The National Association of Realtors has released their mid-year analysis of condo values in markets across the U.S. The report shows that Austin has performed well compared to most of the markets around the country. With one year price appreciation of 1.9% and 30-month appreciation of an amazing 27.4%, Austin values have managed to remain strong.

Since the report looks at average values of sold condo units listed in the MLS, it does not take changes in housing mix (expensive new projects raise the average) or changes in buying trends (the market for low end units evaporating would raise the average). So, as usual, the numbers may not represent the increase in value of a typical unit over the time period. That said, the data is clear: the broad Austin condo market continues to perform well.

Here is the raw data on Austin:

Austin-Round Rock, TX Condo Market Values
2005 Avg Value ($ ‘000): $137.6
2006 Avg Value ($ ‘000): $150.4
2007 Avg Value ($ ‘000): $172.3
2007 June Avg Value ($ ‘000): $172.1
2008 June Avg Value ($ ‘000): $175.3
1 Year % Change: 1.9%

Here are some of the key observations:

(1) Austin remains relatively inexpensive. Of the top 60 markets, Austin is the 29th most expensive condo market:

Rank	Market	$ ('000)
1	San Francisco-Oakland-Fremont, CA	$524
2	Honolulu, HI	$330
3	Los Angeles-Long Beach-Santa Ana, CA	$328
4	New York-Wayne-White Plains, NY-NJ	$320
5	Sarasota-Bradenton-Venice, FL	$312
29	Austin-Round Rock, TX	$175

(2) While condos in the worst performing markets have lost 20% - 30% of their value in the last year, Austin is one of a few markets where condo values have appreciated. Of the top 60 markets, Austin is the 11th fastest appreciating condo market and one of only 19 that gained value between mid-2007 and mid-2008:

Rank	Market	$ ('000)
1	Syracuse, NY	17.8%
2	New Orleans-Metairie-Kenner, LA	15.9%
3	Houston-Baytown-Sugar Land, TX	9.9%
4	Norwich-New London, CT	6.4%
5	Chicago-Naperville-Joliet, IL	5.1%
11	Austin-Round Rock, TX	1.9%
56	Jacksonville, FL	-21.6%
57	Miami-Fort Lauderdale-Miami Beach, FL	-25.0%
58	Las Vegas-Paradise, NV	-25.9%
59	Reno-Sparks, NV	-26.9%
60	Sacramento--Arden-Arcade--Roseville, CA	-34.0%

(3) Over the last three years, Austin has been one of the best performing condo markets in the country. When we look at the Austin condo market between 2005 and the second half of 2008, it ranks 2nd of 60 markets in total appreciation:

Rank	Market	$ ('000)
1	Salt Lake City, UT	27.8%
2	Austin-Round Rock, TX	27.4%
3	Bismarck, ND	25.4%
4	Portland-Vancouver-Beaverton, OR-WA	25.1%
5	Honolulu, HI	22.7%
56	Los Angeles-Long Beach-Santa Ana, CA	-15.6%
57	Reno-Sparks, NV	-16.0%
58	Las Vegas-Paradise, NV	-24.7%
59	Cape Coral-Fort Myers, FL	-27.9%
60	Sacramento--Arden-Arcade--Roseville, CA	-38.2%

All-in-all, the market news is uniformly positive and confirms what many other market reports have shown: the national real estate crisis has effected volumes but not prices in the broad Austin condo market.

The full NAR report can be found here.

Tags: market analysis

The Austin Business Journal is running a survey on its website that asks online readers the following question: “Assuming you're not one of the thousands moving downtown, why don't you want to make downtown your home?”

While it is not a scientific survey -- to say the least -- the current results do provide some small insights into the obstacles that developers face in luring residents downtown.

As of the time of this posting, the survey had the following results as to why people choose not to live downtown (see the current results here). Survey says:

44% -- Too expensive
19% -- I need a yard
16% -- Other (no additional details)
7% -- Units are too small
6% -- Lack of neighborhood services
5% -- Traffic
4% -- Schools

Here is what is most interesting: the data suggests that 51% of people who don’t want to live downtown (44% who find units too expensive and 7% who find units too small which really means too expensive) would like to live downtown if it was more affordable. Even though just 1% of Austin’s population lives downtown, the idea of downtown living is appealling to a broad segment of the population -- at least the population of Austinites that reads the Austin Business Journal online!

The survey suggests that there are few intractable, structural barriors to downtown population growth. While, the 19% of people who need a yard will likely never move into a condo, they key driver for most people in the survey is affordability. As new projects continue to hit the market, it’s good news that lots of people do want to live downtown!

Tags: market analysis, downtown demographics

As everyone knows, the price of a downtown Austin condo has increased over the last few years. While supply and demand play their usual role, one of the major factors in rising condo prices has been the rising cost of construction.

For new condo projects, building costs have increased substantially since 2006. As the cost of concrete, steel, and rebar increase, the total cost of downtown construction increases accordingly. With so much simultaneous building, labor costs and crane costs are also on the rise. Finally, with demand for downtown land still very strong, escalating lot prices can add significant costs to new projects.

