Austin Rental Market – Nov 2006 Update

The Austin Rental Market for single family homes continues to show modest gains over a year ago. As you can see on the graph below, 2006 looks like it will be the year when rent values in Austin finally took a turn upward after falling for 4 years in a row.

See below for more charts and the complete update. This month I’ve added a new column to the MLS Area breakout of YTD Leasing stats. More on that below.

The number of homes leased through the Austin MLS is up 18% from the same time last year (559 homes Nov 2006 compared to 473 homes Nov 2005). Year to Date, the number of homes leased is up 37%, from 5448 in 2005 to 7455 in 2006. The market is showing a strong ability to absorb all of the new inventory created by investors, but the additional supply is causing rent values to rebound much slower than they would otherwise.

The Average Leased Price is up 1% both in Nov and for 2006 YTD. Not impressive, but it’s the direction of the movement that is most important after the past 4 year slide. In other words, 1% sounds unimpressive but it’s good news for landlords because of the change in direction it represents.

On the chart below, I’ve added new columns with figures from 2005 for Number Leased and Average Leased Price. This is so you can see an indication of which MLS Areas of Austin are showing stronger or weaker rental market activity.

For example, Hutto (area HU), where we discourage investors from buying shows a 4% drop in rental values from YTD last year. If you look at the number of units rented, it has increased 52% over last year. The average year built of a rental home in Hutto is 2004. Clearly, a lot of investors have been and continue to buy new homes in Hutto.

The number of homes rented in East Austin Area 5 has increased 100% over YTD last year, but that area has managed to eek out a 1% gain (rounded up). Area 1B, which is Central/West Austin has actually rented fewer homes this year than last, and the average rents have increased 10% over last year.

I’ve highlighted in red all of the areas that have dropped in average rent values from last year. You’ll notice that all of these areas either show an average year built of 2000 or newer, and/or are areas that are further away or on the outskirts of Austin. This is why we try to keep our investors from succumbing to the temptation to buy these cheapo starter homes out in the flat farmland areas east of Austin. The numbers look better on paper, but it’s only new the first time you rent it – after that it’s just another cheaply built home among a sea of others in a neighborhood oversold to investors.

The one exception is Area 9, which is a close-in area of South East Austin. I think this may be a sleeper area and I’m not sure why rents are down. I own a duplex over there with a great downtown view and I’ve always liked this area for it’s location. The soil is bad in that part of Austin and there are a lot of homes built in the 60’s and 70’s with bad (or weak) slabs. Talk to Centex House Levelling or any other foundation repair company and they can tell you they’ve worked on many homes in that part of Austin. Nevertheless, like the hotter “East Austin” on the other side of Town Lake, I think this area might start to get noticed more in coming years, especially the section south of Riverside and north of Ben White.

Anyway, see the stats below and feel free post any questions or observations. I’ve left blank some of the areas with little or no leasing activity.