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The Crossland Team
Sylvia Crossland, Broker Steve Crossland, MPM (512) 301-5811 |
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Austin Rental Market Update - July 2008
August 23, 2008
The Austin TX rental market continues to do well overall. Rents are steadily rising for the third year in a row after falling for 4 straight years (2002 through 2005). Average rents for homes in Austin for July 2008 were $1,493 per month. Year to date the average rent is $1,425. the graph below shows nearly the past 10 years of Austin’s rental market and our ups and downs.
The rental market is helped now by the fact that fewer renters can qualify to purchase homes, which increases demand. The easy loans that renters were able to obtain from 2002 through 2007 are gone. You need a down payment and decent credit to buy a home now, as it should be.
The chart above shows the past decade of the ups and downs in Austin’s rental market. Despite three years of gains, the average and median rents are still lower than they were in 2000. Yes, that’s right, rents are lower still today than they were 8 years ago. Austin renters have had a great ride, while landlords have been nailed with higher property taxes, insurance costs and repair costs.
I just rented a home I own for $1,225 after an extensive remodel. I rented the same home, in average condition, for $1,325 in 2001. Rents are still very specific to location, price range and condition. We just rented a luxury home for $2,295 that rented for $2,495 a year ago. We simply did not have the number of showings needed to fetch the higher rent this time, and we disallowed large dogs.
Below are July rental stats chart and the year to date stats chart. I’ve added some color formatting to the charts this time. Green fields indicate numbers that are moving in a direction positive for landlords.
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Dear Out of State Investors - We Told You So
July 26, 2008
Today’s Austin Statesman has an interesting, if not predictable article about California investors being disproportionately represented in Austin area foreclosures. We’ve participated in several sales by California investors (not ones that we sold to though) bailing out, some of which were short sales or pre-foreclosures.
As the Austin real estate market rebounded at the end of 2005 and through 2006 and the first part of 2007, Sylvia and I were deluged with calls from investor prospects, mostly from California, wanting to invest in Austin real estate. We were careful in screening those buyers. We never departed from our philosophy of sticking “closer in” rather than chasing better cash flow to the outskirts. As stated on the Investing in Austin page of our website;
Our approach to investing seeks to do more than simply help you buy or sell a rental property in Austin. We have some specific ideas and values about the manner in which real estate investing should be approached, and the effects it can have on neighborhoods and the greater Austin Community. If you agree with our viewpoint, we want you to consider working with us.
Mainly, we do not wish to participate in the mass caravan buying approach that other real estate agents have implemented in Austin in recent years. We don’t think riding in a bus full of other investors out to a new home neighborhood where you buy what your “real estate investing club” tells you to buy is very smart. This approach results in the overselling of homes in many of the new subdivisions around Austin. Especially in the “starter home” areas that young families and first time buyers can afford.
We think you should spend a little more money and buy a better home in an area that less enlighten, short-sighted investors stay away from. Or consider purchasing your investment property in a mature and established neighborhood. While other investors are looking for the cheapest homes with the best cash flow, you should be looking at the neighborhoods with better appreciation potential, where the homes are well cared for, or the area is undergoing a renewal.
The above is verbatim what we’ve told investor since 2005 when we started working heavily with real estate investors buying in Austin.
How did we do?
Were we right in holding this viewpoint?
This philosophy of ours eliminated a lot of potential clients who would have been easy sales for cheap homes in Pflugerville, Round Rock, Hutto, Kyle, etc. We left a lot of potential sales and commissions on the table by turning away misguided buyers who wouldn’t agree with us on where they should buy rental property in Austin.
What happened to those investors who disagreed with our long term approach and found other Realtors to work with? Let’s look at an example quote from the Statesman article:
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Austin Real Estate Sales Breakdown by MLS Area - June 2008 YTD
July 14, 2008
Below is the breakdown of year-to-date home sales in Austin by MLS area. This is for houses only, no condos, townhomes, etc. I’m often asked, “how is the Austin real estate market?”, to which I reply, it depends on which market you are talking about. There are multiple “markets” and sub-markets in Austin. Here are some summary points I gleaned from the stats.
