 5
121
$1004
1200
$0.83
53
1967
Area 5E
50
$1026
1690
$0.61
67
2002
Area 6
88
$1334
1204
$1.11
28
1954
Area 7
23
$1440
1433
$1.00
25
1957
Area 8E
32
$2783
2437
$1.14
37
1979
Area 8W
72
$2216
2494
$0.89
36
1990
Area 9
17
$1107
1382
$0.80
45
1974
Area 10
462
$1135
1517
$0.75
33
1986
Area 11
102
$991
1437
$0.69
49
1988
Area BA
61
$950
1568
$0.61
44
1986
Area BL
0
0
0
0
0
0
Area BU
3
$1231
1710
$0.72
30
1987
Area BW
12
1008
1618
$0.62
53
1987
Area CC
5
$895
1294
$0.69
23
1987
Area CL
770
$1174
1998
$0.59
48
1999
Area EL
17
$1032
1885
$0.55
70
2000
Area FC
0
0
0
0
0
0
Area GP
0
0
0
0
0
0
Area GT
134
$1161
1833
$0.63
43
1995
Area HD
69
$1670
2217
$0.75
52
1997
Area HH
327
$1080
1818
$0.59
51
2003
Area HS
7
$1137
1848
$0.62
98
2003
Area HU
205
$1034
1875
$0.55
72
2004
Area HW
23
$1296
1814
$0.71
77
1992
Area JA
2
$1325
1602
$0.83
45
2004
Area LC
0
0
0
0
0
0
Area LH
2
$987
1321
$0.75
12
1963
Area LL
0
0
0
0
0
0
Area LN
68
$1227
1636
$0.75
56
1985
Area LS
159
$1738
2108
$0.82
53
1992
Area MA
101
$1048
1836
$0.57
83
2004
Area MC
0
0
0
0
0
0
Area N
141
$1182
1728
$0.68
40
1989
Area NE
163
$1133
1878
$0.60
53
1996
Area NW
196
$1300
1954
$0.67
39
1986
Area PF
485
$1144
1934
$0.59
58
2000
Area RN
87
$2307
2855
$0.81
44
2001
Area RR
967
$1180
2016
$0.59
57
1998
Area SC
40
$1225
2119
$0.58
50
2000
Area SE
51
$1056
1872
$0.56
76
2000
Area SV
6
$940
1560
$0.60
65
1975
Area SW
336
$1491
2144
$0.70
37
1994
Area TC
12
$795
1432
$0.56
59
1971
Area W
49
$1743
2125
$0.82
46
1988
Area WE
1
$695
1110
$0.63
38
1920
Area WW
1
$1250
2016
$0.62
18
1993
All Areas
6872
$1258
1847
$0.69
54
1991

Posted by Steve
9 years ago
Steve

Steve is a Real Estate Blogger, Husband and Dad, UT Austin Grad, Runner, Real Estate Broker and owner of Crossland Team and Crossland Real Estate in Austin TX.

Click Here to Leave a Comment Below

AustinContrarian - 9 years ago

Can you post the breakdown by MLS area for October 2005 so we can compare changes by area?

Reply
Steve - 9 years ago

Hi,

The sample sizes for monthly leases by area are too small to be meaningfull. What area are you curious about though?
Steve

Reply
Don - 9 years ago

Steve,

I am a licnesed broker in Outhern Orange county and have rental property in SW-and North austin. In reveiwing you nice statisitical information on the rental market, I could not determine if this included Townhomes/Condos. I am assuming that you numbers of $0.68-$0.70 cemts per SF hold true for townhomes.

I have been leasing a nice 3-2.5-2 1560 sf townhome off convict hill and Escarpment for $1275.00…getting a lot of inquiries, but all are saying this this too much? With the inclusion of Freescale and Samsung…I woud think many of this units would be an excellent rental price for $1275-$1325.

Do you have iny info on Townhome/condo rental markets fro the last 2005-2006.

Best Regards

Don

Reply
Steve - 9 years ago

Hi Don,

I don’t include townhomes and condos or duplexes in the leasing stats – just houses. If you email me directly with your townhome address I’ll be happy to send you a rundown on what similar properties have been renting for. I’m pretty sure I know where your townhome is and it’s a nice complex. The rental market is very slow right now according to my Property Manager friends, so your price might be ok but you have a problem of not enough demand.

Email me and I’ll have a look for you though.

Thanks

steve

Reply
Don Baer - 9 years ago

Steve,

I appreciate your information on the markets in Austin. I sent you a direct email on my rental property.