One reason that this is important is that newly developed condo units play an important role in setting market pricing for all downtown condo units. If new units are nicer, cheaper, and better located than existing inventory, prices can move down across the board as owners of existing units lower prices to remain competitive with buyers. When construction costs rise -- and new units are more expensive -- two things happen. First, fewer new project get built tighting supply. Second, new units hit the market at a higher price, subsequently pushing prices upward or, if insufficient demand exists, failing to sell.

Here is additional analysis from the Austin Business Journal:

The U.S. Bureau of Labor Statistics added more bad news this week for contractors and developers trying to get buildings out of the ground.Construction material costs increased 10.4 percent during the past year, the agency reported on Tuesday. The bureau's producer price index measures materials used in construction, including diesel fuel. Meanwhile, highway construction materials increased 18.9 percent during the past 12 months.Ken Simonson, economist for the Associated General Contractors of America, says in a statement "surging prices for diesel fuel, asphalt, steel and other materials are clobbering construction budgets."He says asphalt prices during the first two weeks in July have increased by 40 percent. Rebar has increased $200 per ton.And Simonson says the situation could get worse.

Tags: market analysis, costs

During the last decade, the Austin apartment rental market has been the jewel of Texas. With rapid population growth and an affluent market, rents continued to rise year after year as new units hit the market. This is quickly changing.

Over the last couple of months, the AMLI apartments downtown have been offering tenants who renew an unprecedented 30% discount. This is strong evidence that the downtown rental market -- with many new units arriving this year -- is going to see a new level of competition for tenants. This is good news for anyone who wants to live downtown as lower rents make units accessible to a broader population. It’s bad news for investors and developers who will see rental incomes decline.

Here is what is happening:

- June rental occupancy in the broad Austin market has declined 1.5 points to 93.4%.

- There are 1,000 fewer untits being occupied today than at the beginning of the year

- Nearly 13,000 new units are being completed in greater Austin in 2009

- The new AMLI tower, the Monarch, and Legacy on Town Lake will add a signigicant number of downtown units in 2009

- The Monarch -- one of the first downtown rental projects to open this year -- is 45% leased and 25% occupied today. That leaves a lot of units looking for tenants.

Here is an excellent analysis from the Statesman:

"The market remains in decent shape for the moment, but it's concerning that the loss of momentum is so pronounced," Willett said. "Plus, with so much additional product now under construction, it's pretty easy to see the headlights of that train bearing down on you."

Austin is on track to add 12,810 apartment units through the end of 2009, according to M/PF. That's the third biggest block of new supply on the way anywhere in the country, trailing only the 19,217 units under construction in Dallas/Fort Worth and the 18,848 units under way in Houston, M/PF reports.

Willett said the Austin area needs about half as many units as are now under construction based on current demand, which he says has been sluggish. He said there are 1,070 fewer occupied apartments now than at the start of this year. He predicts it will take two years for Austin to burn off its excess supply "if you stop building right now."

Willett says his forecast of a glut applies citywide, from downtown to the suburbs.

But Spencer Stuart, an executive with the developer building the 31-story Legacy on the Lake apartment tower on downtown's eastern edge, said leasing activity is strong in and near downtown, as well as areas closer in.

"We're seeing strong demand in the urban cores of all the markets we're in," said Stuart, senior managing director of Legacy Partners Residential Development Inc., a Foster City, Calif., firm with upscale apartments in states including California, Arizona, Colorado and Washington.

Legacy entered the Austin market in 2006 with it and Capmark Financial Inc.'s acquisition of the 2,044-unit Riata apartment community in Northwest Austin.

Riata was 97.1 percent occupied by the end of June, up from 89.8 percent as of Jan. 1, Stuart said.

Stuart predicts properties like Riata and the upscale apartments at the Domain in North Austin and in the downtown market are "going to do very well."

Also, rising gas prices "bode very well for the downtown market and for properties that are clustered in around a lot of the jobs, like the Arboretum," Stuart said. "If you can walk to your job, you can pay more for rent, and your lifestyle got better because you're spending less time commuting and more time working or playing."

But Willett stands by his forecast, contending that the Austin metro area, which "ranked as the star apartment market performer in Texas over the past few years ... is losing its luster."

He thinks the market will bottom out by the end of 2009 before occupancy begins ticking back up.

"As more and more of this product gets completed, you're going to start seeing the rent discounts kick in, and we're going to be in an incredibly competitive leasing environment in Austin," Willett said.

Rent growth already is slowing. Rents rose 3.6 percent from June 2007 to June 2008, compared to a pace as high as 6.1 percent during 2007, according to M/PF. The average monthly rent is now $839, up from $787 in June 2007, M/PF said.

Willett expects rents to be flat this year, as occupancy dips another 1.5 percentage points during the next 12 to 18 months. By year's end, he said, close to half of the apartment communities will be offering anywhere from a month to a month and a half of free rent.

"The leasing environment looks like it will be especially competitive at the top end of the market," Willett said. "Discounting probably will be rampant at the new communities in initial lease-up, and that seems apt to preclude any rent growth for the market as a whole."

