Austin Real Estate Sales Market Update – August 2007

The number of single family residential homes sales in Austin took a 16% dip for August. While number of sales alone does not tell the entire story of a real estate market, a 16% dip is an eyebrow raising number, as is the 28% increase in homes for sale compared to the same time last year. The Austin real estate market has shifted.

The interesting thing is that if we ignore the supply and demand data noted above, Austin’s real estate market is chugging along just fine. Our average sold price of $264,673 is up in August 7.4% from a year ago. The median sales price of $195,000 represents a 5.4% increase over last year. The average price per square foot is up 6.1% over a year ago to $122. The average days on market are down 5% from last year to 57 days, and the median days on market are down 2.8% to 35 days.

Numbers like these are the envy of almost any other real estate market, anywhere else in the U.S.

Austin Sales Stats August 2007
Previous Month and Year Comparison
All MLS Areas - Houses Only

 
Jul 2007
Aug 2007
Aug 2006
Yr % Change
# Sold
2496
2258
2703
-16%
Avg List Price
$270,669
$272,288
$253,355
7.5%
Median List Price
$196,700
$199,900
$187,500
6.6%
Avg Sold Price
$263,255
$264,673
$246,469
7.4%
Med Sold Price
$192,273
$195,000
$185,000
5.4%
Avg Size SQFT
2116
2165
2140
1.2%
Median SQFT
1920
2000
1948
2.7%
Avg $ per SQFT
$124
$122
$115
6.1%
Avg Days on Mkt
54
57
60
-5.0%
Median Days on Mkt
32
35
36
-2.8%

So, how can a market with falling demand and rising supply generate good sales market stats? The supply/demand equation may be a sign of things to come more than an indication of present conditions. The consensus among agent I talk to is that we may be on the cusp of a “breather” in the Austin real estate market, or something worse. Gary Keller thinks it may be something worse, as he came and told us so earlier this week during an all-day meeting with Austin’s top 100 Keller Williams agents. He attributes the pending slowdown to flattening consumer confidence, among other things.

The doom and gloom reporting of the national real estate market, along with the lending crunch, is starting to lap at the shores of Austin, so to speak. It’s creeping like a dark fog toward the good, solid markets in the U.S. as people start to believe the bad news that is drilled into their heads by the nightly news, newspapers and news magazines regarding our economy and the real estate market. It’s like a never ending drumbeat.

So, even though our economic fundamentals in Austin are fantastic – low unemployment, high job growth, steady population growth, affordable housing, friendly business climate, etc. – the perception of buyers can start to dominate decision making, and thus cause shifting in a local real estate market that is otherwise strong and healthy.

Bottom line, as a buyer, good homes that are in good condition and priced right will still have a lot of compitition and you’ll still have to work hard to find the right deal. For sellers, your home will have to be in the lower 30% of pricing, compared to your immediate compitition, and will need to be in the top 30% of condition compared to your competition. A good market can make sellers and agents lazy, as modest preperation and brave pricing often still brings top results. If our market is indeed shifting down, or taking a breather as we head into fall and winter, it becomes critically important to price and prepare your home properly.

Below are the August Year to Date stats for Austin. As you can see, the 3.7% decrease in number of sales for the year is much more modest than for August. This makes the August number all the more notable. If it’s the start of a trend, the sales stats will eventually reflect slower sales and slower appreciation.

Austin YTD Sales Stats August 2007
Year to Date with Previous Year Comparison
All MLS Areas - Houses Only

 
Jan-Aug 2006
Jan-Aug 2007
Yr % Change
# Sold
18295
17627
-3.7%
Avg List Price
$246,831
$262,620
6.4%
Median List Price
$179,900
$189,900
5.6%
Avg Sold Price
$240,640
$255,702
6.3%
Med Sold Price
$177,000
$187,620
6.0%
Avg Size SQFT
2118
2123
0
Median SQFT
1930
1931
0
Avg $ per SQFT
$114
$120
5.3%
Avg Days on Mkt
62
59
-4.8%
Median Days on Mkt
36
33
-8.3%

Finally, the YTD excluding new home sales. Notice that the appreciation rate is about 1% better when we take new home sales out of the data.

