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Exclusive: 30 Month Milago Sales Analysis
When looking at resale volumes and quantities, the 52 Milago sales provide an interesting picture of the downtown Austin condo market over the 30 months. During this period, Milago sales volumes have decelerated from 2.1 sales per month to 1.9 sales per month and prices have dropped from $322 / SF to $266 / SF. The price drop occurred almost entirely in 2009. Fortunately for owners, prices have been relatively stable going into 2010.
Milago Sales Analysis: Sales Velocity
# Sold
|Units / Month
|Avg SF
Read the full analysis here: Read More...
Condo Liquidity Analysis: Will You Be Able to Sell?
When thinking about liquidity, you need to start with the building. Since most buyers pick a building and then a unit, being in the wrong building can make it very difficult to sell. Since most units are similar, the market is extremely efficient and the only way to sell in an unpopular building is to drop your price -- often significantly.
Last year, buyers purchased units in 22 different downtown buildings through transactions listed on the MLS. Of the 112 2009 downtown sales, there were only eight projects that sold 5 or more units. While we have pointed out many times that MLS statistics ignore developer sales and thus provide and incomplete market picture, they are in fact very accurate for sales by owner as very few units are sold without agents.
To analyze liquidity, we compared the number of units currently on the market in each building with the number of units sold in each building during 2009. We looked for buildings where the total inventory would sell within 9 months. Of the 8 projects profiled, only two buildings met this criteria, The Nokonah with an amazing average of 6 months and Milago with an average of 8. Not far behind, with an average of a year, were Austin City Lofts and the Penthouse condos.
The Nokonah, which leads the list, was the first high-end downtown project. It has an older and less likely to move owner population than projects like 360. While Milago is newer and more affordable, it is notable in the volume of units that sell. In 2009 alone, 24 of it's 240 units -- 10% -- changes hands over the MLS. Austin City Lofts has always been a popular and well-respected building with relatively brisk sales.
On the other end of the liquidity spectrum are three slow-moving projects: Five Fifty Five with an expected time to sell of 45.6 months, Cambridge Condos with a 28 month average, and 360 with an average of 27.8 months. It's hard to understand why 360 -- one of the most desirable and successful projects -- fares so poorly on the liquidity front. Likely, the issue has to do with the projects success as buyers who successfully purchased units on a well-subscribed wait list are now ready to sell. Many buyers may be holding out for more money than buyers are willing to pay. In addition, year 2 of the project may be a peak time for turn-over.
Equally concerning is the number of projects that did not make the list because sales volumes were too low to evaluate. The Brown Building and Plaza Lofts each had 3 sales during the year. Brazos Lofts, the Shore, and Brazos Place each had just one sale during the year. The Sabine did not have any successful unit resales.
Here are the full statistics on downtown Austin Condo liquidity for the eight projects with enough transaction volume to evaluate:
2009 Sold
|2010 On Market
|Months to Sell
Penthouse Condo
Austin City Lofts
Greenwood Towers
360 Condos
Cambridge Condo
Five Fifty Five
Exclusive: 2009 Condo MLS Sales Review
The data does, however, provide a very clear view of the downtown resale market. It shows the price per square foot that buyers are willing to pay for real units, provides information on building-by-building sales prices, and shows how long it takes for units to actually sell. Here is the annual summary of 2009:
Market Summary - MLS recorded 112 downtown Austin condo transactions during 2009 (down 14% over 2008) with an average sales price of $329,374 (down 5%) which represents an average price per square foot of $298 (down 3%). Units sold for 95% of listing price in an average of 88 (3 days faster than 2008). For the second year in a row, the project with the most sales on MLS was Milago with 24 transactions (v 25 last year). Here are the details for 2009 with the comparison to 2008 in parenthesis:
- DT Condo Transactions: 112 (130 in 2008)
- Avg. Sales Price: $329,374 ($345,856)
- Avg. Listing Price: $353,311 ($362,750)
- Sold Price as % of Listing Price: 93% (95%)
- Avg. Sold $/SF: $298 ($308)
- Avg. Listing $/SF: $319 ($322)
- Avg. Days on Market: 88 (91)
- Avg. Unit Size: 1,126 (1,106) Square Feet
Old v New - The MLS data clearly shows that the downtown Austin condo market is really 3 separate markets. The first market contains older units constructed prior to 1986 with an average age of 41 years. The second market is buildings constructed after 1998 when the current downtown boom started. The third market, which we have the least data on, is buildings currently under construction or recently completed. In particular, the high-end Austonian, W, and Four Seasons serve a much higher-end market than any of the current projects. Over the last year, sales of older units has plummeted as new buildings have entered the market. Sales of newer units are up dramatically. Prices for all units are down. Here are the details:
- Average Year Built, All Condo Sales: 1991 (1983 was the average in 2008)
- Units Built Before 1986: 40 (73)
- Units Built 1987 - 1998: 0 (0)
- Units Built After 1998: 82 (57)
- Pre 1986 Avg Sales Price & $/SF: $219,083 ($277,737) & $237 ($278)
- After 1998 Avg Sales Price & $/SF: $390,646 ($430,416) & $324 ($363)
High & Low: In a market and year where affordability is an important issue, it is amazing to see that there were 24 transactions under $200K which is a large increase from 18 units in 2008. It shows that it is possible to find affordable units downtown.