Stuart thinks Willett will be proved wrong about the Austin market. He said he isn't worried about leasing up the 187-unit Legacy on the Lake, formerly Legacy@Town Lake. And the company is looking for a site for a second project, perhaps four stories tall, "as close to downtown as possible."

"We know there's a strong demand for the downtown lifestyle," Stuart said, adding that demand has been well-

established in the Rainey Street area, where the Legacy project is rising, with the selling out of nearby condominium projects like Milago and the newly built Shore.

Rents at Legacy on the Lake will range from $1,331 a month for a 659-square-foot unit to $6,931 a month for the four penthouses with 2,876 square feet, Stuart said. Leasing is expected to begin in August, with the first tenants moving in in October.

Stuart said Legacy could command — and get — higher rents for its downtown project but is sticking with the ones it initially projected in order to lease the building quickly.

At the new 29-story Monarch apartment tower on downtown's west side, 25 percent of the 305 units are occupied, and the building is 45 percent leased, representatives say.

Units rent from $1,333 a month for a 681-square-foot unit to $12,935 for the largest penthouse, with 3,530 square feet.

Monthly rents average $2,100 to $2,300 for the most popular one-bedroom, with about 1,100 square feet, and rents start at $2,630 for the most popular two-bedroom, with about 1,400 square feet.

Tenants include young professionals, entrepreneurs, executives, professors, a state senator, and transplants from New York and the West Coast, as well as people who plan to buy units in condominium projects now under construction downtown, representatives said.

Tags: market analysis, rental

With the opening of Milago, the Shore, and 360 over the last year or two, a few more kids have moved into downtown condos with their parents. This is great news for downtown diversity, given that -- amazingly enough -- almost no kids lived downtown prior to the recent wave of development.

In fact, the 2000 Census numbers are shocking in this regard. According to the government, 3,713 of 3,855 downtown residents (zip code 78701)in 2000 were adults 18 or over. That means that only 142 children representing 3.7% of the population lived downtown. Of this group, 46 were under 5 and the remaining 96 were between 6 and 17.

With only 3.7% of the population under 18, downtown Austin looks very different than the rest of the city where 22.5% of the population is under 18 and also very different from the U.S. at large where 25.7% of the population is under 18.

Why so few kids? There are a few reasons:

- Obviously, families with kids are avoiding living downtown. Downtown demographics show that a very large percentage of the downtown population is under 30 or over 50, and the average household size is an unusually low 1.49 -- significantly below the average family size of 2.59 in New York City. There are many singles downtown, and not that many married couples.

- Large apartments and condos are very expensive. For families who want 3 or more bedrooms, prices start well over $500k.

- The downtown schools are not as good as the top Austin suburban schools - especially in areas of the city with home prices as high as those downtown.

- There are limited amenities for children. Other than the Dell Children’s Museum and a playground at Whole Foods, the lack of kids downtown has meant a lack of parks and playgrounds for kids. For families who want other kids on the block, the lack of kids downtown discourages other families with kids from moving downtown.

As downtown evolves and the population grows, hopefully downtown will become more inclusive of families and children. Otherwise, the downtown population will inevitably be transatory, as young single marry and move back to the suburbs.

Tags: downtown demographics, market analysis

If you are interested in living in a downtown condo, the best buying opportunities are often during the “Pre-Construction” process. Before a project has funding, the developer must fill at least 50% of the proposed units with prospective buyers. To do this, they often offer discounts and other incentives to draw in buyers.

Those that are willing to take the risk, and wait the longest time -- often 2-3 years -- may get the biggest reward. They get the most choice units, and often at slightly reduced prices. The risk, however, is real: If the project is never built, the buyer will get their money back but must start anew in their search for a condo. For buyers in projects like 360, the best units went quickly and at reasonable prices. Today, the project opens with no available units and a waiting list of more than 200 potential buyers whose only option will be to wait for units to hit the secondary market.

Perry Henderson published a great summary of the pre-constructions sales process in his blog which we have reprinted here:

Pre-Construction Condos: How the Process Works in downtown Austin

When you buy a home that's not built yet, there can be setbacks before you move in. Here are steps to buying a pre-construction condo

Pre-construction condos are units that have been proposed by a developer, but have not yet been built. When you purchase a pre-construction unit, you are putting money down before construction begins. Buying a pre-construction condominium can be a great opportunity, but you should proceed with caution. Because you are buying into something that does not yet exist, there is greater potential for unforeseen problems and setbacks before you move into your home. By understanding the risks and planning carefully, you can avoid complications and come out a winner.

Advantages
The main advantage to buying into a condominium development before construction starts is that you often get a lower price than if you buy when construction is complete. The reason for this is that developers typically need pre-construction sales of 50 percent to 90 percent of the units in a development before they can borrow funds to begin construction. Pre-construction condos can also get you in on the ground floor of an investment that will appreciate. The market value of pre-construction units generally increases during the one to three years it takes to build a development, so your unit may be worth more than you’ve paid for it before you set foot in the place. In addition, you can often choose from a variety of finishes and flooring options, allowing you to customize your home.