Austin Sales Stats (resale) Jan-Aug 2007
Year to Date Previous Year Comparison
All MLS Areas - Resale Houses Only - (New Homes Excluded )
 
Jan-Aug 2006
Jan-Aug 2007
Yr % Change
# Sold
14,297
13,276
-7.1%
Avg List Price
$235,123
$252,226
7.3%
Median List Price
$174,900
$186,000
6.3%
Avg Sold Price
$229,765
$246,691
7.4%
Med Sold Price
$172,450
$184,050
6.7%
Avg Size SQFT
2072
2079
-0.3%
Median SQFT
1888
1898
-0.5%
Avg $ per SQFT
$111
$119
7.2%
Avg Days on Mkt
56
51
-8.9%
Median Days on Mkt
32
27
-16%

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

Bill - 9 years ago

Not surprising in the least. It was perhaps naive for many to think that Austin would be immune from the troubles in the nation at large. I suspect the worst off will be people and builders farthest out from the Austin center. I can’t tell you the number of people I talk to every day who are complaining about the traffic and want to move closer in.

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shireen - 9 years ago

Are pending sales in Austin still closing at the regular rate? Or is there an increase in the number of pending sales that fail to close? Are problems in the jumbo mortgage market having an effect here?

Thanks for addressing this, I watch several real estate blogs and wondered when you would talk about a drop in sales. It might be a long winter. I tried to sell my last home just after 9/11, not a fun experience. I want to buy a home right now but have decided to wait until spring.

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willm - 9 years ago

Thanks for the statistics. Watching the south austin area 6 travis heights i’ve observed that there seems to be a small supply of single family homes on the market. This area doesnt seem to have a shortage of buyers due to limited inventory. Just wondering about your thoughts regarding inventory by area. thanks.

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Steve - 9 years ago

Hi Bill: Yeah, our traffic in Oak Hill has become substantially worse in the past year. Especially in the morning and afternoons on Hwy 290.

Shireen: I don’t have any stats on busted deals. I can run a check for “back on market” listings and see if they’ve risen, but we never know the reason that came back on the market.

Willm: Yes, close in Central neighborhoods remain solid. We have a small junker home in North Central, that’s a rehab project. We priced it above comps and still had multiple offers because there simply isn’t much like it close in under $200K.

I appreciate the comments. stay tuned …

Steve

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Phil - 9 years ago

I have noticed the slowdown in the last month as well. I surmise is it quite related to the amount of out of state investor activity we have seen the last few years. With the state of the market in CA and FL, I think a lot of those people have stopped buying here due to lack of liquidity and financing, and those who bought are selling to free up some capital. Even with Austin-based buyers still buying, a significant chunk of our demand is now gone and adding supply. Since you work with so many out-of-staters, are you seeing this Steve? I noticed a sharp slowdown in the duplex market months ago, some good properties are just sitting. Our high end is probably getting hit a bit with the jumbo problems, but it’s a much smaller percentage of sales here compared to other parts of the country.

Reply
Steve - 9 years ago

Good analysis Phil. Yes, we started shifting our business to owner-occupant buyers and more listings earlier this year as we felt we were too reliant on investors and knew they wouldn’t be buying at the brisk pace we were enjoying forever.

The next two listings I’m working on are both investor sellers. Both have owned their properties long term but now would like to cash out.

Steve

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ARZ - 9 years ago

Well, if it’s indeed a sign of decline then the 7-year-cycle is effectively broken. Austin was late in the game (not till late 2004 early 2005 we’ve started to see home price going up), relatively slow in picking up (never gone over 10% increase), and early to bail (only 2 and half year of “good time”). Whether you like investor or not, they are the driving force of speculation not the actual owner occupants.

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Steve - 9 years ago

> Well, if it’s indeed a sign of decline then the 7-year-cycle is effectively broken.

That’s what makes it a strange situation. On the other hand, our down cycle (2002-2005) was only 4 years, so maybe it was punctuated by a temporary spike as the other “hot” areas topped out and people started rushing into Austin.

In the long term, over any 10 year period, the market always goes up.

Steve

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Wins - 9 years ago

Phil, you write: I noticed a sharp slowdown in the duplex market months ago, some good properties are just sitting.

I am a California based real estate investor and believe Austin to be a solid long term play for the reasons already expressed. Would you mind telling me the location(s) of the duplexes you speak of?

BTW – I am currently working with a Keller Williams realtor.

Wins.

