June 2008

Here's a little gift to you from Hugh Parrish, my friend and broker.

Market Watch

June 2008

Comments:

What a difference a year can make. During the past 12 months, the Austin market has changed rather significantly. The loss of the sub prime mortgage products last summer has resulted in a 20% decline in the number of sales under $200,000. Sales of all price ranges are 16% below the 2007 pace during the same time. Town home and Condo sales are 22% below last year, and multi family sales are off by a whopping 55%. Historically, Austin has lagged behind the national trends by 1 ˝ to 2 years. This seems to be holding true at this time. At the end of March, 2008, there were 9638 houses available compared to 7776 one year ago. There were 4636 sales through the first 3 months of this year compared to 5464 in 2007. Condominium sales fell to 500 this year from 638 last year. Some of the current condominium sales are not reported because the new construction is not always in MLS. The 6.2 month supply is the highest in several years. One quarter does not completely change a market, so this will be closely monitored.

Market Conditions:

Once again, the statistics mentioned above are macro market, and each micro market can be strikingly different. Before digging into that, it is worth noticing that the supply of Condos is now over 10 months, as is the supply of duplexes and fourplexes. At the end of March, there were 549 houses available with asking prices above $1,000,000 for a 38 month supply. The most obvious trend currently is the relative stability of the micro market with average prices below $250,000. Some of the higher price markets are experiencing huge increases in months of supply. Old West Austin (Area 1B) has increased to a 7.9 month supply, the Eases School District is above 9 months, Barton Creek is at 8 months, and the Lake Travis areas are above 10 months. The submarket that has moved the most suddenly is Area 5 (East of 35, North of Lady Bird Lake), which now has a 9 month supply, due to becoming over valued.

Economic Conditions:

It is currently projected that the Austin MSA must add over 15,000 jobs this year to keep the market in balance with the new construction. It is too early to know if that will happen, but the recent Dell lay offs do not help. Just as important, long term mortgage interest rates are still below 6% for Owner Occupants with great credit scores. We are concerned that these great rates could increase substantially toward the end of the current election process. The realities of the National debt and overall recessionary trends will be the culprits if this happens.

Concerns:

The primary short term concern is the reduced sales velocity (demand), and how long that will last. The concern is actually greater in the multi family and condominium markets. As more and more condominiums are constructed or converted, we could see a huge over supply. The other major concern is that sellers and Realtors could easily over react, “knee jerk” the anticipated market, and induce a decline more quickly. The balance to this is that sellers must be very realistic about their properties at this time. The other concern shows a 46% drop in the number of pending sales from one year ago, which indicates that sales will be down during the second quarter also.

Please give us a call if you are curious about how all of this may affect your specific property.

HUGH M. PARRISH