How the process works
There are several steps to buying a pre-construction condo. They can vary from developer to developer, but the basic components are:

1. Reservation agreement You give a deposit (usually between $5,000 and $10,000) to reserve the unit and set the price (although the builder can reserve the right to change the price in the contract). The deposit is held in escrow and you can cancel the agreement at any time with a full refund.

2. Condominium documents When a development is approved for construction, the developer submits condominium documents (including budgets, association rules, unit descriptions, materials and other important information) for approval by the state. Once the documents are approved, they are sent to you for review. Read them carefully to make sure that you will be comfortable living by the association rules.

3. Right of rescission Once you receive the condominium documents, you have a 15-day period to decide whether you would like to proceed into a binding contract. If you don’t, you can exercise your right of rescission and withdraw with a full refund.

4. Hard contract If you don’t withdraw, you’ll provide the balance of the required down payment, usually 15 to 20 percent of the purchase price, and sign a binding contract agreeing to purchase the condominium. You generally have seven days after that to cancel. This is your last chance to walk away with no penalty.

5. Closing When construction is nearly finished, the developer will issue you a Certificate of Occupancy. A closing date is set when you will hand over the balance of the purchase price and sign the final documents. If all goes according to plan, your closing will coincide with your move-in date, and you will be ready to enjoy your new home.

The original article can be found here.

Tags: costs, news, market analysis

Tonight, as the lucky future owners of 430 condo units at the 360 celebrate, the building has come alive with a 44-story vertical line culminating in a lit tower that is now the tallest structure in downtown Austin.

With a waiting list of 215 units, a list equal to 50% of the actual units in the building, the 360 has been an amazing success. Novare, the developer, hit the perfect combination of early timing, a great location, and an affordably-priced units.

With a major project completed, and a long list of people waiting for affordable downtown housing, it's a good time to take stock of other activity downtown:

- With their success with 360, Novare Group is on track for their next two towers -- Block 51 & 52 -- on the site of the downtown post office and an adjacent block on 5th street just North of Republic Square. These projects will add an amazing 900 condo units in 37 and 40 floor towers which should be completed by 2012. In fact construction will begin on the 37-floor tower in as little as 60 days. Novare is looking to repeat the model for 360 with a large number of affordably-priced units. However, with increases in downtown construction costs, the new Novare projects will inevitably be more expensive than the units in 360.

- The W Hotel & Residences, Four Seasons Residences, and Austonian -- all luxury projects -- are all proceeding quite well with construction as is the upscale Spring tower next to Whole Foods.

- The 34-story 7Rio Tower (AKA "CLB Unnamed" and "7th & Rio Grande" -- this is the first time we've heard this name) has bee so quiet that we had assumed it was dead (we moved it to "Pending" many months ago). According to the developers, they are still hoping to move forward and are aiming for a ground-breaking in Fall of 2009.

- 1115 Barton Springs, which have also labeled pending, is 30% slowed and slowly moving towards the 50% mark at which point they hope to begin construction. A smaller project with very expensive units, this project may have a difficult time getting built.

- Work has been suspended at La Vista on Lavaca at 1701 Lavaca St. for unknown reasons but is supposedly set to resume soon.

- According to the Statesman, groundbreaking on The Park, an office/condominium project at 801 Barton Springs Road, has been postponed to late 2009 for zoning reasons.

- The city is moving forward with the development of Seaholm and the Green Water Treament Plant - projects which will add a large number of affordable downtown units.

Tags: market analysis, news, 360

This week, Travis County posted 2008 property tax assessments. Across the City of Austin, the assessed value of the average single-family house increased by a significant 12.82%. This is a big jump during a period during where actual property values seem to have increased only modestly.

With the new assessment data available online, AustinTowers analyzed Hundreds of downtown condo units in projects such as the Nokonah, Plaza Lofts, and Milago to better understand the current downtown valuation trend. Because units are easy to compare and some sell each year, city assessments for condo units in large projects tend to be relatively accurate.

With the new assessments, we found that values increased by an average of 3% for most of the established projects lie the Nokonah and Plaza Lofts. For newer projects such as the Milago, values increased by a higher rate -- closer to the City average of 13%. In the newer projects, it was the least expensive units -- those that were valued under $300,000 last year - that showed the greatest increase this year with some units increasing in value by as much as 40%. Conversely, some of the most expensive units in the Milago -- which is not a high luxury property -- saw values remain flat or even dip slightly.

None of these trends are unexpected, here is the summary analysis of this year's downtown Austin condo assessments:

- Demand remains strong for affordable units. As construction costs rise, very few affordable condo units are coming on the market. As a result, the value of the least expensive units is rising quickly. Condo units priced under $250K should continue to see appreciation.

- As new high-end projects such as the Austonian, the Four Seasons, the W, and 21c capture the imagination of buyers, prices for the old generation of luxury units have remained relatively flat. Prices for high-end units in non-luxury buildings have declined.

- The broad downtown Austin condo market lagged the City as a whole with small increases of around 3% as supply and demand became more balanced during the year.

