In a city known for its robust counterculture, today’s tumultuous real estate market is having a different effect than much of the rest of the country. Real estate players in the Texas capital of Austin say that their city—though not immune to tough conditions—has experienced a unique cycle that leaves it less vulnerable than other areas.
“The Austin real estate market ran counter-cyclical to the boom areas of the U.S. from 2001 to 2005 as a result of our five-year hangover following the tech bust, so we never had the runup in prices that took place in other parts of the country. Austin had zero value appreciation from 2001 to 2005,” Steve Crossland, an agent with the Crossland Team at Keller Williams Realty in Austin, says. Crossland also maintains an Austin real estate blog. “Consequently, when the slowdown began in many areas, Austin had just started gaining traction again, with strong job growth and buyers coming into the area.”
That said, Crossland recently posted a set of fairly downbeat figures on his blog. Throughout November 2008, he reported, only 914 single-family homes were sold—a 43 percent decrease year over year and a 28 percent decrease from the previous month. In addition, Crossland reported that the number of properties considered “not sold”, meaning they either expired or were withdrawn from the market, comprised 63 percent of the Austin MLS listings. That was a 43 percent jump from the previous month.
“None of this is favorable if what we want is a normal, rising market,” he wrote. “But in the context of elsewhere in the country, it’s actually pretty good.”
According to Crossland, the national slowdown took a while to hit Austin. However, the city did start seeing the fallout by fourth quarter 2007.
“Since then, our sales volume has dropped, but prices have remained fairly stable,” he says.
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However, Sam Chapman, an agent at Keller Williams Realty in Austin, says that not only were new listings were down almost 13 percent in December 2008, but that the average price of a home dropped nearly 6 percent as compared to a year earlier. The average sales price in December 2008 was $225,257.
Chapman, who maintains his own Austin real estate blog, says the short-term outlook may be tough, but that Austin is looking good long-term. “Buyer psychology and consumer confidence are poor…[but] there are still neighborhoods in the Austin area in which you can sell a home in 21 days if the condition and price are right,” he says. “Barring another 9/11, my feeling is that the long-term outlook for Austin is wonderful.”
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Several advantages make the Austin market a standout, according to Chapman.
First off, he points to the local economy, saying it has not only proven one of the strongest in Texas, but nationwide. Citing figures released earlier this year by the U.S. Bureau of Labor Statistics, Chapman says that the Austin area added 6,200 private-sector jobs between November 2007 and November 2008, the tenth-biggest gain in metropolitan employment in the U.S.
Moreover, Austin benefits from the strong economy in Texas as a whole. Chapman says the state has six of the top 15 U.S. regions in terms of job growth. He also says the city’s role as the state capitol, as well as the proliferation of government jobs as well as the presence of the University of Texas main campus, are boons.
Crossland adds that Austin has a strong brand identity that makes the city a destination for many. “This makes it easy for companies to relocate here and retain employees who are happy about coming to Austin,” he says. “Many of our buyers could live anywhere, due to the type of work they do, and they choose Austin.”
Price appreciation rather than immediate cash flow brings real estate investors to Austin, according to Chapman. “Our rent tends to be too low to generate good cash flow right away,” he says. “Part of this is because of high property taxes, and part is just the market. The smart investors will buy a home at or below market value and will take a negative-$100 cash flow the first year. By the third year, with an increase in rent, they will break even. After that, they will have decent cash flow and will be building equity in the property.”
Crossland projects that Austin will double in size over the next two decades: “This will make good, close-in housing appreciate in value,” he says. “(Austin) has a relatively large percentage of renters, due to the number of college students and service-sector workers…Our dip started later and will end sooner than much of the country.”
Short-term, Crossland believes the city has a 20 percent chance of seeing an upturn in sales value by mid-2009, with another 20 percent chance that that upturn will not occur until spring 2010. “But the most likely outlook is that national employment figures will turn around by June 2009, and with the national prospects turning brighter, Austin will also start seeing job growth increase again somewhere between mid- to end of 2009,” he says. “Job growth drives real-estate markets, so our residential real estate market will turn back up with job growth. Our commercial market is overbuilt, except in the CBD, so that may take two years to come around again.”
Chapman observes that there has been a substantial slowing when it comes to builders producing spec homes. “When they are able to finally unload existing inventory, prices will increase,” he says, adding that an upswing in the global economy and high demand for raw materials will also drive up building costs, causing buyers to pass on new homes and instead put pressure on the resale market.
He also credits Austin’s unique real-estate cycle for the city’s resilience. “Austin is lucky in the sense that it has not seen the crazy run-ups in prices like other markets,” he says. “We tend to appreciate at a slow and steady rate.”