* Of the 42 Austin MLS areas tracked below, all but 1 have fewer sales Jan-Jun 2008 compared to 2007. The only area with more sales than the same 6-month period last year was the UT area with 26 sales YTD this year compared to 24 last year.
* 28 of the 42 Austin MLS areas have higher average sales prices for 2008 than the same period last year. That’s 2/3 of Austin’s MLS areas experiencing price increases for average sales price.
* The same number (28) of Austin MLS areas have increases in Median Sold prices compared to a year ago.
* 24 MLS areas saw an increase in both average and median sold prices.
* 27 of the 42 Austin MLS areas saw an increase in average price per square foot on homes sold.
* Of the 24 MLS areas that saw an increase in both average sold and median sold prices, 21 of those areas also showed an increase in the average sold price per square foot. This means half of all Austin MLS areas have experienced price increases in all three of the main metrics that indicate price appreciation. These areas generally tend to congregate around Central Austin. 14 of these areas are within a 20 minute drive of downtwon. 7 are east of IH35.
* 7 of the Austin areas saw a decrease in all three metrics of avg, median and psf sales prices. Those areas were 8W (Eanes West), EL (Elgin), LN (Lake North), LS (Lake South), MA (Manor), SC (Far SE Austin) and W (West Austin). It’s interesting that, with the exception of area LN, all of the areas with triple drops are either way above or way below the Austin average and median sales prices. This jives with what we know, that both the upper and lower ends of the market are slow.
* 7 of the 42 MLS area saw a decrease in the Days on Market, meaning homes are selling faster in those areas than a year ago. Most areas saw an increase in days on market, indicating slower sales.
Check the chart below to see how your particular area is doing. As usual, questions and comments are welcome.
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Austin Sales Market - June 2008 and Mid-Year Stats Update
July 14, 2008
Below is the June 2008 Austin real estate market update, including YTD stats. For starters, I thought I’d post a graph showing Average Sales prices in Austin from 1999 through June 2008 for houses, condos and multi-family properties. Austin’s real estate market has historically moved in fits and starts. The slowdown indicated by the June 2008 YTD dip in the graph is real and present, but I’ll match this graph against that of almost any other metro area in the US and say that, relative to the rest of the country, the Austin real estate market is looking pretty darned good.
The average sales price for houses in Austin increased 0.47% in June from $263,421 in June 2007 to $264,653 June 2008. We continue to have a large number of expired and withdrawn listings though, and days on market continues to creep upward. Nevertheless, many homes are selling fast with hardly a sign of a slow market, while others, though seemingly well priced and in good showing condition, sit with no offers. Sylvia and I placed a new listing in South Austin on the market a couple of weeks ago and had it under contract in 4 days with a good offer. It was in average condition. Other listings we have in south Austin are equally as well priced and in better showing condition, but no offers yet. I just placed a new listing in Cedar Park yesterday which is priced at about 97% of market value, and I expect it to sell fast, but can’t be as confident as I could in 2006 and 2007. The market seems fickle and somewhat unpredictable at present.
Here is a quick summery of the June stats.
• Number of homes sold is down 25% from 2,702 June 2007 to 2,032 June 2008.
• Average sold prices in Austin were up 0.47% over the same month last year to $264,653.
• Median sold price was up 3.62% over the same month last year to $202,000. I’ll have to doublecheck, but I think this is the first time the median sales price in Austin has broken through the $200K mark.
• Avg sold price per square foot is up 0.84% over June 2007 to $124 per sqft.
• Avg days on market is up 11 days (22%) from 50 last year to 61 this May. Exactly the same as last month.
• Median days on market is unavailable again this month because our $1M/yr MLS software, MLXChange, won’t produce it. (I continue to be dismayed and deeply disappointed in the poor performance of our MLS software, MLXChange, which we are 8 months into and still experiencing numerous data intergity problems.)
• Number of “Not Sold” (exp or withdrawn) is up a whopping 29% over the same month last year, but a far less increase than last month.
Below is the chart with these stats, along with a YTD chart. I’ll have area breakdowns posted in a separate post later today or tomorrow, so check back to see how your area is doing.
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Missed Flip Opportunity or Prudent Caution?
