Austin Real Estate Blog

Under the weight of the economy, more commercial space is opening up in Central Texas. There has been an increase in vacancies in the third quarter of 2008. Information released this week stated that available office space was up to 12.6%. This is slightly higher than the previous quarter, which reported 11.6% vacancies. Industrial spaces have also decreased in occupancy during the same time frames.

Many commercial properties have shown an increase in subleases, meaning that the property was vacated early, or the current occupants were subletting because the need for space diminished. More businesses were opting for better rates per square foot instead of looking for additional amenities when purchasing property. In Austin, the rate per square foot is down by 1.7% and expected to continue decreasing as the economy weakens further. New construction of commercial space was up for the third quarter in Austin, with a total of 28 new buildings. Most of this has been in mixed use properties. Warehouse vacancies increased from 7.6 in the second quarter to 8.1 in the third. Flex properties, or showrooms, did show more occupancy in the third quarter, going from 16.2 to 15.8 for vacancies.

Austin continues to do well overall amidst the economic strains of the nation. Of course, the city will be impacted, but most experts agree it will be felt less here. New businesses are still looking to Austin for development. There are several existing businesses that have expanded as well. As more mixed use properties are built, there is expected to be an increase in commercial occupancies.

The Austin area has been recognized nationally for staying strong among the mortgage crisis. Median house prices have remained fairly steady in area such as Round Rock. The job market has remained healthy here, creating even more security during a tough economic year where everyone is concerned for their jobs. Companies are still moving to Austin, thus keeping a steady demand for houses. While many builders have slowed down a bit, the supply is still readily available.

Of course, Austin has not been completely impact free. The housing market has slowed down a bit. In September, just over 1,800 homes were sold in and around Austin. According to data maintained by the Texas A&M Real Estate Center, this is down about 10% from the same time last year. The median price for a house in Austin is around $183,000. This is a small increase from last year. It seems this is exactly how Austin has fared so well. Real estate markets are governed by the basic supply vs. demand. Most local builders have decreased their inventory to about six months. This is considered a good amount for a solid market. Housing prices have never exploded in Austin, which is what has happened in other areas of the country affect badly by the mortgage issues. This small, but steady, increase has been leveled with steady employment rates. What this creates is an area where the real estate market can still flourish. The Austin area has made it to the top ten of several studies as one of the best areas for both housing and job growth.

First, the bad news. New home construction in the Austin area in 2008 is still far below where it was this time last year. Housing starts had been sliding since the third quarter of 2006, possibly a delayed reaction to the national house construction slump. The 2,814 new homes started in the second quarter of 2008 is 19 percent when compared with second quarter home starts in 2007.

Buyers are still skeptical and reluctant to make an investment in real estate while conditions remain so uncertain. In the second quarter of 2008, 2,728 new homes were sold, compared with 3,110 in the first quarter. This is down 19 percent from the same period last year.

It’s not only the buyers who are wary in the midst of this housing slump, either. Builders are concerned that prospective buyers can qualify for and obtain mortgages. Lenders, too, are cautious and have raised their standards. After the fiasco of sub-prime lending practices and loose requirements resulted in the current credit crunch, state governments and government mortgage guarantors have cracked down on lending practices.

Now, the good news. Housing starts in the second quarter, though lower than last year at the same time, are up from the first quarter housing starts of 2,303. This is actually a smart move on the part of home builders, who are want to keep their inventory low. There were 11 percent fewer vacant homes on the market at the end of the second quarter than the previous quarter.

And, for those who qualify, lending rates remain low and builders are willing to negotiate for bargain prices.

Home builders are searching for ways to lure the potential new home buyer off the fence and into a sale so they’re piling on incentives to sweeten the deal.

In the San Francisco area, like any good car salesmen, builders are offering to guarantee the price of their homes are the lowest in the neighborhood. If another home sells for less in the same neighborhood, they will lower their price to match. In Pleasanton, California, another home builder offers a two year guarantee on their prices. If the buyer sells their new home within two years for less than it cost them to purchase, the builder will pay them the difference.

Builders are offering to throw in appliances, window treatments, landscaping, built-in sound systems, even in-ground pools to lure in the reluctant buyer. Typically, the builder will offer upgrades on flooring and appliances, will agree to pay the closing costs, or will reduce the price drastically in order to move inventory off their books.

In the Dallas-Fort Worth area, builders are reducing the price of inventory by as much as 20 percent and throwing the swimming pool in for free. Some neighborhood residents aren’t happy with these drastic reductions in price, arguing - and rightly so - that it reduces the property value of the whole neighborhood.

For the most part, incentives like these are unnecessary in Austin, where home sales remain steady and inventory is still low. New homes in the Austin area typically attracting multiple offers; often homes are selling for the asking price and above, sometimes for cash. In the rest of the nation, however, home buyers are desperate to move inventory and avoid bankruptcy as the supply far exceeds demand in this buyer’s market.