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Tommy - 9 years ago

I disagree with Bill’s post about it being really bad for the burbs. Perhaps this will be true for certain areas, but the SW area should continue to be solid given employment moves (AMD) and large retail (Hill Country Galleria) as well as better school systems. Yes, the singles and those opposed to “breeding” will shun the suburbs, but don’t be so quick to dismiss the force of the family with children. The central areas have shown strength that borders on the irrational ($250k for a teardown in Barton Heights??), and the glut of condos downtown does not bode well for the next five years for those who ventured into those deep waters. Yes, the capital market shake up will impact Austin, but primarily it will slow the starter home construction market (East, far South, and far North) and the Jumbo loan market as these rates have become overly inflated. I would expect the sweet spot to remain in the $250 – $450k price range in the more desirable suburbs with a significant slowdown in those areas that have seen the double digit growth close to the city center as folks become a little leery of the recent run up. But what do I know.

Reply
Steve - 9 years ago

Tommy: Sylvia and I have been big promoters of South/SW Austin for the reasons you note. I do have to say that my drive coming out of Oak Hill has become very congested, and will only get worse in coming years before the new freeway is built through Oak Hill, but it’s still a great area and we like living in Oak Hill.

Wins: I’m not sure where Phil is talking about, but I do know that duplex prices have run up in recent years such that the cash flow advantage once provided has nearly evaporated when you consider the downside factors.

We sell to a lot of investors and I’ve only sold 1 duplex in the past 2+ years. Instead, I think most people are better off sticking to single family homes. But that’s just my opinion and other investment agents do disagree. There is no “right” or “wrong” answer – just what works best for your investment goals.

Steve

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shireen - 9 years ago

Ouch! Okay, I just had to reply to the idea that the central city is full of singles and “those opposed to breeding” I am a mother of three who wouldn’t dream of living in the suburbs around Austin (no offense, just not for me). There are a dozen kids under 10 on my block along (Travis Heights), I spent the morning at the local park and there were another 20 plus kids there (and no duplicates of the kids on my block). According the Statesman there are over 25 families with kids in one of the downtown condo complexes! There are kids in all central city neighborhoods, lots of them! Crestview, Allandale, Rosedale, Tarrytown, Zilker, Barton Heights, Highland Park, French Place, Wilshire Woods, Hyde Park and even downtown. There may be other cities where the central city is a kid-free zone (DC springs to mind) buy Austin ain’t one of them!

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Steve - 9 years ago

Hi Shireen,

Sylvia and I lived in Travis Heights for 5 years from 1991 to 1996. Stacy Park is great for kids and we met a lot of families there. Our youngest was born on Newning street, literally, in the bedroom of our old home. We someday hope to move back to Travis Heights, but with the kids at 11 and 14, things just work better for us in the suburbs.

Steve

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Lloyd - 9 years ago

Shireen,

While I agree that there are some central neighborhoods with large numbers of children, they are for the most part well below the rates you find in the burbs. This has been a struggle for my wife and I in our home search. On one hand we love the central neighborhoods and their locality to all the best things about Austin. On the other hand we want our kids to grow up in a neighborhood with many other children.

Check out this interesting map from the City of Austin Demographics site. It shows the percent of families with children. Some portions show data down to the block level!

http://www.ci.austin.tx.us/census/downloads/Married_with_Children2.pdf

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Scott - 9 years ago

Shrireen, I lived in Allendale with kids. And I know many families in the other neighborhoods you mention. On the flip side, the downtown condo market (and I am speaking specifically of the downtown area and not the close in neighborhoods like Travis Heights or Zilker) is quite difficult for families with more than one child. Try and guess a percentage of units currently occupied or coming available with three bedrooms. I looked this past year and was dismayed with what I found. Yes, the Austonian will have some, but very few can afford that. I think Spring will have them in 2009 as well. But by and large, the true downtown condos are one and two bedroom units, which for many families is just too limiting.

As for the comment above, I didn’t read it to say central city neighborhoods are non-family or anti-family. I read it to say that most singles and those opposed to children are typically opposed to the suburbs as one would expect them to be. Those are different markets which appeal to different people.

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shireen - 9 years ago

Lloyd, thanks for that map! I love maps like that. I wish that the census was updated more often! I had only one child in 2000 and every other child on this block was yet to be born. And interestingly enough, many. many folks move to Travis Heights have a baby or two and then around the time that baby #1 is 5 or so they move out to the burbs so folks like Steve who are married and have children but live in the neighborhood between the decades are not captured in census data.