June 13, 2008
A couple of months ago I made an offer on a home to flip. I’m not actively looking for homes to flip in Austin, and I don’t help buyers locate flip opportunities, but when I come across a candidate property that I like, I’ll make a run at at. All of my attempts the past several years have fallen short. This is mainly because I have a formula for evaluating flip candidate properties, and I stick to it. The result is, my offer is never accepted because someone else is always willing to pay more.
On the most recent lost project, which is a few blocks from where I live, I stopped in yesterday to meet the buyer, who turns out to be a contractor, and take a look at what’s being done. I was impressed with the work and the approach being taken. I had a couple of assumptions before I even stopped in.
Knowing that the home sold for $30K more than I offered, and that my numbers are fairly accurate estimates, I assumed the eventual buyer 1) was a hands-on contractor with better remodel cost points than I can achieve (not doing any of the work myself) and 2) used a higher more optimistic ARV (After Repair Value) than I did.
I was right on both accounts. I plugged in $225K as a resale value after repairs and, sure enough, the contractor thinks he can sell it for $250K.
Let’s look at my basic math:
|
Me
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Winning Buyer
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| Purchase Price |
$132,000
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$162,000
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| Remodel Cost |
$50,000
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?
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| Silent Costs |
$24,750
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?
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| Total Cost |
$206,750
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?
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| Finshed Value |
$225,000
|
$250,000
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| Profit |
$18250
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?
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Let’s go through the numbers above.
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Huttoparke Problems Continue, Values Suffer
April 22, 2008
It is with great fascination that I first saw last year Huttoparke home owners made sure that everyone knew how poorly their homes were built. They may have had no choice but to bring public attention to the problems they were having. The homeowners felt that Lennar was unresponsive to their complaints about poor construction quality. Lennar Homes did have some major problems with sheetrock cracking, foundation movement, and crumbling driveways as Huttoparke is built upon the clay farmland soil prevalent east of IH35 in Austin, and these homes were apparently not built with sufficient consideration given to the implications of expansive soil.
Today, yet another Huttoparke story in the Austin Statesman brings attention to the construction quality problems of the neighborhood, and reminds me why I don’t sell homes in these types of subdivisions in the first place. Never have, never will. We refer buyers who want those homes to other Realtors, mainly because I don’t want to sell poor product.
If you’ve followed my blog or read our investment page, you know that Sylvia and I believe, for most buyers, especially those seeking stability and appreciation, a home in an established neighborhood is a safer real estate purchase than venturing out to buy a new starter home on the edge of sprawl.
The reason is that you never know for sure what you’re getting into when you buy in these fast growing new starter home subdivisions. In this case, in Huttoparke, you would be living/owning a home in a neighborhood where the home owners have resorted to picketing the builder, putting signs in their yard to let everyone know how poorly built the homes are, plastering their vehicles with anti-builder messages, setting up websites to warn other buyers not to buy there, and in general driving their property values into the ground.
Let’s see what property values have done in Huttoparke the past few years:
Austin Sales Market Update - 2008Q1 Stats Breakdown by MLS Area
April 21, 2008
Below is a chart breaking down Austin MLS Sales of single family homes by MLS area for Jan-Mar 2008. Not all MLS areas are included due to low or no sales activity in some.
Of the 42 areas covered 36 saw a decrease in the number of homes sold and 6 saw an increase in the number of sales. 32 of the 42 areas saw an increase in Average sales price, 35 saw an increase in median sales price, 30 saw an increase in average sold price per square foot. Only 15 of the 42 areas saw a decrease in average days on market and only 7 saw a decrease in median days on market.
In summary, sales are slow in Austin but overall prices are holding steady or rising. Chart of 2007/2008 sales stats by MLS area is below.
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Austin Rental Market Update - March 2008 and YTD
April 20, 2008
Homes in Austin are renting for 8% more than last year, on average. Average rent price for homes across the Austin Metro area was $1401 per month for March 2008 compared to $1295/mo the year before. The Median leased price remained about the same at $1200. Homes are renting fast this March. The average days on market was down to 37 days from 42 last year. The Median days on market was 26 compared to 28 days last year, which means half of the rental homes in Austin that leased through the Austin MLS rented in 26 days or less, and half took more than 26 days to rent.
The average rental price per sqaure foot is up almost 6% to $0.73 compared to $0.69 last year. The average size rental home in Austin was 1915 sqft and the median size was 1794 square feet.