- This is the second consecutive year of modest increases in downtown Austin condo values after a sharp rise between 2003 and 2006. During this peak period, for example, values in the Nokanah increased by an average of nearly 70%. Last year, Nokonah values increased by a much smaller 5%.

Tags: market analysis

With today's release of March real estate statistics, the Austin market posted its ninth consecutive monthly decline. While the news is mixed, the Austin market -- and Texas in general -- have fared better than most any other market in the U.S.

Still, it's not like it used to be. While the average sale price last month was up 5% over last March, sales were down 21% from the same period last year. Today, nearly 40% of houses put on the market are removed before they sell. Price per square foot has dropped by 4%, and the average discount from listing price for completed transactions has increased from 1.9% to 3.5%. It's worse everywhere else, but Austin is still feeling the pain.

A big question is whether there is a bubble in Austin. The consensus is no, although some price decreases are likely this year. The common wisdom is that the economy is strong, net migration is high, and Austin never experienced the boom that inflated values across the rest of the country. These three reasons are compelling, and they are often recited as the fundamental reasons why Austin is different.

Interestingly enough, Austin may be more exposed to a downturn than many experts recognize. The local economy is dependent on technology. This was made very clear during the dot com bust when migration patterns reversed, jobs were lost, and the housing market stalled. Months ago, Austin and San Francisco were named the strongest economies in the country based on the strength of the technology sector at the time. Since then, much has changed. Today, technology employers are beginning layoffs as the sector weakens. While nobody expects this downturn to be as bad as the last one, a tech downturn will effect the Austin market.

As for the second factor, this remains positive as Austin will continue to grow. Austin's buzz has never been hotter -- the Austin brand will draw people to town under almost any scenario. This migration will be an important buffer over the next couple of years. If this pattern changes, it is time to get worried.

The final "fact" about the Austin market -- that it skipped the boom -- is simply not true. While the broad Austin market experienced only modest growth over the last five years, prices in central Austin have soared. Between early 2005 and late 2007- just a little over two years -- prices for single family homes increased by 41% in Area 4 (Hyde Park), 43% in Area 2 (Allandale & north central Austin), 55% in Bouldin (near Zilker Park), and an incomprehensible 2-year gain of 83% in Area 3 which covers East Austin close to downtown. During this short period the typical central East Austin house increased in value from a median price of $168K to more than $255K. In Bouldin, price per square foot for the median house peaked at more than $300 / square foot in the second half of 2007 -- prices that make downtown condo projects look affordable.

Like any other market, it is difficult to believe that prices can nearly double during a couple of good years and then not retreat when the economy slides, mortgage rates rise, loan underwriting guidelines strengthen, and the national market implodes. While Austin remains stronger than almost any other market, central Austin prices may be at risk over the next year. While new condo prices are unlikely to go down -- they are too linked to costs -- any negative market change will certainly add pressure on developers as they try to complete the sales process for new projects.

Here is a summary from the Statesman:

Central Texas home sales continued to slide in March, falling 21 percent from a year ago, the Austin Board of Realtors reported today.March, which had 1,832 sales of existing homes, was the ninth consecutive month that home sales numbers dropped. And pending sales — sales expected to close in April — show that the slowdown could continue. Those sales fell 54 percent, the highest percentage on record, the report shows, to 1,349.Even with the slowdown, real estate experts assert that the Central Texas housing market is faring much better than most areas around the country. But the national housing crisis has jaded consumer confidence, and Austin has not been immune to the slowdown.The area’s median price of a single-family home for March increased by 5 percent year-over-year to $186,680. However, homes are taking longer to sell, with an average of 73 days on the market, an increase of 14 percent. With homes taking longer to sell, more homes are on the market, up 24 percent to 9,638.

Tags: market analysis, mls statistics

These days, the national mortgage crisis is big news. As home prices drop, delinquencies rise, and foreclosures continue to grow, the national picture remains bleak.

In Austin, however, the mortgage crisis is causing much less pain. According to the Wall Street Journal, Austin loan delinquencies are virtually unchanged from the national market peak in the fourth quarter of 2005. During this period, loan delinquencies in Austin have increased by a trivial 0.03 percentage points to 2.97% of loans. This net increase is just 1/60th of the national average increase of 1.84 percentage points. In the worst markets in Florida, California, and Michigan, delinquency rates have risen 5 percentage points or more. In Merced, California, for example, 9.78% of home loans are currently delinquent and home prices have plunged by more than 25%. This is an increase of 7.76 percentage points over the delinquency rate in Q4 of 2005.

During this same period, Austin real estate prices have increased by more than 10%. This compares quite favorably to the average U.S. home which has decreased in value by more than 8%. As a result of the changes, Austin has passed Dallas to become the most expensive housing market in the state of Texas. While Austin home prices are only 90% of the national average, they are moving up the charts quickly as other markets continue to weaken.

