When you read a news article about Austin real estate that reports average and median home prices, the values quoted are often those from total Austin MLS sales. Those sales figures are compiled from the entire Austin MLS service area, including suburbs, nearby cities as well as some far flung areas. The “Austin MLS” might more accurately be referred to as a “Central Texas MLS”.
Therefore, you might read in one of the “Best of” articles about Austin, that “The Average Sold price for single family homes in the Austin Metro area for 2013 is $314,300 and the Median Sold price is $235,000”.
Those values are represented in the green bars in the graph above. To those thinking of moving to Austin, a median price of $235K sounds pretty affordable. It means half of all houses in “Austin” sell for less than $235K. A buyer with good credit earning the Austin median family income of $65K annually, can qualify for a mortgage payment of $1,950 per month at 5%, or a $266K home. Austin seems like a sweet deal and a great place to live to an outsider reading about it.
Below is a chart breaking down the 2010/2009 sales comparisons by MLS Area for the Austin real estate market. This time I’m adding a couple of new things. First, there is color coding on each of the summary rows for each area. A green shade indicates “improvement” in the measured metric. I put “improved” in quotes because it’s debatable what that means, and for whom, so perhaps a better word to use would simply be “increase” toward seller’s market. Note that a decrease in Days on Market is an “improvement”, however, as it means homes are selling faster, so a negative number on DOM is coded green and vice-versa, whereas the other negative numbers are red. Confusing enough? I hope not.
Next, I added a new column called SP/OLP which is the Sold Price divided by the Original List Price. I think this is a useful metric to observe as it informs us of the gap between the original list price a seller was hoping to obtain and the ultimate sold price achieved. This is more useful to know than the more commonly reported metric of SP/LP (Sold Price/List Price) because it doesn’t disguise the price drops that occurred before the home eventually sold.
In other words, a home that started at a list price of $300K, was eventually dropped to $270K, and then sold for the $270K list price, would produce a SP/LP ratio of 100%, but a SP/OLP of 90%. The 90% is a more accurate measure of market strength or weakness in a given area. You’ll see below that some areas are right at 95% (which is pretty good) and some are below 90%, which is a tougher market requiring bigger price drops.
OK then, let’s take a quick look at the new format using the cumulative sold data for all of 2010 compared to 2009.
|All MLS||# Sold||Avg Sold||Med Sold||Avg SQFT||Avg PSF||Avg Days||Med Days||SP/OLP|
So, with the color coding, this allows a “quick glance” gleaning of which areas saw increases/decrease in the measered metrics across the board. We can see above, looking at the entire Austin MLS market as a whole, that the average sold price increased 3.78%, median sold also increased, by 2.63%, Sold Price Per Square Foot increase 2.04%, and homes sold faster when looking at Avg Days on Market. But we also see that 5% fewer homes sold (lower demand) and that the median DOM and the SP/OLP ratios worsened. This “mixed” market is in fact what most areas produce.
One last aside, if an MLS Area is mostly red all the way across, such as Area 10S, does that mean buyers should avoid that area? Absolutely not. This is a look in the rear view mirror and doesn’t necessarily predict the future or indicate a trend. Same with areas that did well in 2010. This is just a snap shop of what happened in the given year 2010 compared to the year prior. If you own a home in an area that had a dog year, your particular neighborhood or size/price of home may have perfromed differently, and that won’t be reflected in this type of macro analysis of area-wide stats.
OK, the entire Austin MLS is broken down by MLS Area in the chart below. As usual, questions, comments, observations are welcome.
As someone who’s bought and sold a bunch of rentals, and helped other investors buy, sell and manage investment property in Austin for a number of years, I’m about to ask a question that might seem counter to my professional mission of being in service to real estate investors.
Is rental property investing in Austin still a good way to build long term wealth?
My answer, for a lot of people, is “probably not”.
Let me rephrase the question.
Is rental property investing in Austin a good way to lose money and create financial stress in one’s life?
Absolutely. More so than ever.
So, am I saying you shouldn’t invest in real estate in Austin, or elsewhere? No, I think everyone should consider doing so. But I do think, after careful consideration, a much higher percentage of people should decide against it than would have been the case 15 years ago. The opportunity for mistakes, bad decisions and cash flow disruption for the real estate investor today is much greater than in past years.
In other words, your margin of error is very thin. You better know what you’re doing, or have a good adviser. Success is harder to achieve than if you started in the 1980s or 1990s simply because today’s ratios are thinner. The financial and psychological profile of a good candidate real estate investor today has a much higher bar to clear than in years past. Let’s take a look at why that is.
The $8,000 buyer tax credit ended April 30, 2010. Take a look at the following graph to see the effect the tax credit had on buyer activity in Austin TX. This shows Pending activity for Austin MLS listings going back to Jan 2005 through April 2010. The green line is 2010. The previous years of 2007, 2008, 2009 are represented by the other colored lines.
I used Pending listings because a lot of the April Pending sales haven’t closed yet, but anything that qualified for the tax credit would have to be Pending by April 30th, so this gives us a sneak peek at what the sales data will look like for May closed sales.
A couple of interesting things to note here. I went back to 2007 because that was the peak year for Austin. As you can see on the chart, April Pending listings exceeded the peak year of 2007 for April. I suspect we’ve never experienced an April in Austin where almost 3,000 homes received accepted offers.What does this mean for the future?
As we head into the final weekend preceding the final work week of April, and the $8,000 1st time homebuyer tax credit winds down (thank God), I’m seeing a surge of new Austin real estate listings coming on the market each day as well as a huge increase in the number of showings for most of our own listings.
In other words, supply and demand are in a foot race with each other, and both have kicked in the after-burners.
This has caused us, as real estate agents, to behave in abnormal ways as we advise buyers and sellers. I had to tell a seller last week, “I think it’s better that we get your home on the market right away in ‘good enough’ condition rather than burn up a week of market time putting it into ‘perfect’ condition”. Mainly, I didn’t want to burn through one of only two remaining weekends waiting for new flooring to be installed or our professional stager and photographer to do their thing.
Instead, Sylvia staged the house herself, the seller bought some mulch and plants, we left some worn out old sheet vinyl on the kitchen floor, didn’t have the carpets shampooed, and I took my own photos, which look ok but not great. We got that sucker listed and in the MLS 2 days after I first met the seller at the property. Met on a Monday, had it in the MLS on Wednesday. Had our first offer that weekend, though that one didn’t pan out because it was too low.
Why the rush, and is this the right thing to do? I don’t know.
Read more …
Maybe I should start terming my Austin real estate market update blogs “Austin Real Estate Market, as Influenced by the Federal Government”. Indeed, the word “market” does need an asterisk next to it for the Sept-Nov time frame in Austin. Instead of taking its natural course, whatever that might have been, the lower end of the market was stimulated by government incentives for the Latter part of 2009 through November, and the sub-$200K buyers responded. Thus we see on the graph below the drastic drop in the average and median sold price for November 2009 as the final batch of first time home buyer tax credit sales closed.
It’s not hard to see what the real estate market is doing, but it is hard to know for sure why it’s doing it, or, that is, to what extent the number of sales (way up) and the average/median values (down) are influenced by these the artificially low interest rates and the buyer incentives, both being caused by government intervention in the market. Some economist believe that once these stimulus measures peter out, as they will later this year, the national real estate market is in for another big drop in prices as foreclosures will snowball to the highest levels we’ve seen yet.
So what does all of this mean for Austin? Is Austin real estate in generally good enough shape to ride it out better than most markets? I think so. Let’s have a look at the November stats.