What Did Interest Rates Do This Week?
** according to Freddie Mac **
 
30-yr Fixed - Higher
This Week:  6.03%
Last Week:  5.88%
1yr Ago:  6.16%
 
15-yr Fixed - Higher
This Week:  5.62%
Last Week:  5.40%
1yr Ago:  5.87%
 
5/1 ARM - Higher
This Week:  5.68%
Last Week:  5.48% 
1yr Ago:  5.88%
 
Highlight of This Week’s Major Economic Reports
 
Not-so-bad economic news and continued fears of inflation sparked a jump in mortgage rates this week.  This has led to many downgrading their beliefs that the Fed will cut rates much - if at all - when it meets next week. 
 
While economic growth remains subpar, recent data shows that things may not be as bad anymore as feared.  Unemployment claims were down last week.  Manufacturing isn’t as down as it had been earlier in the year.  Overall economic activity was less negative - a possible sign that the downturn is leveling off.   
 
On the housing front, home sales fell again in March.  Existing Home Sales fell 2% last month, while New Home Sales tumbled 9%.  The good news to these bleak numbers is that the declines were softer than expected, and the average price for existing homes did go up slightly by 0.9%.  With demand continuing to stay low, inventory remains at higher levels, but many economists expect for inventory to come back down in the not too distant future.
 
The relentless spike in food and oil prices (hello, $5/gal?) are weighing heavily on our checkbooks, so the government has decided to start shipping the “stimulus checks” earlier than expected.  We probably shouldn’t expect for this to do much to actually stimulate the economy, as this extra money will likely just go towards paying for gas and food.
 
The market has set the expectation that the Fed will cut short-term rates by 0.25% next week.  It is also anticipated that they will note stability in the financial markets and will shift their focus back to inflation - a sign that this may be the end (at least for now) to the rate cuts.  Don’t take this as bad news, however, as the Fed’s rate cut will only impact the Prime Rate.  Mortgage rates, remember, are separate and follow longer-term bond yield movement.
 
What to Look for Next Week
 
The Fed’s monthly policy meeting and the April Employment Report will be the headliners for the week.
 
We will likely see a 0.25% rate cut from the Fed (perhaps the last one for now), which has already been priced in to current mortgage rates.  And, many expect for the unemployment rate to tick up slightly in April. 
 
Odds aren’t great for us to see any improvement in rates.
 
Short-Term Rate Outlook
 
Slightly Higher
 
Tools to Help Your Buyers & Sellers
 
Rates on the rise?  It doesn’t matter!  With Pre-Purchase Rate Protection from PHH Mortgage, you can protect your purchasing power with the ability to cap your interest rate for up to 90 days at no cost while still offering a “float down” option to take advantage of possible rate improvements.  So, whether rates go up or down, you will win! 

Call Marie Funston - PHH Mortgage - (512) 691-6757

In general, Texas is not a state that sits still. It moves; it grows; it expands. Its cities see more and more people every year. Dallas-Fort Worth, for example, tops the top ten urban areas in the country for overall growth. Houston and San Antonio are also on the list, creating a dominant Texan presence nationwide.

 Austin is no different. It is the fifth fastest growing metro area in the United States, and the only Lone Star city to make that list. In 2007, 65,880 new residents moved into the region for a 4.3 percent population increase. Is it any wonder then that the real estate field has grown as well?

 Compared to the end of March and the beginning of April in 2006, the number of listings has gone up by a minimum of 20 percent. With it has gone the asking price, increasing, for the week of March 23-29, by 2.04 percent. Unfortunately, the same does not hold true for the number of pending and sold units. Those numbers have dropped. For the week of March 30-April 5, the number of pending decreased by 79.07 percent; the number of solds decreased by 18.9 percent. The only way to get these percentages to a level worthy of Austin is to not just sell your home but to buy one as well.

 Austin is a city that wants to grow. Help it by feeding the real estate market.

Throughout the slide in real estate sales, home prices, and the dramatic rise in foreclosures and defaults nationwide, the Austin market has remained steady. Various factors contributed to favorable conditions for both buyers and sellers alike.

According to an article in the New York Times, Austin escaped the real estate bubble on a combination of steady prices, relocation activity, and safeguards against the subprime lending practices in other markets. Builders have also responded to the softer market by scaling back on new construction, keeping the inventory of newly built homes at a manageable level.

Steady, rather than booming, growth has shielded Austin from the drastic changes that have occurred in the national market. Austin�s slower growth means the area doesn�t suffer the boom and bust cycle that has afflicted many other metropolitan areas. Add Austin�s desirability as a relocation destination, and you get a stable, steady real estate market.

Restrictions against mortgages that cover 100 percent of the purchase price and requirements for potential home buyers have kept a lid on the kind of epidemic mortgage default seen in other parts of the country.