There are a few reasons why Austin has fared well:
- Austin skipped the real estate boom which inflated values in the rest of the country
- The Austin economy remains one of the strongest in the country
- Austin continues to attract many migrants from other states, pushing up local real estate prices
- Austin housing remains affordable compared to most major U.S. cities

While Austin has fared well, all is not perfect. The national credit crunch has caused local mortgage rates for jumbo loans to soar and has left many first-time buyers unable to get financing for a new home. The deterioration of the mortgage market has stunted housing demand causing prices to remain flat. While the economy has remain strong, the expected weakening of the technology sector over the next year will have a disproportionate effect on the Austin economy. While Austin fundamentals remain strong -- especially over the long term -- price may dip over the next year.

The good news, however, is that Austin real estate will almost certainly outperform the vast majority of country over the next two years. While growth may be flat, Austin housing remains in high demand.

Tags: market analysis

Who is buying all of the new downtown condos? A recent survey commissioned by the Downtown Austin Alliance and conducted by Charles Heimsath, president of Capitol Market Research, sheds new light on this very important question. The survey reveals five interesting facts about downtown Austin Condo buyers:

1. Only 13% of buyers are buying for investment reasons. While most new buildings are capping the number of investors at 25 percent, the vast majority of buyers are owner-occupants.

2. For the high price range, buyers tend to be young: 27 percent are younger than 30; 35 percent are ages 30 to 44; 26 percent are 45 to 60; and 12 percent are older than 60.

3. Out of town buyers are flocking downtown. While 68% of downtown buyers are from Austin, an amazing 32% are out-of-town buyers.

4. Of the 32% of buyers from out of town, 13% come from other cities in Texas and the remaining 19% come from outside the state. Based on AustinTowers data, the largest number of out-of-town buyers comes from California.

5. A survey of a subset of projects concluded that 70 percent of condo buyers work someplace other than downtown.

Here is the summary from the Statesman:

Most downtown condo dwellers are young people.Many downtown dwellers work downtown.Many people buying downtown condos are investors from outside of Austin.Wrong, wrong and wrong, according to a survey of Austin's downtown condo market to be released today.The Downtown Austin Alliance, an organization of downtown property and business owners, commissioned the study by Charles Heimsath, president of Capitol Market Research, an Austin-based real estate consulting firm.Heimsath said the group sought to dispel some myths about the local condo market.Heimsath will present his findings to the group's Economic Development Committee today. He obtained sales data and buyer-demographic information from six condo projects: the 360 and Spring towers, Bridges on the Park, the Four Seasons Residences under construction, the condos planned for the W Hotel downtown and Sabine on Fifth .Heimsath said he was surprised by the broad age range of buyers: 27 percent are younger than 30; 35 percent are ages 30 to 44; 26 percent are 45 to 60; and 12 percent are older than 60.Heimsath also found that downtown condos are selling well.About 818 condo units will be finished this year, and 90 percent (736 units) are under contract or sold. Tighter credit stemming from the subprime fallout "absolutely" will cause some pending contracts not to close, Heimsath said, "But I don't think that it's going to be a serious problem."Heimsath gave the example of the 44-story tower called 360, where 430 units are spoken for, with a waiting list of 140, its developers say.

Tags: market analysis

There is much speculation about the state of the Austin condo market. With lots of new projects, a national housing crisis, and no precedent for high-rise development in downtown Austin, the common wisdom is that all the new projects will fail.

With the revitalization of downtown, the rapid growth of the city, the strong local economy, and the lack of other downtown housing options, the common wisdom so far has been dead wrong. While some ill-conceived projects will likely never break-ground, those that capture the imagination of Austinites--and that are priced appropriately--will thrive.

Take the 360 project, for example. At 44-stories and 430 individual units, it is one of the most ambitious downtown projects. Today, with the skeleton complete, it is the tallest building in the Austin skyline. Set for completion this year, it is at the point where it needs to have sold 70-80% of units to be viable. Not only is the project now sold out with significant deposits, but there is waiting list with enough buyers for an additional 140 units. While some sales may fall through -- the fact of the matter is that demand has been extraordinary for 360. With great views, a great location, and competitive pricing, 360 shows how strong the downtown Austin condo market is for the right project. With this much demand, 360 buyers should expect to see strong appreciation on their units over the next few years.

A report this week from Residential Strategies provides additional details on the state of the downtown Austin condo market. The report, and other sources, provides the following snapshot of several projects' sales/reservations through the end of first quarter 2008:

* 360: 430 units total; 430 committed. 140 unit waiting list.
* The Shore: 192 units; 189 committed.
* W Austin: 196 units; 140 committed.
* Four Seasons Residences: 166 units total; 60 units committed.
* The Austonian: 188 units; 45 committed.
* SoCo Lofts: 69 units; 41 committed.
* Zilker Place: 74 units; 29 committed.

While different projects have different standards for reservations, the data clearly illustrates a few key market forces. First, near-term projects such as 360 and The Shore are doing great. Second, the most affordable projects are selling well, even if they are outside the downtown core. Finally, the ultra-luxury projects--many of which are still a couple of years out--remain the most at risk. While the Austonian, Four Seasons, and W have broken ground--many of the most expensive units may be the hardest to sell.

