Study shows that Austin can absorb downtown condo units.

A recent article in the Austin Business Journal reports that Austin can absorb the 4000 planned units that are the books for downtown Austin. 

For those of you who know me — I have been a real skeptic about the Austin Condo Market.  Our firm has sold exactly ZERO condos in Downtown Austin.  

 This new study commissioned by the owners of the Austonian by Economist Ray Perryman sites the fact that Austin is adding 40,000 new residents annually. In his study he says that rising energy and traffic costs will drive the downtown living market.  He may have a point there.  The city fathers never imagined the current growth levels that this city is experiencing.  Traffic problems will only get worse.  Today it may only take 20 minutes to get from South Austin to Downtown.  But in the next 5 years that drive time could potentially double. 

My husband and I moved to Austin from LA.  In the 10 years I was in LA— the traffic drive times doubled.  The real estate that was located close to the core of the city experienced the highest appreciation rates.

Click here to read the entire Austin Business Journal Article

 For those moving to Austin from places like LA and New York, the downtown condos offer a familiar lifestyle at a bargain price.  It is my understanding that those condos within a comfortable walking distance to Whole Foods Market are in higher demand.  It makes sense – those embracing the downtown lifestyle don’t want to spend their time driving around looking for a parking spot.

I still can’t bring myself to sell one of these units to an investor.  I think there are better parking spots for investor $$.  It would take a 50% downpayment for an investor to break even on a monthly basis on an premium downtown condo. 

Percentage of investor home purchases at 17% in 2005 and 2006

I have always wondered what percentage of single family homes were aquired by investors.  I just heard fed Chairman Ben Bernanke say in a news briefing today that in the 1990’s non-owner occupied home loans were 5% of the total home loans.  In 2005 and 2006 — that number was 17%. 

Bernanke is talking about that national picture.  I am not sure how that number translates to our Austin Market.  If anyone knows what that percentage is — Please chime in!  I would imagine that we are about 10% or less in non-owner occupied loans. 

The problem is that investor loans come with more risk.  Borrowers are less likely to default on thier primary residence.  But on an investment property they are more likely to default.  When home prices fall below the loan value—  investors are more likely to default. 

Austin average sales prices were up 6.62% in February 2007 over February 2006.  The average sold price per sq. ft was up 4%.  So I dont think we are going to see the same foreclosure issues that the California and Florida are experiencing.   

What does an impending Recession mean to the Austin Real Estate Investor?

On Friday – the jobs numbers came out.  The country lost over 67,000 jobs.  If it walks like a duck, and talks like a duck it’s a duck.  These economic numbers are definitely talking like a recession.  The jobs are walking out of the US to countries like India and China.  US companies are tightening their belt.

What is an Austin real estate investor to do?  Dump you dogs.

The Austin real estate market is still a good market.  We are moving into our best season– summer buying season.  Well located property will still fetch a premium.  If you have a property that you don’t want to own long term– sell it now.

I am not saying dump your Austin portfolio.  No — Austin real estate market is one of the safest markets in the country.  We don’t have the same kind of sub-prime mortgage issues that a lot of other markets face.  Only 8.3% of our mortgages were subprime.  But a recession could quell the demand for property.  Liquidity remains an ongoing concern. 

Those in strong cash positions will be positioned to take advantage of deals in the near future.  Banks are going to require that investor borrowers have larger cash reserves than they did a year ago.  So it’s not only a question of the source and seasoning (where it came from and how long you have had it on deposit) of your down payment – its a question of your financial stability.   A credit score of 680 or more won’t be enough — it will take 20% down plus greater cash reserves on hand.  It’s going to get tighter and tighter. 

 This is why you want to dump your dogs.  It will take a well positioned, seasoned investor to be able to go through bank underwriting in the future.  Those seasoned investors are going to be attracted to prime properties.  If you have a dog– dump it now. If you want to be poised to take advantage of reasonably priced prime property opportunities in the near future– you had better get your house in order now.