The real estate market has always been closely tied to the job market in any given metropolitan area. With 20,000 new jobs added in the Austin area in 2007 come new employees and new home buyers and this drives the prices up. But, because the requirements for mortgages in the area are strict - a buyer must have enough funds for a decent down payment, maintain a good credit rating, and have sufficient income to cover their loan - the Austin area will probably not suffer the same pains as the rest of the nation.

Jumbo loans will be exempt from the secondary mortgage market where Fannie Mae, Freddie Mac, and the Federal Housing Authority (FHA) purchase mortgages. Those loans between $417,000 and $729,750 - ‘jumbo light’ loans - will not be traded on the ‘to be announced’ (TBA) market, it was announced in a February article at Inman.com, as well as several other sources, including a press release on the Fannie Mae site. The Securities Industry and Financial Markets Association (SIFMA) worry that the larger loans may raise rates on the smaller conforming loans because of performance uncertainties that would, in turn, raise costs or hinder the trading of all mortgage-backed securities.

Instead, this new class of mortgages will be traded under unique pool codes or included in alternative mortgage investment transactions, specifically the Real Estate Mortgage Investment Conduit (REMIC). SIFMA feels this process will be the least disruptive to the secondary mortgage market for these higher balance loans, creating greater liquidity and interest rate relief to the jumbo mortgagee.

A downside to this placing the jumbo loans in separate pools is that this could delay the lower interest rates Congress had hoped to achieve if Fannie Mae, Freddie Mac, and the FHA had been allowed to by these loans. In fact, interest rates on the jumbo loans have gone up, and are about 1 percent higher than conforming loans.

Guarantees from Fannie, Freddie, and Ginnie Mae backing conforming loans relieves investors’ fears about delinquent payments and defaults. The jumbo loans carry an inherent higher risk. SIGMA wants to keep these jumbo loans in separate trading to belay these risks. As investors get more comfortable with the jumbo loans and the collateral they carry, it’s predicted interest rates will drop on these larger loans over time as well.

About 141,000 people moved to Texas from other states last year, giving the Lone Star State the highest domestic migration figures of all fifty states.
North Carolina, Georgia and Arizona rounded out the top four, according to U.S. Census Bureau figures reported by the Western Blue Chip Economic Forecast.
The Western Blue Chip Economic Forecast is published by the JPMorgan Chase Economic Outlook Center, an affiliate of the L. William Seidman Research Institute, College of Business, Arizona State University.

What Did Interest Rates Do This Week?
** according to Freddie Mac **
 
30-yr Fixed - Lower
This Week:  6.03%
Last Week:  6.24%
1yr Ago:  6.14%
 
15-yr Fixed - Lower
This Week:  5.47%
Last Week:  5.72%
1yr Ago:  5.86%
 
5/1 ARM - Lower
This Week:  5.34%
Last Week:  5.43% 
1yr Ago:  5.90%
 
Highlight of This Week’s Major Economic Reports
 
According to Freddie Mac, “Weak economic reports that indicated declines in the job market, slowing in manufacturing, and low consumer confidence drove bond yields lower this week and mortgage rates followed.  Interest rates for 30-year fixed-rate mortgages are now at the same levels as they were two weeks ago, erasing last week’s upward jump.
“Meanwhile, the housing market continues to take a toll on the rest of the economy. Residential fixed investment shaved 1.25 percentage points off economic growth in the fourth quarter of 2007. More recently, the median sales price of new homes fell 15.1 percent in January, representing the largest annual drop on record. Residential construction fell 19.7 percent over the twelve-months ending January 2008, the largest decline since March 2007.”
 
Moreover, as liquidity continues to be a concern in the financial markets, the Fed has announced an expansion of its Term Auction Facility, which will open up an additional $40 billion in “cheap money” to banks and lenders.  This should help keep money flowing and loans going.
 
Finally, HUD finally announced changes to conforming and FHA loan limits, as outlined by the Economic Stimulus Package.  For the Austin metro area, FHA loans can now be made for up $288,750 for single-family residences.  The conforming loan limit, however, will stay put at $417,000, so there is no change to what will be classified as jumbo loans for our market.
 
What to Look for Next Week
 
Retail Sales and the Consumer Price Index will help to determine the direction of rates.
 
Short-Term Rate Outlook
 
Stable
 
Tools to Help Your Buyers & Sellers
 
Rate Protection from Coldwell Banker Mortgage can provide that win-win situation for your clients!
 
Whether rates go up or down, with Pre-Purchase Rate Protection, it doesn’t matter!  Protect your buyers’ purchasing power by offering them the ability to cap their interest rate for up to 90 days at no cost while still offering a “float down” option to take advantage of possible rate improvements.
 
Call me to learn more @ (512) 691-6757