All-in-all, the news is good. With clear market data, there is no doubt that thousands of people are willing to live downtown. While some of the projects that have broken ground still have work to do, the projects that do break ground in this environment are likely to be successfully completed. While the local real estate market is far from perfect (though much better than the rest of the country), the state of the downtown Austin condo market remains strong.

Tags: market analysis, mls statistics

If you've owned a house in Austin over the last year, I am pleased to announce that you are 0.33% richer based on the new value of your home. Between February, 2007 and February, 2008, the average single family house in Austin is up 1/3 of a percent to $233,015.

While this may not seem like good news at first, it makes Austin one of the strongest real estate markets in the country. During a period when national home prices fell 10.7% and housing in markets such as Miami, Phoenix, and Las Vegas fell by 19.3%, 18.2%, and 19.3% respectively, Austin is practically in a class of its own. Of the top twenty markets, of which Austin is not included, only Charlotte, North Carolina showed a positive return.

While the data is not apple to apples -- the Austin market looks at the average sale over the period and the national statistics look at repeat sales of the same houses -- Austin's positive growth is a sign of strength in difficult times. While most of the country is struggling with unprecedented market declines, record foreclosures, and skittish buyers waiting on the sidelines for the market to bottom out, the Austin market has held steady. In parts of the city -- especially central Austin and Westlake -- values continue to grow at enviable rates.

While Austin isn't immune to the effects of the national market, the city's strong job growth, economy, and migration patterns have provided a buffer against weak credit markets and rising jumbo mortgage rates.

While Austin has remained flat, CNN reports that the national data released today is the worst on record:

"Residential real estate has posted another record decline.The S&P Case/Shiller Home Price index of 20 key markets, released Tuesday, shows that home prices plunged 10.7% in the 12 months ending January. That marks their lowest level since the index launched in 2000.Of those 20 metro areas, 16 reported record annual declines. Ten of those cities posted double digit declines through the 12 months that ended in January.The survey's 10-city index fell 11.4% year-over-year, its steepest decline since its inception in 1987. "

Tags: market analysis

Outside of Austin, the health of the U.S. condo market continues to deteriorate. It's well known that many formerly hot condo markets have come upon tough times. In markets such as Fort Lauderdale and Miami where flippers would by and sell units many times before projects were completed, the meltdown has caused investors to flee, leaving the remaining owner-occupants with an oversupply of units and very few buyers.

The condo markets in Florida, Las Vegas, and other markets are very different from the market in Austin, Texas. After huge run-ups in prices, the trend has reversed, According to the Wall Street Journal, "the median condo sales price in the Cape Coral-Fort Myers area of Florida fell 26% to $202,300 in the fourth quarter of 2007 from $273,400 a year earlier. . . Prices dropped nearly 20% in Tucson, Ariz., and 12% in the Atlanta area during that time, according to National Association of Realtors data. Inside the newly minted Quantum on the Bay in Miami, prices for two-bedroom units have fallen from the high $700,000s to around $500,000."

When prices drop this quickly at the same time as new projects are nearing completion, it creates a very painful market dynamic. When a buyer puts a 10% down payment on a future unit and then sees the value of the unit fall by 20% during construction, they walk away at closing to avoid future losses. The projects, in this situation, wind-up in a very precarious situation with as many as 40% of pre-sold units failing to close. If the developers are unable to pay back the construction loans, they subsequently lose all of their capital, default on the loans, and the projects often go bankrupt.

Will this happen in Austin? The answer seems to be "no." The markets where condo prices have imploded have featured a combination of three critical factors. The first is that all home prices -- condos and single family residences -- have dropped dramatically in value. This has not happened in Austin. In fact, in 2007, prime central areas increased in value. In area 8e which covers much of Westlake, for example, prices increased by nearly 15%. The second factor is that condo projects were massively overbuilt. While many projects are planned in Austin, not all will be constructed. The ones that do make it to the market -- while adding lots of downtown units by historical standards -- represent a miniscule percentage of Austin housing units. In fact, the 700+ downtown units that will be completed in 2008 are essentially sold out at this point.

The third major factor in the national meltdown is the current credit crunch. Today, there are few good options for people with poor credit, first-time home buyers who want to make small down payments, and anybody who needs a jumbo or interest-only loan. These trends effect us here in Austin in the same way they effect the national market. This is the primary reason that the Austin market has slowed down and price appreciation has paused in spite of a strong local economy and string regional job growth.

According to the Wall Street Journal, one of the big problems has been that developers in other cities started too many projects before the bust and failed to cancel or convert projects under construction to another use -- as rental units, for example. In Austin, virtually every project that started constrcution before the summer credit crisis is now sold out. Every project started after the crisis has been required to meet a very stringent bar for pre-sales. While no market is 100% safe -- Austin seems to be in excellent shape in comparison to many other major condo markets.