- Least Expensive Sale: $110,000 in Greenwood Towers ($107,000 in Greenwood Towers in 2008)
- Most Expensive Sale: $1,368,000 in the Nokonah ($1,100,100 in the Nokonah)
- Lowest $/SF: $162 for a unit in Greenwood Towers ($168 for a unit in Towers on Town Lake)
- Highest $/SF: $452 for a unit in the Nokonah ($571 for a unit in Five Fifty Five Condos)
- # Units Under $200K: 24 (18)
- # Units Over $750K: 5 (6)
Transactions by Month: Sales results were less cyclical than usual with strength in the second half of the year. Compared with 2008, the beginning of 2009 saw a dramatic reduction in the number of units and the back half of the year saw a strong increase over 2008. While there was strength in the back half of the year, it doesn't seem to have translated into higher prices. At Milago for example, prices were 3% lower on average in the second half than the first half.
Month - # Units
January - 4 (5)
February - 6 (6)
March - 4 (14)
April - 4 (22)
May - 11 (13)
June - 8 (13)
July - 12 (10)
August - 14 (13)
September - 15 (13)
October - 13 (9)
November - 13 (8)
December - 8 (4)
Over the next year or two, as a significant quantity of transactions continue to be conducted outside of the MLS, it will be difficult to gauge exactly what is happening with downtown Austin condo sales, especially on the high end. With a greater proportion of transactions shifting from private developer sales and auctions to resale and the MLS, we need to see increased MLS activity over the next year just for the market to remain stable. While lending remains constrained and the stresses of the economy remain strong, a dramatic near-term downtown condo upswing is unlikely. For sellers in particular, the next few months will continue to be very difficult.
With the addition of December data (it was a strong month), we've updated the AustinTowers | urbanspace Downtown Austin Condo Market Index through the end of 2009.
Exclusive: November Condo Sales Volume Strong, Prices Moderate
|Avg. Price
|Avg SF
|Avg Year
|% Ask
In the month of November, 13 downtown Austin condo units were transacted on the MLS: 5 more than in November of 2009 with an 11% lower price per square foot. In addition, the % of asking price jumped significantly from 93% a year ago and 87% in June to a more typical 96%. Average days on market for units that sold came in at 78, an enormous 48% drop over last year. There are many units that have been on the market for a long time, especially larger and nicer units which have not been moving. The most expensive unit sold in November was $554,750. Continuing a trend toward lower priced units, nine units sold for less than $300,000 including a tiny 454 square foot unit that sold for $110,600.
Sold units were in seven projects including 360 (3), Penthouse condos (3), Milago (3), Five Fifty 05 (2), Railyard (1), and Towers on Town Lake (1). Units in 360 carried the highest price per square foot during the month with an average of $374/SF.
As always, the results show the weakness of the MLS. While 13 units sold through MLS, additional units went ton sale at tSpring and other new projects outside of the MLS. While the MLS numbers continue to show growth in transaction volume, it is difficult to know what is happening in the broader market as sales office transactions are rarely included in the MLS numbers. For example, no Spring units have appeared in any of the MLS sales reports this year.
