Less demand for entry-level homes pushes Austin 2Q starts down

Looks like the new starter home segment of Austin’s sales market is slowing down a bit, which is great news for landlords. The renters who would otherwise be purchasing those homes are remaining in the rental pool. Also, many of the starter homes were being purchased by investors, which means the rental supply won’t be gaining that additional inventory, which is no doubt why we’re seeing strong activity in the rental market.

The $300K+ end of the sales market is still very strong. Overall, the ABJ article paints a good and accurate picture of what we are experiencing in our actual business.

Austin Business Journal – 2:30 PM CDT Thursday, June 28, 2007
The slowdown continues on new home starts in the Austin area as homebuilders put the brakes on entry-level product.

Builders started 3,367 units in the second quarter, down 27 percent from second quarter 2006, according to the most recent report from Dallas-based housing consultancy Residential Strategies Inc. The start rate for new homes over the last 12 months is also down 12.6 percent to 14,568 compared with the previous 12-month period.

“Builders have reported to us that buyer traffic under $200,000 remains sluggish,” says Mark Sprague, Austin partner for Residential Strategies. “The $250,000 to $600,000 price points remain strong, but not as frothy as in recent quarters.”

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Mark Dotzour on the Texas Real Estate Market

Dr. Mark Dotzour, the Real Estate Center’s chief economist, discussed the Texas housing market on Tuesday’s edition of NewsHour with Jim Lehrer. The 12-minute segment is available online.

I’ve posted the transcript of Dotzour’s remarks below, but the video on the MacNeil Lehrer news hour website is worth the 12 minutes watching time to get a feel of the overall U.S. market and how well Texas is doing compared to the other regions discussed (New England, California, Michigan).

RAY SUAREZ: Mark Dotzour, how does Texas resemble what you just heard from Massachusetts and California? And how does it resemble the nationwide trends?

MARK DOTZOUR, Texas A&M University: Hello, Ray. It’s good to visit with you. We down here in Texas we have a real, unique situation going on right now. We’ve got a combination of very strong job growth. It’s basically double the national average. We’ve got home price appreciation that’s going up at an increasing rate in many of our metropolitan areas.

And at the same time, we’ve got population growth. I noticed just last year we had 570,000 new people come into the state of Texas. And at the same time, the home builders have cut back on production, as well, like you’ve previously heard. And so we’re in kind of an interesting position, where home builders are cutting back on their building, but inventory levels of homes for sale are quite low. And that’s why we’re seeing the good rates of price appreciation in many parts of Texas.

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Austin School Quality and Real Estate Values

One of South Austin’s last remaining new home neighborhoods, Olympic Heights, with homes (new and resale) priced below $200,000 is about to get a shot in the arm due to a favorable shift in the elementary school it attends. Olympic Heights kids may now attend the “Exemplary” rated Baranoff Elementary. Many young families intentionally seek out homes in areas that attend “Exemplary” and “Recognized” rated elementary schools over the lesser “Acceptable” rated schools. The problem is that homes attending these higher rated schools are typically too expensive for young families.

Sylvia spoke with an administrator at Baranoff Elementary and she confirmed that Olympic Heights will officially be in the Baranoff attendance zone as of 2008. Families can be transferred in early for the year 2007 by requesting a transfer from the central Austin ISD office. Since Baranoff is a “closed” campus, which means they do not accept transfer students, anyone from Olympic Heights must write on their transfer form “Olympic Heights Resident” and their transfer will be automatically accepted. There will be no bus service from Olympic Heights in 2007, so families must drive themselves. Bus service will begin with the 2008 school year. Olympic Heights currently attends the “Acceptable” rated Menchaca Elementary.

As the school switch becomes better known, I believe it will create additional demand for homes in Olympic Heights, and help the values in that neighborhood rise more than they would otherwise. We’ve sold 3 homes recently in Olympic Heights, and continue to recommend it as a neighborhood that should appreciate well in coming years.

So, have Realtors been paying attention and making sure to point out this very good news in their real estate listings for Olympic Heights? If a Buyer’s agent is performing a search for listings that attend Exemplary Rated Baranoff Elementary, will listings from Olympic Heights show up?

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Travis County Tax Appraisal Values Still Rising

Sunday’s Austin Statesman has a front page story about rising tax appraisal values in Travis County, and how those value increases are affecting home owners who are being priced out of their neighborhoods. One lady, quoted below, now has property taxes alone of $1500/mo, which is probably more than her house would rent for.

This is the other side of the coin of a strong real estate market. We, as investors and Realtors, like the strong market of course. Especially after 4 years of mostly flat and falling values from 2002 through 2005. I don’t remember reading any newspaper articles during that time period about how good we had it when appraised tax values were not rising. Nor did I read any articles telling about the 25% to 35% drop in rental prices that renters of homes were enjoying, or how great it was for renters.

One thing I want to correct in the article is the stated assumption that landlords can simply raise our rents to cover increases in property taxes. We can’t. The rental market sets the rental value of your home, not your taxes or payment. In the “old days” (before the late 1990’s in Austin), annual property taxes and insurance could be covered by about two months rent. Today, investors should expect it to take 4 to 6 months rent to cover the annual property taxes and insurance. I’ve managed homes in Central areas where it took 9 month’s rent to cover. That makes it rough to achieve positive cash flow even if you own a home free and clear in one of those areas.

Here is the story:

Homeowners paying price as values rise
Travis appraisals hitting some especially hard.
AMERICAN-STATESMAN STAFF
Sunday, June 17, 2007

On one end of Pennsylvania Avenue’s 2200 block in East Austin, a dirt yard and a “For Sale” sign sit in front of a new, three-story tan house with a rust-colored Star of Texas nailed above the door.

On the other end of the block, a pair of matching fourplexes are nearing completion, one green with lemon trim, the other lemon with green trim, both advertised for lease.

In the middle is the older, one-story home of Maria Ana Guevara, who is not happy about the situation.

“All the new houses in the area have been making my taxes go up,” the 55-year-old Travis High School custodian said. “I’m expecting them to go up again.”

Her home was worth $59,000 in 2002, according to the Travis Central Appraisal District. In 2005, it was valued at $75,000.

Today, it’s worth $117,745, according to the appraisal notice that arrived in Guevara’s mailbox in early May.

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