Scott, I would guess that you are absolutely right about the downtown condo market — very few units that will appeal to families with children, esp when on a sq footage basis you can get a house with a yard in a central area for less if you look. Don’t even get me started on the Austonian! (the name alone makes me gag, I just try to keep my blood pressure down by hoping that it will all be third and fourth home folks who will spend about two weeks a year here but will pay property tax! )

Regarding the market, I would think that southwest would stay pretty strong but the more distant suburbs with builders still putting up homes will feel a pinch.

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Bill - 9 years ago

Wow – this post has got some traffic!

Tommy – I think we can both agree that the far out will suffer. SW is still relatively close in, but I know an increasing number of people there who are unhappy with their communte to the city center (or up north). They remain there largely becuse they can’t afford to move closer in. And, as you say, the consolidation of technology centers (AMD) in particular will also drive growth — espcially if people can avoid traffic. I suspect people will be increasingly selective in their choices, with good homes going quickly and others (e.g., poor floor plans, less than “the best” locations) will slow considerably.

Downtown condos not withstanding, it is unclear to me that closer in home demand will slow much. Price escalation may not be as strong (there is a lot of aspirational pricing around tear-downs in 8E), but demand for quality homes will stay high. Schools central (Eanes, Anderson, Austin) are pretty solid. We might see flat pricing central for a few years, but reasonable turnover.

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Leon Fu - 9 years ago

Hey Steve,

About traffic thru Oak Hill, yup, I’ve posted this before, as you have now noticed, traffics getting worse very quickly. It will continue to get worse until a new freeway is built. Unfortunatly, that’s not going to happen anytime soon. The environmentalist will kill any kind of project because it’s on the Edwards aquifier which is where our drinking water comes from. In fact, last time I checked TxDOT plans, there aren’t any even any plans for a new freeway. All they are doing is extending the freeway portion a few more miles. That’s too little too late.

If developers continue to build and people continue to move there at this rate, traffic on 290 (and the entire area) will be an unmitigated disaster within a few years. There is simply not enough transportation infrastructure.

Contrast this with the north Austin/Cedar Park/Round Rock area where they have just opened freeways 183A, Texas 45, Mopac extension, and Texas 130. There is enough infrastructure to support growth in this area for the next decade a least.

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scott - 9 years ago

I think it would be virtually impossible to to isolate Austin’s RE market from the great part of the nations’s ills, however, there are several areas, mostly in the northwest and west, that are holding their own quite well. Salt lake city, Seattle, Portland, Charlotte, and a few others show no signs of slowing at all. Other markets are getting back on track and trending positive monthly already. California is a huge factor in all the above. Investors and priced-out home-buyers have spread out and fanned in all directions, with Austin just on the margins of that spreading.

I’m not saying California is the prime mover of transplants and investors in Austin, but you must admit that it is a very large component of the same. When the California exodus hit Austin in the 90’s and 00’s, it exacerbated a trend that was happening anyway. The only question is, and I’ve asked this many times, is how strong is the LOCAL Austin market when out-of-state-ers, particularly Californians, start moving out of the picture? My feeling is that the local economy, while dynamic, hasn’t the income power to carry all the condo and new construction mega-projects if out-of-state interest dries up, let alone resales. Simply too many service sector 6th street jobs, just okay paying public sector jobs, and not enough private-sector high paying jobs locally to absorb the overhang. That, more than the macronomic situation in housing, is the big X factor that can wollop the local RE market.

Question asked again: What is the capacity of the LOCALS to absorb New Construction condo and single family overhang, let alone keep maintain the growth of the same?
Related question: How much of the slowdown consists of out-of-state investors and buyers pulling out? If high, than that means that most of the growth was driven from out-of-staters, and that if they stop coming, ala field of dreams, can the locals stimulate an approximation of it with the income levels and home prices from the homes THEY are selling in Austin, as opposed to Californians and westerners selling half-a-mill spreads?

Hard to say, but only time will tell……

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Stephen - 9 years ago

Leon, your drinking water does not come from the Barton Springs segment of the Edwards Aquifer unless you are one of about 50,000 Austin area residents. The rest of the water for the huge majority of Austinites comes from the LCRA. And yes, toll roads are one answer. And yes, these will be fought. In general, all growth southwest is fought by no-growth groups simply because they are, well, anti-growth. And thus proper infrastructure is fought by these same groups — so that people like you and thousands after you are discouraged and do not spawn further growth. The mantra goes like this: “If you don’t build the roads, they won’t come.”

