Austin’s rental market for single family homes looks like it might finish the year with a slight upturn from last year. This would break a four year downward slide in Austin rental rates that started in 2002 after the tech bust and 9/11. We still have November and December to factor in, but we’re a bit ahead of the year-to-date rates for this time last year.
The problem continues to be ample supply being provided by new investors. As you can see on the chart below, 26% more homes were leased through the Austin MLS this October over October a year ago. That’s 610 leased homes Oct 2006 compared to 485 leased homes Oct 2005. So the demand is there, but supply is keeping up. Year to date, we’ve leased 38% more homes this year than last year. That’s a lot of new renters being absorbed by the rental market.
Sept 2006
|
Oct 2006
|
Oct 2005
|
Yr % Change
|
|
# Leased |
606
|
610
|
485
|
+26%
|
Avg List Price |
$1270
|
$1271
|
$1214
|
+4.7%
|
Median List Price |
$1185
|
$1150
|
$1100
|
+4.5%
|
Avg Leased Price |
$1255
|
$1257
|
$1199
|
+4.8%
|
Med Leased Price |
$1175
|
$1150
|
$1100
|
+4.5%
|
Avg Size SQFT |
1842
|
1872
|
1788
|
+4.7%
|
Median SQFT |
1734
|
1775
|
1704
|
+4.2%
|
Avg $ per SQFT |
$0.68
|
$0.67
|
$0.67
|
0%
|
Avg Days on Mkt |
51
|
52
|
52
|
0%
|
Median Days on Mkt |
42
|
45
|
43
|
+4.7%
|
YTD Oct
2006 |
YTD Oct 2005
|
Yr % Change
|
|
# Leased |
6872
|
4976
|
+38%
|
Avg List Price |
$1270
|
$1256
|
+1.1%
|
Median List Price |
$1150
|
$1150
|
0%
|
Avg Leased Price |
$1258
|
$1243
|
+1.2%
|
Med Leased Price |
$1150
|
$1150
|
0%
|
Avg Size SQFT |
1847
|
1802
|
+2.5%
|
Median SQFT |
1750
|
1695
|
+3.2%
|
Avg $ per SQFT |
$0.68
|
$0.69
|
-1.4%
|
Avg Days on Mkt |
54
|
60
|
-10%
|
Median Days on Mkt |
42
|
47
|
-11%
|
Below is the breakdown of Austin leasing activity by MLS area year to date. It’s interesting to note that, with the lone exception of Area RN, which is more affluent (and JA which has a sample size of only 2, so we discard it), all of the areas with an average year built of 2000 or newer have average rental rates and prices per square foot well below the Austin MLS average overall. Most of those areas also have higher days on market, which means those homes take longer to lease.
The question is – did those investors purchase those homes at a substantial enough discount, or a good enough price, that they produce a better cash flow than could have been obtained closer in. In many cases, I suspect they did, provided they are able to keep the home rented and avoid prolonged vacancy.
The more important question is – will those mostly newer homes appreciate in value over the next 5 years as well as homes closer in. I suspect they won’t due to continued compitition for years to come from new home sales. I still advise investors to stay as close in to Austin as you can afford and to avoid these far flung areas. This means you have to be valuing long term appreciation more than cash flow.
MLS Area
|
# Leased
|
Avg $
Leased |
Avg
SQFT |
Avg $ |
Avg
Days |
Avg Yr Built
|
Area 1A
|
20
|
$2175
|
2293
|
$0.95
|
46
|
1975
|
Area 1B
|
143
|
$1887
|
1620
|
$1.65
|
38
|
1945
|
Area 1N
|
154
|
$1393
|
1866
|
$0.75
|
34
|
1983
|
Area 2
|
118
|
$1146
|
1221
|
$0.94
|
30
|
1957
|
Area 2N
|
104
|
$1066
|
1447
|
$0.74
|
52
|
1974
|
Area 3
|
