Austin Real Estate Market Outlook for 2009
Well, 2008 is behind us and it seems like every Realtor in Austin except me and Sylvia are saying “good riddance”. For reasons I won’t fully go into in this blog post, Sylvia and I actually did better in 2008 than in 2007, by almost every measure. It was another record year for us, which I know isn’t fair to all those other Realtors who are suffering and dropping like flies, but we work hard. So, most agents are looking forward to 2009, expecting an upturn in Austin real estate sales activity by this summer.
Yesterday was the Austin Economic Housing Forecast, and here are some quotes from the panel members and todays article about the forecast in the Austin Statesman:
“The Austin-area housing market took a big hit last year, and more pain is in store for 2009”.
“Things are probably going to get a little bit tougher before they get better”.
“Austin-area builders started construction on slightly more than 8,000 houses last year, according to Metro-study, the lowest number since 1997”.
“home starts will plunge by another 25 percent this year to about 6,000. That would be down 63 percent from the peak in 2006”.
“Expectation is that we will continue to see a decline in pricing through 2009”.
“The 990 sales (in Nov 2008) were the lowest number for November since 1997”.
“The area will lose more jobs than it creates in 2009, much as it did in the tech-bust years of 2002 and 2003”.
Jeez, was there any positive news? Yes, a small bit.
“Austin’s housing market remains healthier than many across the country”.
“Austin’s economy also continues to outperform most areas of the country, but the number of jobs in Central Texas grew by 2.2 percent in 2008, about half the growth rate experienced in 2006 and 2007”.
So what does all of this mean? Well, it depends on who you are, whether you’re a buyer or seller, the price range of your home, location, whether you are moving up, down or out, your credit score, and a number of other factors. There is no one label that can properly describe the Austin real estate market as “good” or “bad” for all people, so let’s try to break it down and see which categories are the winners and which should be the waiters.
Move-up buyers – If you are secure in your job, have good credit, own a home worth less than $300K, and are ready to move up to a more expensive home in a better area, there could not be a better set of circumstances for you to do that right now, immediately. Whatever discount you might have to provide to the buyer of your current home will be substantially smaller, both in dollars and percentage of sales price, than the discount you can obtain on a replacement home (of which you’ll have many to choose from and negotiate for), especially if the replacement home is selling for $400K or more. And as an extra bonus, you’ll probably get an interest rate below 5%. If you fit this profile, and do intend to move up, there is no rational reason to wait.
Investors – Investors have the added advantage (most of the time) of being unburdened by emotional clutter in the decision-making process, (though they can sometimes suffer from analysis paralysis). This means you can set your selection criteria broader than the typical owner occupant buyer, who tends to eliminate perfectly good homes for frivilous emotional reasons and sometimes fall in love with homes for equally frivilous reasons. The broader selection criteria, and emotional freedom, means you can run through 4 or 5 offers if necessary, until we encounter the truly motivated seller who has to sell and is willing to accept or seriously counter your below-market offer.
We closed on one last month for our buyer at a price $20K (10%) below the bank appraisal and our own CMA. The seller was motivated, though it took a bit of work to find that particular seller. This home appraised for $235K in 2006, our CMA put it at $220K in the current market. Our buyer got it for $199K. For those who think all buyers should “wait” right now, why on earth should this investor have waited on this deal?
There is a lot of good rental stock on the market, much of it over priced, but enough to pick from to find the right house at the right price. And what if the price stays the same and doesn’t appreciate right away this year? So what? Who cares?
You’re buying for a long term hold, at least a 5 to 10 year horizon. And with the high levels of inventory and low buyer activity, you have more to pick from now, and therefore more negotiating power than you may have again for many years. And the low interest rates make it a no brainer. Investors with good credit scores can get loans in the mid 5% range at present. This is a great time for smart, well qualified investors to be picking up property in Austin TX.
First Time Buyers
With low interest rates, you can qualify for a higher purchase price than you could have a year ago. Depending on where you buy, you may or may not get a better sales price on a sub-$200K home (closer in, probably not… further out, yes). Because 30% of your competition buyers no longer qualify at all, and another 30% are on the sidelines because of emotional reasons, you have the best pickings you’ll ever have. Just make sure, if you buy in a newer subdivision further out, that you know you’ll live in the property for at least 5 years to build equity and that you are secure in your job.
Worn out investors tired of bleeding
We warned you 3 years ago about purchasing homes with “better cash flow” out in places like Manor, Kyle, Elgin, Buda. You didn’t listen and went and found another Realtor to help you buy that crackerbox. Now that house is worth $20K less than you paid, the neighborhood looks like crap, and you’ve had 4 turnovers in 3 years. You’re bleeding and simply worn out and ready to get out. Problem is, so are all the other investors in your neighborhood who were chasing better cash flow instead of a quality neighborhood. You’re screwed now. You have to decide if you want to continue bleeding from a vein, or if you want to bleed from an artery and sell that home at a foreclosure price and walk away.
Our advice: suck it up and hang in there. This is not a good time to try to dump your mistake. There are not enough buyers in the weak areas to absorb all the inventory being created by fleeing investors and underwater home owners. Summer 2010 or 2011 will be a better time to sell as we will start seeing a shortage of starter homes as a result of the builders who have skidded to a stop in these developments.
Sellers at $400K and higher
It depends on specific location, but in general, if you don’t absolutely have to sell, and you are not moving up to a more expensive home where you can come out ahead on discount offsets from the new home, you might want to sit tight and let the inventory clear out. Austin job growth will pick up again by mid summer or the end of 2009. When it does, the buyers that the new jobs bring will be looking for homes like yours. Selling now would be selling in the dip. You are better off waiting unless you absolutely have to sell now for non-financial reasons.
From our perspective at the Crossland Team, our phones are ringing and we are busy. We’re being very picky about any new listings we take, working only with motivated sellers and turning “tryers” and dreamers away. The only buyers we are counciling to wait are those with little or no downpayment who are not certain about job security. I just rented a home to a young couple moving into Austin for a brand new job. I’d hate to see them buy a house and then have the job not work out and not have the proper financial cushion to survive the worst case scenario. Otherwise, I can’t think of any reason for buyers to be a reticent as they currently are, especially with 5% interest rates and such a vast inventory of homes from which to choose.