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Leon Fu - 9 years ago

Stephen,

I think the “If you don’t build the roads, they won’t come.” is a bit of a fallacy. What I usually see is that “They come anyway and we all sit in traffic together” or “Only those that can afford it will come”. Personally, I think the “anti-growth” crowd are being selfish. The factors that make them want to stay in Austin are the same reason why people want to move here. If they don’t want Austin to grow, they should do their part and just leave. What gives them the right to live here over someone that wants to come here? What we should be trying to do is to grow the city in an intelligent way.

Austin’s population is growing at 40K-50K new residents per year.(according to yearly Census estimates) These people all need a place to live. What are you going to do to stop them? Stopping development will mearly raise prices for everyone and price lower/middle income people out of the city. What would end up happening is a city that becomes polarized with either the very rich because they can afford all the nice neighborhoods (i.e. luxury high rise condos) and the very poor because they can’t afford to leave. The middle class ends up disappearing because they’ve been priced out. Is that what you’d want? I don’t think the “anti growth” crowd realize what stopping development would do.

Scott,

As far as the high rise condos go, how many units are coming over the next 3-4 years? 2,000 perhaps? It sounds like a lot, and perhaps it is. But it isn’t as excessive as you might think.

Austin’s downtown is unlike many other city’s downtowns. People actually want to go there after business hours! I’ve traveled around the country and downtown is dead after hours. There’s usually always something going on downtown in Austin. Yes, it’s certainly possible that a nasty recession will bring down demand. But if the economy turns out not to be as weak as you thought, the demand might surprise you.

Being that I live downtown, I can see there’s a lot of people and activity here even late at night. The demand to sell all these condos is certainly there.

Look at the Frost tower. They started building it right before the .com bust tanked the office markets. The developers there ended up making out like bandits. 🙂

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Mare - 9 years ago

>> ‘I’m not saying California is the prime mover of transplants and investors in Austin, but you must admit that it is a very large component of the same. When the California exodus hit Austin in the 90’s and 00’s, it exacerbated a trend that was happening anyway. The only question is, and I’ve asked this many times, is how strong is the LOCAL Austin market when out-of-state-ers, particularly Californians, start moving out of the picture? My feeling is that the local economy, while dynamic, hasn’t the income power to carry all the condo and new construction mega-projects if out-of-state interest dries up, let alone resales. Simply too many service sector 6th street jobs, just okay paying public sector jobs, and not enough private-sector high paying jobs locally to absorb the overhang. That, more than the macronomic situation in housing, is the big X factor that can wollop the local RE market. ‘

I think you’re absolutely right.

I questioned how strong the Austin economy really is (many moons ago, in a previous thread) – and while I agree that it’s strong, the high-paying private sector jobs are too few to sustain the demand we’ve been seeing in the more expensive and popular parts of Austin. In the same thread, I mentioned my fear of perception working in the opposite direction – if things are so terrific, will that artificially inflate demand (and prices), leading us to another ‘crash?’ I agree with Steve that our cycle has been cut short, and I definitiely maintain that perception is an ‘invisible’ driver of demand that can be manipulated. But even if the mass exodus a la Field of Dreams (I like that analogy!) from California continues at the current rate, more and more people won’t be bringing the equity with them, and I think that will also make a measurable difference in demand.

>> ‘As far as the high rise condos go, how many units are coming over the next 3-4 years? 2,000 perhaps? It sounds like a lot, and perhaps it is. But it isn’t as excessive as you might think.

Austin’s downtown is unlike many other city’s downtowns. People actually want to go there after business hours! I’ve traveled around the country and downtown is dead after hours. There’s usually always something going on downtown in Austin. Yes, it’s certainly possible that a nasty recession will bring down demand. But if the economy turns out not to be as weak as you thought, the demand might surprise you.

Being that I live downtown, I can see there’s a lot of people and activity here even late at night. The demand to sell all these condos is certainly there.’

The demand may be there, but those condos aren’t cheap. Which demands the question of how many people can afford the condos, and why would they choose a condo over a centrally located home? I think the developers are trying to do too much, too fast. In cities like Seattle, Chicago, or DC, condo developments make much more sense. There are very few large metropolitan areas that have very nice downtown homes, and Austin is probably special in that a downtown home can compete pricewise with a condo.

The good thing about the condos is that (hopefully) it will keep downtown more affordable, rather than sending prices (and taxes) into the stratasphere.