137
|
$1119
|
1403
|
$0.80
|
47
|
1962
|
Area 3E
|
51
|
$1074
|
1465
|
$0.73
|
60
|
1994
|
Area 4
|
130
|
$1587
|
1352
|
$1.17
|
43
|
1953
|
Area 5
|
121
|
$1004
|
1200
|
$0.83
|
53
|
1967
|
Area 5E
|
50
|
$1026
|
1690
|
$0.61
|
67
|
2002
|
Area 6
|
88
|
$1334
|
1204
|
$1.11
|
28
|
1954
|
Area 7
|
23
|
$1440
|
1433
|
$1.00
|
25
|
1957
|
Area 8E
|
32
|
$2783
|
2437
|
$1.14
|
37
|
1979
|
Area 8W
|
72
|
$2216
|
2494
|
$0.89
|
36
|
1990
|
Area 9
|
17
|
$1107
|
1382
|
$0.80
|
45
|
1974
|
Area 10
|
462
|
$1135
|
1517
|
$0.75
|
33
|
1986
|
Area 11
|
102
|
$991
|
1437
|
$0.69
|
49
|
1988
|
Area BA
|
61
|
$950
|
1568
|
$0.61
|
44
|
1986
|
Area BL
|
0
|
0
|
0
|
0
|
0
|
0
|
Area BU
|
3
|
$1231
|
1710
|
$0.72
|
30
|
1987
|
Area BW
|
12
|
1008
|
1618
|
$0.62
|
53
|
1987
|
Area CC
|
5
|
$895
|
1294
|
$0.69
|
23
|
1987
|
Area CL
|
770
|
$1174
|
1998
|
$0.59
|
48
|
1999
|
Area EL
|
17
|
$1032
|
1885
|
$0.55
|
70
|
2000
|
Area FC
|
0
|
0
|
0
|
0
|
0
|
0
|
Area GP
|
0
|
0
|
0
|
0
|
0
|
0
|
Area GT
|
134
|
$1161
|
1833
|
$0.63
|
43
|
1995
|
Area HD
|
69
|
$1670
|
2217
|
$0.75
|
52
|
1997
|
Area HH
|
327
|
$1080
|
1818
|
$0.59
|
51
|
2003
|
Area HS
|
7
|
$1137
|
1848
|
$0.62
|
98
|
2003
|
Area HU
|
205
|
$1034
|
1875
|
$0.55
|
72
|
2004
|
Area HW
|
23
|
$1296
|
1814
|
$0.71
|
77
|
1992
|
Area JA
|
2
|
$1325
|
1602
|
$0.83
|
45
|
2004
|
Area LC
|
0
|
0
|
0
|
0
|
0
|
0
|
Area LH
|
2
|
$987
|
1321
|
$0.75
|
12
|
1963
|
Area LL
|
0
|
0
|
0
|
0
|
0
|
0
|
Area LN
|
68
|
$1227
|
1636
|
$0.75
|
56
|
1985
|
Area LS
|
159
|
$1738
|
2108
|
$0.82
|
53
|
1992
|
Area MA
|
101
|
$1048
|
1836
|
$0.57
|
83
|
2004
|
Area MC
|
0
|
0
|
0
|
0
|
0
|
0
|
Area N
|
141
|
$1182
|
1728
|
$0.68
|
40
|
1989
|
Area NE
|
163
|
$1133
|
1878
|
$0.60
|
53
|
1996
|
Area NW
|
196
|
$1300
|
1954
|
$0.67
|
39
|
1986
|
Area PF
|
485
|
$1144
|
1934
|
$0.59
|
58
|
2000
|
Area RN
|
87
|
$2307
|
2855
|
$0.81
|
44
|
2001
|
Area RR
|
967
|
$1180
|
2016
|
$0.59
|
57
|
1998
|
Area SC
|
40
|
$1225
|
2119
|
$0.58
|
50
|
2000
|
Area SE
|
51
|
$1056
|
1872
|
$0.56
|
76
|
2000
|
Area SV
|
6
|
$940
|
1560
|
$0.60
|
65
|
1975
|
Area SW
|
336
|
$1491
|
2144
|
$0.70
|
37
|
1994
|
Area TC
|
12
|
$795
|
1432
|
$0.56
|
59
|
1971
|
Area W
|
49
|
$1743
|
2125
|
$0.82
|
46
|
1988
|
Area WE
|
1
|
$695
|
1110
|
$0.63
|
38
|
1920
|
Area WW
|
1
|
$1250
|
2016
|
$0.62
|
18
|
1993
|
All Areas
|
6872
|
$1258
|
1847
|
$0.69
|
54
|
1991
|
Can you post the breakdown by MLS area for October 2005 so we can compare changes by area?
Hi,
The sample sizes for monthly leases by area are too small to be meaningfull. What area are you curious about though?
Steve
Steve,
I am a licnesed broker in Outhern Orange county and have rental property in SW-and North austin. In reveiwing you nice statisitical information on the rental market, I could not determine if this included Townhomes/Condos. I am assuming that you numbers of $0.68-$0.70 cemts per SF hold true for townhomes.
I have been leasing a nice 3-2.5-2 1560 sf townhome off convict hill and Escarpment for $1275.00…getting a lot of inquiries, but all are saying this this too much? With the inclusion of Freescale and Samsung…I woud think many of this units would be an excellent rental price for $1275-$1325.
Do you have iny info on Townhome/condo rental markets fro the last 2005-2006.