Hear is a summary from the Wall Street Journal (see the article here - subscription required):

It may seem surprising that anyone would want to add supply to a market whose troubles have been well-publicized for many months. But the economics of condo building encourage developers to bring half-finished projects to completion, even when prices and demand are plunging.Developers usually put up their own money for a project first, then spend borrowed funds. Once developers have spent their money and have commitments from lenders, they have a strong incentive to keep building to finish the project."These developers had millions of dollars tied up and they had them financed so they just moved forward," says J. Ronald Terwilliger, chief executive of Trammell Crow Residential, which builds many rental apartment buildings and also a few condos. "What they hope is that by the time the project is finished the market comes back."However, developers and lenders can more easily shelve projects that are still in the early stages. Many developments nationwide are being canceled, suggesting that by next year or 2010, the number of new condos coming onto the market may slow to a trickle.

Tags: market analysis, news

In a new report on the Austin housing market, Texas economist Ray Perryman analyzes the future of the downtown Austin condo market. With 40,000 new people moving to Austin each year and fewer than 4,000 downtown units planned over the next 5 years, Perryman believes that the market for downtown condos will remain strong.

Perryman's analysis includes two key points. First, downtown is becoming an increasingly attractive place to live as the urban core redevelops. As traffic and sprawl worsen throughout the rest of the city, the more demand will increase for downtown units. The second point is that net migration into Austin is incredibly high with more than 40,000 new residents pouring into the city each year. If just 2% of new Austinites decide to live downtown, all planned downtown units will likely sell out.

Here is a summary from the Austin Business Journal:

The steel and glass residential towers set to reshape the downtown Austin skyline aren't a pipedream. They're coming--and they're going to be filled, a new study shows.The analysis from Texas economist Ray Perryman suggests that while the nation battles a housing correction, Austin's residential market remains relatively healthy. Moreover, says Perryman, there is clear demand among Austinites to live in the city's vibrant downtown.There are currently about 6,000 people living downtown. And with about 4,000 residential units under construction or planned around downtown, that population is expected to double over the next two years. Perryman says with the Austin area adding more than 40,000 new residents annually, the local housing market will continue to fair well, and rising energy costs and traffic woes will drive a growing interest in urban living."This housing market will fundamentally support the type of housing being developed downtown," Perryman said at a morning press conference at City Hall organized to discuss the report. "There is an amble population to absorb these units."Asked whether those who desire to live downtown could actually afford to purchase units, most of which are over $500,000, Perryman says the market is there, particularly among young professionals coming to the area making good money in expanding fields like technology. He pointed out that if less than 1 percent of the entire area population chose to live downtown, they would fill up all of the existing units as well as those being planned downtown.

Tags: market analysis

The Statesman ran an interesting feature today on the downtown Austin condo market. It looked at many of the intangible benefits of downtown living. It makes the obvious point that downtown living is not for everyone, but that a vibrant urban core enhances the life of everyone.

The article summarizes the importance of the current wave of downtown development:

"As more people move downtown, the mushrooming rooftops will attract more retail, restaurants and amenities, and those in turn attract more people," Warshaw says. "This creates a feedback loop that will drive interest for many years, particularly when the city continues to invest in cultural and recreational amenities like Town Lake Park, a new central library and the new performing arts center."

With Austin noted for being a growing mecca for the so-called creative class, "the more options people have in terms of housing, the more successful you're going to be in attracting and retaining" top creative talent, Kelsey says. "It's a main component of what Austin's trying to do."

While the link lasts, the article can be found here

Tags: market analysis

There are a few factors that drive real estate prices higher in a normal market. At the top of the list are the performance of the local economy, job growth, and population growth.

While all of this is true in a normal market: today's real estate market is anything but normal. As many fewer people can now obtain loans -- some legitimately and some not -- and as borrowers with loans greater than $417K must now pay much higher interest rates due to market liquidity problems, the national real estate market remains highly stressed. Despite these problems, the Austin market seems to be performing quite well relative to just about everywhere else.

One reason for Austin's relative market strength is that the city skipped the boom that boosted many other national markets. As the national real estate market soared, Austin struggled to recover from the tech bust with its painful job losses and significant outbound migration. A recent report by Forbes points to another source of strength: in their opinion, Austin is expected to have strongest economic growth over the next few years of any of the top-100 metropolitan areas.

The bottom-line is that Austin's economy is expected to grow by 32% over the next five years. Not only is Austin booming, but it's growth rate is nearly 50% higher than #2 ranked Fort Myers, Florida. While economic growth is just one magic factor driving real estate prices, Austin's population is also expected to grow by an equally amazing 15%. While we all know that population growth is a double-edged sword: it's one of the strongest reasons to advocate development of a dense urban core. Over the long run, these factors provide a solid foundation for real estate price appreciation if and when the market does return to normal.

Here is a summary from the Forbes article:

To compile our list, we looked at all of the country's 363 metropolitan areas, defined by the U.S. Census Bureau has a geographic region with a "core urban area" of at least 50,000 people. Because many small metro areas are high growth--and because we wanted to show growth in large cities as well--we split the group into two classes: the largest 100 metro areas (with at least 528,000 people) and everyone else. We use projections run for us by Moody's Economy.com to show growth in GMP between 2007-2012.

Of course, if one looks at economic growth in the country's largest 100 metros, the usual suspects jump to the top of the list. With an estimated 32% GMP growth from 2007-2012, Austin, Texas, is the winner for big metros. Atlanta,