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Leon Fu - 9 years ago

Hi Mare!

About the downtown condos, let me put it this way. Between all the condo towers that have been announced, I believe there are around 2,000 condo units priced from the $250’s to $1 mill+. A 2 bedroom will run about $350K-$600K. Is that a lot? Sure it is. It’s a lot of money, I’ll give you that. Most people can’t afford a place like this.

But let’s put this into perspective. The next question is there enough high paying jobs to support the condo market? According to the Texas Workforce Commission, the Austin-Round Rock job market has about 852,000 jobs of all kinds in the July 2007 report. Out of those 852K jobs, do you believe there are 2,000 people that would like to live in a downtown condo and also make enough money to afford such a place? Even if you don’t believe there are that many people now, do you believe there will be that many people over the next 3 years? In July 2006, the workforce was 836K jobs, so Austin added about 15K jobs in one year. So if we keep this pace up, we should add at least 45K jobs by 2010. So in 3 years, Austin workforce will be around 900K.

By 2010, all these condos will be done. So there will be +-2,000 units for sale. Let’s say you need to be in the top 2% income earners in order to be able to afford one of these condos (right now, you don’t meed to). That means there are 18K people that can afford these prices. Out of these 18,000 people, will 2,000 of them want to live downtown? Plus, we still have SOME out of state investors or people moving in despite the real estate downturn.

As you can see, it’s a lot, but it might not be as excessive as it might seem, even if you just count the local job market. 🙂

Reply
Mare - 9 years ago

Hi Leon,

Just for grins, I ran some numbers through MLS. I looked at listings that are active (I did NOT include active contingent)in South Central and Downtown, and this is what I found (please note – I ran condos and homes separately):

Houses:

Total listed: 85
Avg. Days on Market (CDOM): 118
Avg. $/sq.ft.: $110

Condos:

Total Listed: 138
Avg. Days on Market 9CDOM): 156
Avg. $/sq.ft: $340

The caveat here is that I did not remove the statistical outliers, but I wanted to see what we have sitting on the market right now. I suspect the median numbers (a better picture) aren’t far off. To get a better idea, I ran the sold comps, and this is what I found:

Houses:

# Sold (YTD): 160
Avg. Days on Market (CDOM): 68
Avg. Sales Price: $203,314
Avg. $/sq.ft.: $91.04

Condos:

# Sold (YTD): 136
Avg. Days on Market (CDOM): 67
Avg. Sales Price: $372,729
Avg. $/sq.ft.: $307.76

Again, I didn’t remove the outliers. The YTD Sold data supports your argument that there is a demand – at least for now. Current listings suggest the condo market is seeing a slow-down. There are more condos on the market, and they’re on the market for a longer time.
However, I would like to point out that of the number of condos currently on the market, 33 were – or will be – built between 2007-2008. And those are just the ones that are listed in the MLS. Here are the numbers:

# Listed: 33
Avg. Days on Market: 266
Avg. $/sq.ft.: $260

I’m not very happy with these stats, but I did it this way because I don’t know downtown and south central very well, and I was just trying to get a general picture. I’m assuming that demand is about the same, but the sold price/comps are going to be different for each area. For now, I agree that the demand is there. Will the demand continue for the next three years? Maybe – we’ll see. How much more growth can Austin sustain, how much will the sub-prime issues affect Austin homebuyers, will relocation to Austin continue, and how many more jobs with top-tier salaries will be created? There are lots of questions, and all I have is a guess.

Reply
Stephen - 9 years ago

Leon, nice statistics. But of those 18,000 people who can afford a downtown condo, how many of them are taken out of the equation because they have a family of four or more? I would wager that when you look at the demographics of the top 2% of wage earners in the metro area, that somewhere around 40% of them fall into this category. If my hunch is true, then my oh my, you need nearly 20% of folks who CAN live in a downtown condo to PREFER to live in one as opposed to say that swanky house near the golf courses in Barton Creek, Spanish Oaks, blah blah blah. And for the significant percentage of the top 2% wage earners that are empty-nesters in the 50-65 year old range, do they really give a rats derriere for proximity to the downtown entertainment district or Lady Bird Lake trail, or tanning time at Barton Springs?