Best Regards
Don
Hi Don,
I don’t include townhomes and condos or duplexes in the leasing stats – just houses. If you email me directly with your townhome address I’ll be happy to send you a rundown on what similar properties have been renting for. I’m pretty sure I know where your townhome is and it’s a nice complex. The rental market is very slow right now according to my Property Manager friends, so your price might be ok but you have a problem of not enough demand.
Email me and I’ll have a look for you though.
Thanks
steve
Steve,
I appreciate your information on the markets in Austin. I sent you a direct email on my rental property.
Regards,
Don
I own rental property in both las vegas and austin and austin is very much like vegas – way way too much overbuilding going on and way too many california investors so there is a lot of inventory that is for lease so renters have choice, and lots of it. It may just be a factor of supply and demand when you are focusing on price.
As far as freescale and samsung, yeah, I rented to someone who worked at freescale but only because he was waiting for his home to close, so if you work for big industry you probably have the ability to buy , so why rent. Just look at the flood of inventory in faraway nice areas like round rock and pfluegerville.
Hi John,
Hi John,
> austin is very much like vegas – way way too much overbuilding going on and way too many california investors
I’ll have to disagree with you on that. Austin’s growth is much more measured than what happened in Las Vegas and Phoenix. Most of the production builders in Austin learned lessons from those markets, where their biggest competition became their own customers trying to flip homes at closing or shortly thereafter.
In many new home subdivision in Austin, especially those with strong demand, investors are very limited. You don’t get the same incentives owner/occupant buyers get, you have to pay a non-refundable earnest money deposit in some cases of $5000 or more, or in some cases, they flat out don’t sell to investors period. This is a double-edged sword. I’m happy to see builders doing that, but it limits the options for those we help.
All of the investors we deal with understand that Austin is a long-term investment, not a quick-flip market. Therein lies the biggest difference between us and Las Vegas of the past 5 years. It’s a different mindset altogether.
Steve
I’ll have to respectfully disagree with you.
Round Rock and Pfluegerville appreciation is non-existent. And it is because there isn’t regulation on amount of building because of there is plenty of land. Oversupply, not enough demand.
As far as investors buying new homes, the barriers to entry for investors is there, but it is thin. There are just too many investors in austin to turn them all away. A lot fall through the cracks, like me for instance.
You even wrote this in another blog entry: “many of the newer subdivisions have been oversold to out of state investors and now suffer from surplus rental inventory, causing prolonged vacancies and keeping rent values suppressed in those areas.”
I’m a buy and cash flow strategist in austin. The price points are too low and the equity appreciation, crippled by 3% property taxes, is too miniscule to fix and flip.
Don’t get me wrong. Austin is great for investing, it has worked out for me fine. But be very careful where and what you buy. The closer to the middle the better. Always have a cash flow strategy.
Hi John,
> Round Rock and Pfluegerville appreciation is non-existent. And it is because there isn’t regulation on amount of building because of there is plenty of land. Oversupply, not enough demand.
We advise people to stay away from those areas.
> barriers to entry for investors is there, but it is thin.
The barrier is absolute and very strong in many of the best subdivisions. They simply don’t need investors. When we find a builder willing to sell to investors, we worry about that unless we know they are truley limiting it to 5% to 10% of sales or it’s in a price range ($300K and up) where the number of investors is self limiting do to the price range.
Most newbie investors, chasing better cash flow and a cheaper purchase price, head out to the areas outside Austin where you still find plenty of builders selling cheap starter homes to investors. We don’t work those areas and never take buyers out there. But we do know what the better builders in the more desireable areas are now practicing, and many are not selling to investors or, if they do, they’re withholding the incentives given to the owner-occupants which means the investor is paying a premium.
> You even wrote this in another blog entry …
Yes, that was very true 2 to 4 years ago when the Austin market was still flat and builders were trying to keep inventory moving. It’s much different today on the sales side in the areas that have recovered and have plenty of demand. The hangover of over supplied rental stock still exists, but it’s turned the corner and heading the other way now.
Thanks for your comments. Much appreciated.
Steve
I really like your blog by the way, thanks.
Hi Steve,
I am a 22 year old business professional living in Woodbridge, Va( 30 minutes outside of Wash, DC). I am looking to buy a property in Austin around May, however because of my job I will not be able to move there for a couple of years. My parents live in Steiner Ranch, and I know that eventually I will make the move to Austin. I would like to buy sooner than later and because of ridiculous housing prices in my area, I cannot afford to buy here. What I would like to know is if it would be smart to buy now, and rent the property until I decide to move. I know that Austin is one of the fastest growing cities in the U.S., and I would like to get in before housing prices soar. Plus, I figure sitting on the house while it appreciates can’t hurt either. Any guidance would be appreciated.