Is this a good time to buy property in Austin? (Pittsburg: renting, mortgage)

[austin-steve]

I do think Austin real estate will get much cheaper before it gets more expensive.

I don't think so. In some areas, yes. Barton Creek homes that would not have sold for less than $900K three years ago are down $200K.

But there exists a base level, construction cost, at which builders will simply stop building. They have already pulled back so far that we'll have a shortage of homes in a couple of years. There is also a bottom line that non-desperate sellers won't go below. They will keep the home and rent it out before selling below a certain level. We already see both of these factors limiting the ability of agressive buyers to find any low hanging fruit in Austin. It's actually quite difficult to find a really super great deal on a typical Austin home. The best deals are empty builder specs, and some of those are pretty good deals.

But the suburban $250K home attending good schools in Austin is absolutely not going to plunge in value.

Steve

[mark311]

There is an interesting article in the free Community Impact newspaper that talks about the possible housing shortage that could arise in the Austin area in the next couple of years and how that might help to keep home prices steady or could even cause them to increase. It's just another guess, but who knows what might happen.

http://www.impactnews.com/round-rock-pflugerville/local-news/3467-potential-housing-shortage-could-raise-home-values-in-central-texas (broken link)

Housing shortage may cause home values to rise by 2011 (http://www.impactnews.com/southwest-austin/news/3404-housing-shortage-may-cause-home-values-to-rise-by-2011 - broken link)

I have noticed that people in my neighborhood are just sticking it out and not drastically lowering prices. I've seen a few "For Sale" signs turn into "For Lease" signs and shortly thereafter somebody moved in.

[austin-steve]

I have noticed that people in my neighborhood are just sticking it out and not drastically lowering prices. I've seen a few "For Sale" signs turn into "For Lease" signs and shortly thereafter somebody moved in.

That's what we see with our sellers too. They oft use the phrase "I'm not going to give it away" when we try to get price drops.

Anyone waiting for Austin real estate to go into the tank and fall to 1998 prices might as well buy lotto tickets.

Steve

[AustinGuy]

Large layoffs by major employers will be the determining factor on whether or not prices drop a lot more in Austin.

So, if that happens, I suspect prices will drop more, if it doesn't, we'll probably be fine.

[TexasGirl@Heart]

Originally Posted by austin-steve

That's what we see with our sellers too. They oft use the phrase "I'm not going to give it away" when we try to get price drops.

Anyone waiting for Austin real estate to go into the tank and fall to 1998 prices might as well buy lotto tickets.

Steve

Steve, do you think part of the reason is because Texas as a whole has not caught up with the poor economy other states are suffering?

Another question... Do you think eventually Texas will be hit and prices will have to drop?

[jobert]

Originally Posted by TexasGirl@Heart

Steve, do you think part of the reason is because Texas as a whole has not caught up with the poor economy other states are suffering?

Another question... Do you think eventually Texas will be hit and prices will have to drop?

???

Google any combo of: Dell, AMD, Freescale, Samsung, Oil, Spansion, Caterpiller, Austin and Layoffs.

Then tell me: "Texas as a whole has not caught up with the poor economy..."

[TexanInNYC]

Originally Posted by austin-steve

But there exists a base level, construction cost, at which builders will simply stop building. They have already pulled back so far that we'll have a shortage of homes in a couple of years. There is also a bottom line that non-desperate sellers won't go below. They will keep the home and rent it out before selling below a certain level.

1. In many markets, for example Las Vegas, real estate is selling at below replacement cost. It can and does happen.

2. The carve-out for "non-desperate sellers" sort of misses the point. It's the desperate sellers who determine the new comps; it takes a while for all sellers to get the memo that 2007 price points are no longer valid, but it does happen.

3. The fact that people choose to rent rather than sell can drive prices lower, believe it or not. We're seeing that in NYC--people are moving to rent, which makes rentals more available, and they're pricing them aggressively to generate cash flow, which in turn makes renting more attractive than buying. Strangely, here in NYC, you're seeing both rents and sale prices implode.

4. Ultimately, I think it mostly comes down to job losses. Here in NYC, the financial industry implosion will cause a major reset in the local economy, and RE prices along with it. In Austin, there's going to be more of a correlation to tech and government spending. I dont have a great deal of visibility into this, but my impression (as somebody who has not lived in Austin for 10 years), is that a lot of the increases in RE prices in Austin is attributable to a net influx of new people from places like California. If Austin stops being a net importer of people (and jobs), the local housing market should decline. In some places, like Florida, where there's a net outflow of people, the housing market craters.

5. I dont believe that certain areas like Tarrytown/Pemberton/1B would be totally immune to a downturn; we used to think the same thing about "prime Manhattan", but this has proven not to be true. Systematic job loss will kill the local RE market.