The number of homes rented was down about 10%. More renters are renewing leases as fewer can qualify for home purchases than in the past several years. This is good for landlords. Note that our average rental rate of $1401/mo for March 2008 is still lower that the average of $1497/mo that renters paid in the year 2000 and the $1524/mo renters paid in 2001 before Austin rents tumbled for four years and bottomed out at $1235/mo in 2005. So we’re still trying to climb back to where we were 6 or 7 years ago.
Below is the data chart for March Rentals in Austin. Further below is a year to date chart, breakdown by city, and a historical graph of rental rates in Austin from 1999 through the end of March 2008. As usual, comments and questions are welcome.
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Feb 2008 |
Mar 2008 |
Mar 2007 |
Yr % Change
|
|
| # Leased | 563 | 594 | 659 | -9.86% |
| Avg List Price | $1,370 | $1,412 | $1,305 | 8.20% |
| Median List Price | $1,200 | $1,250 | $1,200 | 4.17% |
| Avg Leased Price | $1,362 | $1,401 | $1,295 | 8.19% |
| Med Leased Price | $1,200 | $1,200 | $1,195 | 0.42% |
| Avg Size SQFT | 1901 | 1915 | 1874 | 2.19% |
| Median SQFT | 1755 | 1794 | 1769 | 1.41% |
| Avg $ per SQFT | $0.72 | $0.73 | $0.69 | 5.87% |
| Avg Days on Mkt | 39 | 37 | 42 | -11.90% |
| Median Days on Mkt | 27 | 26 | 28 | -7.14% |
Below is the Year to Date Comparison chart.
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Austin Eviction Aftermath and the Cost of Rental Property Turnover
April 19, 2008
Last Tuesday my tenants did not show up at Eviction Court, so I was awarded possession of the property. Afterwards, I immediately drove to the property to find it trashed, as expected. I own this particular property. The tenants had lived there since 2001 and had been good tenants until about a year ago when they started having payment problems. I worked with them as best I could. They would fall a month behind. Catch up. Fall behind again. Catch up. And it became a cycle that I normally won’t allow.
But after I discovered they had their deadbeat adult son living there, and he mouthed off and cussed at Sylvia when she knocked on the door last month to see if they were still living there (after we again received no rent and no communication), I decided to call it quits and I initiated the eviction process. I knew in doing so I would be incurring now a fairly expensive makeready and turnover expense.
This brings me to a point I always try to make with prospective investors thinking about buying their first rental property. If you can’t afford to take the occasional big financial hit that can happen to any landlord at any time, don’t buy rental property. As I walked through my home, strewn with abandoned belongings, including a wrecked motorcycle left in the garage, I concluded quickly by rough estimate that I was looking at a very costly turnover, probably up to $12,000 depending on what I ended up doing on the rehab. This house will need the full treatment.
How did I arrive at $12,000 of the top of my head? I’ll itemize it below:
$2300 = Lost rent prior to the eviction.
Almost two months lost rent because I was slower than I normally would be due to my long-term history with the elderly tenants and hoping they would come around. A managed property would have been dealt with much sooner, so I broke one of my own rules and it cost me almost an entire additional month of lost rent by being slow.
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Austin Rental Market Update - 2007-2006 Comparison
March 13, 2008
For 2007, the Austin Rental Market continued to see gains in average and median rental rates for single family homes. But we still lag behind the rental rates landlords enjoyed 6 and 7 years earlier, if you can believe that. The graph below shows where we were in 1999 through 2007. You can see the huge 4-year plunge rental rates took from 2001 until we started back up in 2006 and 2007.
The average rental rate for a single family home in Austin during 2007 was $1344 per month, up 7% from $1256 in 2006. The average sized rental home was 1883 square feet. The median rental rate for 2007 was $1200, up 4.3% from $1150 in 2006. The average rental price per square foot was up 4.4% to $0.71 in 2007. Average days on market improved to 45 days from 54 days in 2006. And median days on market fell to 33 days in 2007 from 43 days in 2006.
All said, another good year heading in the right direction for Austin landlords. See the graph below.
Below is a chart breaking down the 2007/2006 metrics.
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