settling down
A seller's market? What to know before you buy (or sell) a house in Austin
Mar 10, 2012 | 9:00 am
While there is plenty of evidence that Austin's apartment rental market is booming, the local home market has been harder to read — still, there's no doubt, compared to the rest of the nation, our city is in a very good place.
"Real estate is like the weather: If it's 23 in Denver, it might be 78 in Austin," says realtor Melanie Melanie Damron of Keller Williams Realty as she rushed off to meet a client interested in a house in Westlake.
January, 2012 numbers from the Austin Board of Realtors show the average price for a home in Austin was $224,589. That's down from $242,665 just one month earlier. That price is also ten percent less than one year earlier in Jan. 2012 when prices averaged $249,810. Meanwhile, year over year sales activity was up by ten percent from one year earlier — 1,051 homes sold in Jan. 2012.
Unlike many cities, Austin was not as overbuilt during the housing bubble leading up to the 2008 crash. The area's home pricing never really ballooned to the speculation flip frenzy driven levels seen in places like Las Vegas, Florida or California. That's spared the local market much of the price correction drama and loss seen in those places. Most agree that as Austin's economy continues to expand and its home supply continues to tighten, buyers should probably expect to see price fluctuations tip upward in years to come. Still, those buyers can also expect to face the realities of a new economy they might not have seen just a few years ago.
"In the long run, the strength of a local housing market (i.e., price appreciation) reflects job and income growth in the local economy and the costs of obtaining land for new houses," says David Stiff, chief economist at Fiserv- Case-Shiller Indexes. Fiserv is a global technology provider to the Financial services industry.
"Financing is probably the biggest issue for people looking to buy that first home- and that difficulty is not unique to any particular price point."
Stiff explains that housing markets with the fastest (long-term) appreciation rates will have strong and steady employment, income growth and limited supplies of land for residential development. If land acquisition costs are low, then new housing supply tends to match increasing demand, so a market may have very strong job and income growth but only moderate home price appreciation.
He said you can't gauge the long-run performance of a local economy by its short term housing price fluctuation. "For example, home prices have dropped by more than 50% in most Florida markets over the past few years, but the long-run economic outlook for Florida is good," says Stiff.
There are countless 'best of' lists in various publications that have cited Austin's new economy-tech driven growth and the many resulting jobs that might be created here. Last month, local economist Angelos Angelou said the Austin area will see job growth over the next couple of years, predicting the addition of around 19,000 new jobs in 2012 and 20,000 new jobs in 2013. Last year, he said Austin gained about 13,000 jobs.
But it's probably safe to say a big percentage of the people filling those jobs will be young — think Gen-Y. That means they will likely fall under the category first time buyer. Today, first time buyers face tough new scrutiny.
"The lenders are just so demanding right now," said Leonard Guerreo, a realtor at J.B. Goodwin and the Austin Board of Realtors 2012 Chairman. "Financing is probably the biggest issue for people looking to buy that first home, and that difficulty for the first time buyer is not limited to any particular price point," he said.
Guerreo said many of those would be buyers sometimes get so frustrated, they look to rental housing, be it multifamily or leasing a single family home.
"It's true that many of the new people arriving in Austin are younger or people who are not sure enough about their positions to risk buying a home, hence the high occupancy and rental stats you mention for apartments — not to mention single family rentals" says James P.Gaines Phd, research economist at the Real Estate Center at Texas A&M University.
Despite all that, another fundamental sign of Austin's relative health arrived on Monday, March 5 from CoreLogic, a leading provider of information, analytics and business services. A report from the group said national negative equity data showed 11.1 million, or 22.8 percent of all the nation's residential properties with a mortgage were in negative equity at the end of the fourth quarter 2011. That's up from 10.7 million properties, or 22.1 percent, in the third quarter of 2011.
Negative equity — when the value of an asset used to secure a loan is less than the outstanding balance on the loan — is also called being 'underwater.' But in Austin, the number of underwater homes was only around half the national average. Corelogic said the Austin-Round Rock-San Marcos area's percentage of underwater homes was 10.6 percent, a very slight increase from the 10.2 percent, or 32,783 properties reported in the third quarter 2011.
So the statistics seem to show a pretty healthy housing market here in Austin. Guerreo puts it like this, in Texas, the economy had been on the positive; albeit, the growth might only have been one percent, but at least when compared to other states where growth has been essentially negative, Texas and Austin had done well.
In some parts of town, demand has been markedly higher, such as in central parts of town, particularly the 04 zip code. In fact, since new home building has been so slow during the downturn, in many parts of town, demand already surpasses supply.
"We do not have enough houses on the market to provide for our buyers," says Melanie Damron.
Drilling deeper for would be buyers, Damron explained that Austin was in the midst of a seller's market for homes priced below $400,000, a market where the seller of the home calls the shots. But then, starting at around $400,000 all the way up to $800,000, the market becomes neutral, benefiting neither buyer or seller. But, at the $800,000 price point, it becomes a seller's market once again.
She says that the ultimate prized price is a home in the $279,000 range. "That's the price everyone wants."
"I'm not saying that everything is rose petals but in general, Texas, especially here in the Austin area, we've weathered the storm."
Damron was straight up, saying a house in a good marketable area, can trade in as little as ten days. But, she also said that homes in Austin with "issues" can stay on the market for much longer, even hundreds of days.
Issues include location for example, the house backs up to a very loud road and has lots of noise that the seller has done nothing to compensate, now that's a big issue. Also, if the home has no privacy, say you've got three houses staring right into your back yard and there's no landscaping or anything to provide privacy, that's a big issue.
Another issue: The house you are hoping to sell doesn't fit the "standards" for a neighborhood.
But Damron also said there are issues in some areas that tie back to the greater economic downturn and have further impacted local pricing and the ability to get financing.
Many areas of Austin have seen a rise in Real Estate Owned (REOS) or bank owned properties. Usually, those homes are priced low so they can be sold quickly off a bank's roll. But, having any number of REO's in a particular area can depress average values for entire neighborhoods.
REO's are a reminder that all is not sunny and bright to a potential buyers when that buyer applies for what they think is a fair market price mortgage. Cautious lenders often hire appraisers who then go out and comparison shop homes in an area, they take measure of prices in an area, sometimes taking averaging in the prices of the REO homes along side the price of normal market value homes.
"Let's say I want to sell my house and I list it for what I think is a reasonable price, and then, a buyer makes an offer," she says. Before the mortgage note gets approved, the lender's appraiser might take into account the existing REO homes in that particular area, and that might knock off $10,000 from the appraised value. That then means the buyer has to come up with $10,000 in cash, or will come back to agents like Damron, and ask them to lower the price.
Still despite the added scrutiny by lenders and potential price depression by REO's, Austin's overall housing market is forecast to maintain a steady if not expansive course. "I'm not saying that everything is rose petals but in general, Texas, especially here in the Austin area, we've weathered the storm," says Guerro. And other experts agree, that Austin's home market future is looking better than it has in years.
"The next couple of years should see improvement in home values and some increased stability between supply and demand. The biggest issue may become the supply of homes available relative to growth as home building has fallen off considerably and will take several years to get cranked up again," says Gaines.