6. Finally, based on my recent trip to Austin last December, I was surprised at how many condos were being built. I'll be very surprised if those can be absorbed, and if you told me that 1 or more of those projects were in bankruptcy within 24 months, I'd agree with you. A lot of the builder spec homes out on loop 360 and Tarrytown will probably be facing comparable difficulties too.

[atxcio]

Originally Posted by austin-steve

That's what we see with our sellers too. They oft use the phrase "I'm not going to give it away" when we try to get price drops.

Anyone waiting for Austin real estate to go into the tank and fall to 1998 prices might as well buy lotto tickets.

Steve

I'm not so sure that all those withdrawn listings can be dismissed so easily. I'm overall bullish on the Austin RE market long term, but those recent stats you posted indicate a small bubble to me.

You've implied before (I think) that there is a floor of pricing that is approximately at 2005 levels. I'd agree with that. However, I think the past few quarters are indicating a rather fast drop (but hopefully not by too much) may be ahead. Here is why:

1. The withdrawn/expired rate of 50% or so, month after month, means that the amount of listings may be misleading. We already look at the number of listings and deduce that there is 2 years of inventory in certain categories; what we may be missing is that there are a huge number of no-longer-listed homes that are waiting to be re-introduced when the sellers see an "actionable" event.

2. That actionable event could be, hopefully, the economy picking up and lending getting back to normal. But even if that happens, the inventory would still stay at the 2-year inventory in certain categories because I doubt that buyers on the sidelines outnumber sellers on the sidelines. So prices shouldn't increase; they should stabilize or even decrease a little. However, the fact that average/median sales price has stayed high or increased, when it *should* have slowly decreased in the past year (pure law of supply/demand) means there is some built-in fat on these prices that will have to come off... unless demand increases amazingly, like 50% or so. And I don't see that happening.

3. The other actionable event could be, unfortunately, be a slide of prices. You used the term "capitulation," which hasn't happened yet here, but I think it could. The trigger would be that some of those "sideline sellers" (the ones who wouldn't "give it away") maybe are not being completely realistic in their assessments. Some of them, perhaps MANY of them, really should be selling rather than renting for less than their payment, or holding on to a house that is too big for them... and, if it catches up to them in the form of a layoff or increasing property taxes, that could be a catalyst that brings a some of those listings back on at lower prices. Then, the rest of those sideline sellers, when presented with these new prices and watching their equity slide away, will begin to panic. Then you have capitulation. Those sellers would have done much better had they reduced the price in the first place, but so many people will not do the logical thing when it comes to their own house or investments... same thing happens in the stock market. If this happens, I'd expect a very quick drop. Maybe 20% in one year.

I really hope #3 doesn't happen. But I think the chance is good enough that I wouldn't criticize anyone for waiting to buy. However, each deal is individual, so if you can find that seller that is willing to be reasonable about a lowball offer... and maybe you can get something for 20%-30% off current comps... it's probably just fine to buy it now.

[austin-steve]

Originally Posted by TexasGirl@Heart

Steve, do you think part of the reason is because Texas as a whole has not caught up with the poor economy other states are suffering?

Another question... Do you think eventually Texas will be hit and prices will have to drop?

Texas in general, and Austin specifically, are not immune to economic strife. But at the end of the day, individual owners either decide to cut prices or they don't.

Here is something else to consider; as slack as the economy is, buyer demand is ever weaker. You'd think that would drive down prices, but it doesn't. The current batch of wussy buyers are not even close to what is needed to knock a dent in home prices. Many simply are not even in the game. This results is a whole bunch of unsold homes instead of falling prices.

The buyers who are out there, are often very difficult to educate about how to take advantage of a buyer market, which is to be open and broad in your requirements. Instead, they fall in love with one home, listed by a stubborn seller, and pay full market price.

We constantly try to get our buyers to understand that they are not shopping for the perfect home, but the motivate seller with an adequate or acceptable home. That's how you score a great deal, by being able to walk away from a lot of deals and move on to the next one. You can't do that though if you're picky and find fault with almost every house you see.

Steve

[llkltk]

I know that you home buyers want a good deal but what about us who own homes already. Surely, you don't want us to lose money, do you? I don't think you would want that for yourself. I'm all for prices going up, that's what buying a home is all about. I'm sure you would hate it if you low balled on a house, moved in and then tried to sell a few years later at a low price.

The economy is bad now, but I wouldn't expect Austin prices to become what they are in Chicago. If my sister bought a home in the suburbs of Chicago for 600K that would equal a 375K house in Austin. We aren't that badly priced.