Regards,

Don

Reply
John T. - 9 years ago

I own rental property in both las vegas and austin and austin is very much like vegas – way way too much overbuilding going on and way too many california investors so there is a lot of inventory that is for lease so renters have choice, and lots of it. It may just be a factor of supply and demand when you are focusing on price.

As far as freescale and samsung, yeah, I rented to someone who worked at freescale but only because he was waiting for his home to close, so if you work for big industry you probably have the ability to buy , so why rent. Just look at the flood of inventory in faraway nice areas like round rock and pfluegerville.

Reply
Steve - 9 years ago

Hi John,

Hi John,

> austin is very much like vegas – way way too much overbuilding going on and way too many california investors

I’ll have to disagree with you on that. Austin’s growth is much more measured than what happened in Las Vegas and Phoenix. Most of the production builders in Austin learned lessons from those markets, where their biggest competition became their own customers trying to flip homes at closing or shortly thereafter.

In many new home subdivision in Austin, especially those with strong demand, investors are very limited. You don’t get the same incentives owner/occupant buyers get, you have to pay a non-refundable earnest money deposit in some cases of $5000 or more, or in some cases, they flat out don’t sell to investors period. This is a double-edged sword. I’m happy to see builders doing that, but it limits the options for those we help.

All of the investors we deal with understand that Austin is a long-term investment, not a quick-flip market. Therein lies the biggest difference between us and Las Vegas of the past 5 years. It’s a different mindset altogether.

Steve

Reply
John T. - 9 years ago

I’ll have to respectfully disagree with you.

Round Rock and Pfluegerville appreciation is non-existent. And it is because there isn’t regulation on amount of building because of there is plenty of land. Oversupply, not enough demand.

As far as investors buying new homes, the barriers to entry for investors is there, but it is thin. There are just too many investors in austin to turn them all away. A lot fall through the cracks, like me for instance.

You even wrote this in another blog entry: “many of the newer subdivisions have been oversold to out of state investors and now suffer from surplus rental inventory, causing prolonged vacancies and keeping rent values suppressed in those areas.”

I’m a buy and cash flow strategist in austin. The price points are too low and the equity appreciation, crippled by 3% property taxes, is too miniscule to fix and flip.

Don’t get me wrong. Austin is great for investing, it has worked out for me fine. But be very careful where and what you buy. The closer to the middle the better. Always have a cash flow strategy.

Reply
Steve - 9 years ago

Hi John,

> Round Rock and Pfluegerville appreciation is non-existent. And it is because there isn’t regulation on amount of building because of there is plenty of land. Oversupply, not enough demand.

We advise people to stay away from those areas.

> barriers to entry for investors is there, but it is thin.

The barrier is absolute and very strong in many of the best subdivisions. They simply don’t need investors. When we find a builder willing to sell to investors, we worry about that unless we know they are truley limiting it to 5% to 10% of sales or it’s in a price range ($300K and up) where the number of investors is self limiting do to the price range.

Most newbie investors, chasing better cash flow and a cheaper purchase price, head out to the areas outside Austin where you still find plenty of builders selling cheap starter homes to investors. We don’t work those areas and never take buyers out there. But we do know what the better builders in the more desireable areas are now practicing, and many are not selling to investors or, if they do, they’re withholding the incentives given to the owner-occupants which means the investor is paying a premium.

> You even wrote this in another blog entry …

Yes, that was very true 2 to 4 years ago when the Austin market was still flat and builders were trying to keep inventory moving. It’s much different today on the sales side in the areas that have recovered and have plenty of demand. The hangover of over supplied rental stock still exists, but it’s turned the corner and heading the other way now.

Thanks for your comments. Much appreciated.
Steve

Reply
John T. - 9 years ago

I really like your blog by the way, thanks.

Reply
Chris Daniels - 9 years ago

Hi Steve,

I am a 22 year old business professional living in Woodbridge, Va( 30 minutes outside of Wash, DC). I am looking to buy a property in Austin around May, however because of my job I will not be able to move there for a couple of years. My parents live in Steiner Ranch, and I know that eventually I will make the move to Austin. I would like to buy sooner than later and because of ridiculous housing prices in my area, I cannot afford to buy here. What I would like to know is if it would be smart to buy now, and rent the property until I decide to move. I know that Austin is one of the fastest growing cities in the U.S., and I would like to get in before housing prices soar. Plus, I figure sitting on the house while it appreciates can’t hurt either. Any guidance would be appreciated.

Reply
Leave a Reply: