Real Estate Market Summary For 2008

While Austin has continued to have one of the best real estate markets in the country, we will finish the year with lower sales activity, higher unemployment and real estate inventory levels, lower rents, and a deteriorating economy. Real estate sales are trending down, even with near 50 year low mortgage rates. Rents are following the same pattern.

Consumer confidence is very low. Consumers are holding cash and focusing on their immediate needs. This has impacted every industry. Though credit is harder to obtain, it is not the driving factor for the reduction in consumer spending. It is consumer confidence. Even if car dealerships are offering huge discounts and zero percent interest, consumers are keeping their existing cars and not going into debt for a car they don't absolutely need.

We are seeing the same trends in the real estate market. Tenants are staying put and renewing their leases; homeowners are delaying home purchases on fear of job loss or price erosion in the real estate market; and it is getting harder to qualify for a mortgage as Fannie Mae changes its guidelines. For example, a borrower now must have a 740 fico score to obtain the best mortgage interest rate, assuming they have the down payment and reserves for a conventional loan.

For the past two years, we have consistently raised rents. This trend continued until the financial crisis hit us this fall. Many homeowners are not able to sell their homes at a desired price point and are forced to lease their homes and become landlords. Inventory of rental homes is at an all time high in Cedar Park/Leander and Round Rock areas.

We are dropping rents on all existing inventory. Properties priced below $1,100 month have weathered the storm better than higher priced rental properties. The most resilient rental homes are those priced below $1,000/month. Homes leasing at or above $1,200/month earlier in the early part of the year are now leasing for 10% less. As rents increase, the pool of qualified tenants decreases. We are also seeing tenants downsize and move to more affordable homes.

We have transitioned from a landlord market to a tenant market. Next year, we will renew most of our leases at the same price point and may drop rents to keep current tenants. I expect to see more rental applicants affected by job losses, financial troubles, and foreclosures as homeowners lose their homes and are forced to rent. I anticipate the days on market will increase as long as our inventory remains at high levels. Owners will need to look harder at applications to avoid long term vacancies.

Though Austin continues to have one of the best economies and real estate markets it the country, our unemployment rate has increased, and our real estate sales market is deteriorating. According to the Austin American Statesman, our unemployment rate was below 4% in early 2008 and 3.5% a year ago. It has now reached 5.0%. This is still below the Texas and national average. However, Austin is not immune from the national economic, mortgage, and financial crisis. November home sales were down 40% in Austin, a level not seen since 1997. Some areas were down almost 60%.

Long term, Austin will continue to have one of the best economies and real estate markets in the country. 2009 will be a year of recovery. Rents and home prices most likely will trend downward, and inventory levels will remain high. If the job market recovers more quickly, we will see the market stabilize. Now is a great time to purchase a home or take advantage of the down market.

If you have a current mortgage on a primary residence with a rate above 5.75%, it may be a great time to refinance your mortgage. Mortgage rates for primary residence are in the 4.75% range. Our office provides sales, leasing, property management, handyman, and mortgage services.
Please bear in mind that this article contains many elements which may no longer be accurate from the date it was published.