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Leon Fu - 9 years ago

Hey Mare,

You are right, there are a lot of unknown factors, but I think, baring a nasty recessions (which is certainly possible), downtown real estate will be fine because it is a place people want to be. Unlike many other cities, downtown Austin is the political, cultural, and economic center of the city. A lot of what make Austin, Austin, is located downtown. Personally, I think you guys are a little too negative. You might not make a killing flipping a downtown condo, but I don’t think you’d be slaugtered either. The prices of these condos are still lower than comparable property in other cities.

Stephen,

Because I live at the Milago, I can tell you the types of people that live in a downtown condo are the following:

1. YUPpies (Young Urban Professionals). Successful, young professional singles or couples without children. They typically would buy a 1 bedroom in the $250K-$350K range, make anywhere from $80K-$200K+/yr (combined). They want to be close to the downtown social scene or work.

2. Retired couples. They may not have even have jobs, but they traded their big house for a downtown condo cause they don’t want the maintence of a house. Believe or not, a lot of old people live here! They don’t want the hassles of the house and don’t need the space after their children moved out. Or they may want the ammenities and convience access to the cultural activities. They may not have jobs, but they have a lot of money/equity/pensions from a lifetime of work.

3. Renters – Investors that bought and rented out their place. Typically a renter is a young professional that can’t afford to buy, but can afford to rent. A 1 bed/1 bath rents for $1500-$1700/month. Sure it’s a lot, but tens of thousands of people make enough to afford this.

4. Rich, sucessful, business executives or owners and their families. They can afford to blow $500K-$1 mill+ to get a large enough condo (3+ bed) for their entire family.

In other words, the market is much larger than it seems. You can’t just count how many people can afford these places based on income.

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Scott - 9 years ago

I used the analogy “field of dreams” because Austin RE relies on perception more than any other tangible quality to attract buyers, and so many buyers have moved here from out-of-area(prob as many out-of-area Texans as out-of-staters, who are attracted to Austin for the same reasons. If I had a dollar for every person I met from Houston here, I could retire a wealthy man). Home prices are higher here in Texas than in other in-state areas, so obviously the intangible “quality of life” issues are of primary importance here. To the extent that Austin beckons with the heart, as well as the pocketbook, lies the answer to where Austin’s RE market is headed the next two years or so.

The high quality-of-life issues that bless Austin buffer it from macroeconomic forces to an extent, but the question is how much? At a point, whenever that it, macro issues will overwhelm the quality-of-life(field of dreams) issues. No matter how funky south congress is(and it is mighty funky), no matter how ambiant the vibe(and it is mighty ambiant), when folks can’t sell their primary res out of state, can’t qualify for the low-doc loans as in the past, and read the 1,000,000th article on the dead RE market nationwide, those intangible Austin thingies won’t buffer like they have so far. It ultimately is about the Benjamins, and when folks can’t make it add up anymore to the point that would justify a move, in-state or out, it makes no difference if Austin is the most unique city the world has ever seen, they will simply stop coming.

That’s when we see how much power the LOCALS in Austin have to carry to real estate market themselves. Personally, I think the builders and RE agents here rely far too much on outsiders moving in the area for their business, and would have difficulty if that option was taken away due to macro issues, and they had to rely on the resale value and incomes of Austin locals to carry the weight. In that case, things will slow down, but still retain a reasonable momentum. All indications are that growth is here to stay in Austin, but with ideosyncratic ups and downs germain to the local market. We seem to grow in distinct cyclical booms and mini-busts, rather than a slow inverse steady climb. That would reflect the state’s past history of booms and busts much as anything else. We are probably hitting a mini-slump for a year or so that might have just bitten this last month, but after a year, say 2009, things will kick back again, and resume
climbing. Just a correction on a long-term upward climb, which will even things out and enable growth to resume at a healthy pace in the future…..

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scott - 9 years ago

Probably the last word on all of this you all have mentioned. Only time will tell says it all. If we were 100% clairvoyant
and knowledgable, we’d all be billionaires per business knowledge of future trends. I would say that Austin will neer stop
growing, but it has its own pace, and has some unique preservation and conservation issues that may halt condo
construction far more readily than any economic issues. All considered, there are a lot of factors to be played out here,
and all we can do is watch them unravel and play out in reality as time goes on. At worst, the only parties that will get
hurt are overextended builders and investors, who should have known better anyway.

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Steve - 9 years ago

Thanks for all the comments. This is certainly the most lively Market Update ever posted to the blog. Lots of good insight and comments from everyone. We’ll see how next month looks.
Steve

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