We all know that some Austin MLS listings don’t sell. The reasons vary, but when demand is insufficient to absorb supply, the prettier better priced homes win, and the sellers who love their homes, and express that love and devotion through too-high list prices, get to continue the romance.
Let’s see what that looks like when put on a graph.
This is one of my favorite real estate statistical charts. The relationship between the number of successful sales efforts and the number failed sales efforts in any given market tells us a lot. This graph shows what happened to the relationship of success/failure of Austin’s MLS listings immediately following dot.com boom, 9/11 in 2001, and the subsequent bleeding out of jobs over the next few years. The real estate market became saturated with homes for sale as people had to leave Austin to find jobs, and new people stopped coming.
If you’ve seen the Austin real estate sales history graph that I post every month, you’ll know that home values stayed flat from 2002 through the end of 2005. Volume held steady during that period, but prices were flat while the rest of the country had its massive real estate bubble.
For Austin, there was no bubble. Instead, we suffered with too many homes for sale, not enough buyers, and thus in 2003 the number of listings that departed the Austin MLS as failed sales efforts (Expired or Withdrawn) actually exceeded the closed sales for the entire year. Austin sellers had it rough in 2003.
We’ve recently seen this inverted Sold/Not Sold ratio a lot during recent months throughout 2008 and 2009, but neither year ended with more total failed sales than successful sales. So, in that regard, these past couple of years haven’t been as bad as 2003.
Wanna know what happened to all those unsold homes in Austin between 2002 and 2005, back when foreclosing or short selling was still such a shameful event that sellers knuckled down and figured out how to hang on? A bunch of them became rental properties. This in turn caused a severe over-supply of Austin’s rental home market. Simultaneously, the in-migration that feeds the rental market stopped cold, and the chart below shows the result.
The rental market for houses in Austin is still slowly improving, climbing out of the huge dip we took after the tech bust and 9/11. For October 2009, average and median rents are both up about 1%, but homes are taking longer to rent, averaging 42 days on market compared to 38 a year ago in October.
This is a macro view though. In talking with other property managers in Austin, it’s not uncommon for some homes to be renting for the same or less than a year earlier, while others can do a bit better. It’s really a function of the number of competing homes and the location of the property. It took 45 days for me to rent a central Austin home in 78704 recently and we had to take $50/mo. less than a year earlier. Had I accepted large dogs and/or poor credit, it would have rented right away, so rental criteria is also a determining factor in how long it takes and the amount attainable.
October stats are listed in the chart below.
|Austin Real Estate Rental Market Update October 2009|
|Houses only (condos, duplexes, etc. not included) compiled from Austin MLS data|
|Sep 2009||Oct 2009||Oct 2008||Yr % Change|
|Avg $ SQFT||$0.72||$0.72||$0.74||-2.56%|
|Not Rented %||23.48%||20.39%||27.77%||-26.59%|
Let’s have a look at 2009 year to date through October, compared to the same period in 2008.
The Austin rental market continues to be strong.Average and monthly rents continue to rise. Days on market is low. But, even with recent gains in prices, we are nearing the end of a decade in which rental prices for landlords will have remained virtually flat. Let’s check the historic graph below before we get into current figures.
If we draw a straight line from 1999 to now, and you own the average rental home, and in 1999 you assumed a 3% per year increase in rents over time, that increase didn’t happen, but your property taxes, insurance and maintenance expenses sure did go up a lot. What we see above isn’t good from a landlord standpoint, but if you’re a renter, you’ve had a nice 10 year run of good rental values in Austin. At present, our rental values are still below where they were in the dotcom boom era of 2000 and 2001.
And if it’s any consolation, had you invested your real estate money in the stock market in 1999, you’d be a whole lot worse off than a decade of flat rents. At least real estate values have come up. We’ll look at that in a minute.
Currently in Austin, average rents for single family homes are about $1,500 per month and the median rents are $1295/mo. See the chart below.
Average rents in Austin have taken a slight dip for the first quarter of 2009. The number of rented homes is up 11% over the same three months a year ago, no doubt due to the fact that many sellers are opting to rent instead of dropping prices below their bottom dollar. This creates additional rental inventory, which gives renters more homes to choose from, and prevents prices from increasing.
Personally, I’ve leased 4 or 5 homes in the past 2 months, and the market is really spotty. One house I leased central received 4 applications in 2 days. Another one I leased north central leased immediately for $1,650 a year ago, but took about 45 days to lease for $1,595 this year. Another one in Western Oaks leased for $1,550 (same amount as last year) in about a week. A different home in Western Oaks, also listed at $1,550, and newer and in better condition, has not received any showings in more than a week. It’s not an easy market to predict right now, much like the sales market.
