R.E. Source
Most of us in the central Texas region have been spared huge depreciation in housing…but not all of us. I like the term “pretty” houses, which I’ve been hearing lately although it’s a bit shallow. The reality is that “pretty” means: that right location is NOT enough…it requires the right, specific location within a area that is in demand because of its proximity to popular destinations….i.e. it has a view; -or- is on a no-through street for less traffic risk and noise…plus it’s landscaped or even has an outdoor living arrangement, the home is updated with wood or stone flooring, granite counter tops, upgraded appliances, upgraded light fixtures, upgraded windows and coverings, upgraded closet systems…etc. This is pretty…and it’s not inexpensive to create.
So, as an example, some properties outside of Austin or even in a school track with a less desirable reputation, it is possible the ready supply of buyers for a property is dwindling. A home bought 10 years ago might be worth close to what it cost then. Where as a pretty property in a popular location has potentially gone up in value even in the last 3 years. Its the same old adage that location is the key…or one of the main distinguishing factors in determining potential future value growth.
Pretty properties in Austin have seen recent appreciation…an average property in a decent location has maintained value to minor depreciation….and those properties outside of Austin by more than 20 miles probably depreciated. This is what accounts for some small percentage upticks in overall median and average prices in Austin…probably most of Texas over the past couple years. So pretty is good, average is ok, and the rest sucks. It’s all demand related stuff.
As for a significant upswing in demand…..continue to add a significant number of well paying jobs. That’s what will create appreciation.
On the other-hand the rental market, over the foreseeable future, should continue to have tighter available inventory and increasing rates. This could be a significant inflation driver….increasing rent…as long as the job growth continues to improve. Money (lending) is already flowing to Class A apartment projects. WHY? The drop in home ownership rate impacts this directly….consider that the overall # of potential home owners in Austin is growing rapidly, even exponentially as young people graduate, gain employment, have families, etc….and yet the number that can qualify for a home loan is dwindling. The job market in Austin continues to be of the healthiest in the nation.
They are considering a rule that requires a minimum downpayment of at least 20%. Seriously? We have too many houses to sell, so let’s make it more difficult to buy? Cut the available market numbers? Who comes up with these ideas any way? On a national basis this would be a disaster.
In the period 1988-1992 most foreclosures were Fha (HUD) and VA. The vast majority of foreclosures were HUD and eventually RTC. Perhaps they should consider making it easier to own again like they did with HUD and VA foreclosures that spawned the recovery period. Without those special programs it would have been difficult to come out of that late 80’s tailspin. Plus, most of those new owners that bought these low-down HUD’s made the loans good because they realized serious appreciation when the market came back …by 1995…some values had actually doubled and, since they had invested only $100 at closing, their return on investment (ROI) off the charts. Instead now the ratio of cash buyers is as high as 33% an unbelievable percentage (could this trend actually allow the rich get richer?). In any case I think its a bad move for the future. Most 1st time home buyers are fortunate to scrape together $1000-5000 and much of that is borrowed from relatives. Get real.
The government is under pressure to unload foreclosures quickly so expect current below market pricing to continue. Foreclosured properties will establish a market down trend as the pool of buyers waiting for foreclosures to come available in Austin grows. These aggressive investors are working through competitive bidding (multiple bidders on each property)and in many situations the property is selling above the asking price. It’s complicated, competitive and to be successful you must move fast. There’s no time for contemplation. If you’re an investor it’s time to hone those skills. Give me a call. I can help.
Some owners of upper end properties that have been on the market for over a year will cut and run soon. This adjustment could hammer future “ratios”, so the numbers may tend to look bad. Don’t be fooled by that when it comes.
The best time to invest is when you can afford to do so and it makes sense – cash flow – increasing rents are going to help this out. Also, some markets segments have plenty of room for immediate property appreciation trends….water front, direct downtown views, properties that are in close proximity to popular NEW destinations …PRETTY properties.
Right now there are fewer buyers in the market than there were in 2007, so it takes longer to sell….and it could get worse for some sellers before it gets better.
Upside: Interest rates remain at record lows making it a great time for young folks (and contrarians) to buy and others to move-up/over/or down . The Austin job market remains healthy. Properties in prime locations continue to see relatively stable values.
Graphs provided by Altos Research and Gracy Title.
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Just met with a two high end realtors. 2011 is shaping up to be the BEST high end (over $2 million) year on record for Austin.
I asked why? Two reasons: The likelihood of inflation/price appreciation — it will never be cheaper, and, second, low interest rates which REALLY makes things less expensive.
You said it: Well-located properties — urban, first ring suburbs, desirable school track suburbs, are now appreciating. Some by a lot. (Look at 78703 and see the average days on the market in April — 13 days.) Our inventory has been declining for 3.5 years. The capital meltdown interrupted the supply side and we are beginning to feel those effects.
Last, one note of the future: Metrostudy thinks housing could go up in price due to shortages of materials, suppliers, etc. as this housing bubble burst has caused our capacity to shrink dramatically. In stronger markets (think Austin) and all markets in a few years, we will have trouble supplying housing as plants (such as sheetrock and lumber mills) have shut down – close to 1/2 of those plants are gone. Same for subcontractors.
The third quarter should show an increase in new home construction year over year. That is not hard to predict as the third quarter of 2010 was the lowest for 40 years. So, we may see a nice increase. . . Maybe the commentators should consider what happens when folks begin (again) to look at housing as an attractive investment. A lot of folks are already doing that.
Without a doubt, a property that is located well and priced correctly will influence a quick sale. Being able to lock-in long term interest rates at the current level is in itself a historical event.
Unfortunately properties that are more average or in an average location are suffering with the decline in overall volume. As the market spins back around this situation will also correct itself.
The upside is that rental rates are increasing and in time that will make the “average” property more appealing. It also makes it more appealing for investors. It’s been awhile since those in Austin have had the opportunity to buy a property in a decent location that will cash flow.
Keep the jobs coming and loosen lending regulations on distressed real estate!
[…] most, where as the unique, well located properties continue to sell. I’ve written about the “pretty” house and how the market for that property has continued to sustain value. If you […]