The stats chart is below, followed by the 1999-2009 Austin leasing history graph.
|Austin Real Estate Rental Market Update Q1 2009 Jan-Mar|
|Houses only (condos, duplexes, etc. not included) compiled from Austin MLS data|
|Oct-Dec 2008||Jan-Mar 2009||Jan-Mar 2008||Yr % Change|
|Avg $ SQFT||$0.72||$0.71||$0.72||-2.01%|
|Not Rented %||30.03%||25.12%||23.02%||9.12%|
As noted in the chart above, average rents in Austin (for single family homes) are $1,364/mo., down 1.45% from $1,384/mo. the same quarter 2008. Median price has fallen from $1,225 a year ago to $1,200 this year, meaning half of all homes in Austin rented for $1200 or less.
Below is a graphical representation of the Austin rental market from 1999 through March 2009.
The rental market for single family homes in Austin continues its march upward. Rent prices increased about 6% in 2008 over 2007. Remember though that the 2008 average rent amount of $1,424 per month in Austin is still less than the year 2000 average rent of $1,497/mo. and the year 2001 peak of $1,524/mo. The graph below shows the historic average and median rent values for Austin from 1999 through 2008. The big dip you see in the chart is a result of the tech bust, 9/11 and the resulting job losses, weak economy and over-supply of rental homes that resulted in all the failed sales efforts from 2002 through 2004. You can see that our rental market bottomed out in 2005 and turned upward in 2006 and has continued that trend for three years now. But most rental homes in Austin still rent for less than they did in 2000 and 2001, so renters have had a good run.
Will the Austin rental market continue its upward climb in 2009? It’s hard to know for sure, but I think it might level off a bit for 2009. Demand for rental homes will increase due to the non-buyers who are choosing to not buy a home and instead becoming or remaining renters. But that is offset by the slower job market, and the increased rental supply provided by sales listings converted to rentals after not selling, as those sellers refuse to lower the price further and instead decide to simply hold off on selling for a year or two until the sales market rebounds. Also, although the rental stats look really good for landlords, those of us in the business of renting properties know that we are not always able to increase rents and not all homes rent as quickly as the stats suggest.
Finally, apartments are over-built again in Austin and there will be a large number of just completed new apartment units coming online in Austin in 2009, as well as new condos converted to rentals due to slow sales. The move-in deals and concessions offered by apartments tend to siphon away at least some of our home renters who ordinarily might not consider an apartment but can be swayed by economic incentives such as three month’s free rent, $99 deposits and free washer and dryer. So, while demand will increase, supply will be increasing by even more.
I just mailed lease renewal notices out for 4 rental properties I manage, and we did not raise rent on any of those particular properties. It’s much cheaper and more prudent to retain a tenant at the current rental rate than to cause them to think about moving because of a $50 or $100/mo rent increase.
December rental stats, Year to date rental stats, and a breakdown comparing 2008 to 2007 by MLS area are all posted below.
At my monthly Property Manager’s luncheon yesterday in Austin, the general consensus among the 30+ property managers in attendence was that the leasing market has taken a nose dive since September. The number of renter calls has really slowed down. One manager remarked “I keep calling my own phone to make sure it’s working”.
Indeed, the Rental market seems to have slowed down, but the market stats don’t make that obvious. You’ll just have to take my word on it. So treat this prelude to the stats report as an asterik, noting that some homes are in fact leasing slower and for less money than a year ago, even if the general overall stats for October seem to be as good or better than a year ago.
So, let’s take a look at the October stats below, and notice that the average rents in Austin are up 3% over October last year. Median rents are the same, which is common for rentals, as the median doesn’t move often. Days on market look good at 31 average and 23 median. The average and median prices per square foot , however, are down. This is more in line with what the leasing agents and other property managers are reporting. The number of expired lease listings is up and the number of withdrawn listings has more than doubled from a year ago. See the chart below.
|Austin Real Estate Rental Market Update|
|Homes only (condos, duplexes, etc. not included) compiled from Austin MLS data|
|Sept 2008||Oct 2008||Oct 2007||Yr % Change|
|Avg $ SQFT||$0.74||$0.73||$0.70||5.25%|
|Not Rented %||26.90%||28.07%||19.64%||42.92%|
So in a market in which the phones are not ringing and inventory is building (from failed For Sale properties being converted to rentals), price drops and incentives are the only cure (assuming there are no condition issues). I had a house listed at $1,395 with ZERO showings for 1 month. We dropped it to $1,275 (for the first 6 months), which represents a $720 rent incentive, and it leased immediately thereafter. That $720 is equivilent to 16 days of vacancy at $1395, so as we approach the current tenant’s move-out date at the end of November, we had to get more agressive.
Below are the year to date leasing stats for Austin 2008 through October compared to 2007 Oct YTD.
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