See the full index here.
Analysis: Understanding The Density Decision
While the proposal sounds reasonable, it is unclear whether the proposal will result in high density and new services (good) or higher downtown costs and reduced density (bad). The fact is that the proposal has real costs for the developers and the tenants looking fo housing, companies thinking about moving downtown, and retail entrepreneurs looking to open shop downtown. The proposal will inevitably lead to higher downtown costs for future projects.
In making this proposal, the City is treating density as a luxury that needs to be sold. While similar proposals have passed in Seattle, Tampa, San Diego, Portland, Denver, Nashville, Vancouver and Calgary. Some of these are great cities. But it's hard to compare the forces that have shaped these environments to the specifics of downtown Austin.
The real question is this: Is downtown density a good thing?
Over the last decade, Austin's policy has advocated strongly for downtown density. And there are many reasons why downtown density makes sense: the environmental impact is minimized, public transportation is easier, sprawl is reduced, and tax revenue is high compared to the services and infrastructure required.
Today, unfortunately, Austin is not a high density city: even the central downtown area is relatively low density compared to the core of other major cities. Of the top 25 cities, Austin is the 20th most dense city. In Texas, Houston, Dallas, and San Antonio all have higher levels of density than Austin. If you you think Houston is sprawling, than you probably won't like Austin in a few decades if current growth rates persist. El Paso is the only large Texas city with a lower level of density than Austin.
While many people question whether downtown development is good or bad, there is no better way to improve population density. A dense urban core is vibrant, ecologically-friendly, and traffic-friendly. It is the best antidote to sprawl. While downtown development won't stop sprawl in Austin, it is the first step in the right direction. It provides people who want to bike to work or walk to dinner with an alternative that hasn't previously existed in Austin.
Over the coming couple of decades, Austin will double and triple in size. We have two choices: One is to expand endlessly into the hill country with new sub-divisions and the traffic and environmental impact they bring. The second is to grow downtown smartly with real density. While painful sprawl may be inevitable, every 300 unit downtown project saves 100 acres of land from development while making the city more vibrant. We need downtown parks and services, but we should tax downtown developers and penalize density, especially when we are not willing to do the same with the developers driving suburban sprawl.
Milago: Detailed Comparable Sales Analysis
During this period, Milago has sold more units on the resale market than any other project . The 46 Milago transactions over the last 21 months provide an interesting microcosm of the downtown Austin market.
The numbers clearly show the challenges that the market has faced over the last year. Over the last six months there have been 16 Milago transactions averaging $268/SF. Over the previous 15 months, there were 29 transactions averaging $320/SF. This decrease represents a 16% market decline. During this period, average days on market increased 50% from 75 to 113 and the average discount from listing price increased by one point from 4.5% to 5.5%.
The 15 units sold over the last 6 months ranged in price from $175,000 for a 756 foot one bedroom unit on the 11th floor ($231/SF) to $372,500 for an 1,189 square foot 2 bedroom unit on the 9th floor ($313/SF).
Interestingly enough, the 2 bedroom units have commanded a per-square-foot premium over the one bedroom units over the last 21 months. During this period, 20 two bedroom units have sold for an average price of $368,923 ($309/SF) and 24 one bedroom units have sold for an average of $227,256 ($288/SF) representing a 7.5% per-square-foot premium for two bedroom units. In addition, one three bedroom unit sold in early 2008 for $368 / SF.
Finally, over the last year, 22 of the project's 240 units have sold representing 9% of the building's units. An additional 20 units are currently on the market which is equivalent to 10.9 months of inventory.
The good news for Milago owners is that the units continue to sell at a reasonably brisk pace and are relatively liquid. The large number of transactions means that comparable values have been firmly set making pricing key for sellers looking to move their units . For buyers, it means that comparative analysis from a realtor is key to ensure that you are not overpaying.
Houston Condo Market Problems
Here is a summary from the Houston Chronicle:
Even as single-family housing shows signs of momentum, Houston's high-rise condo market remains stalled.
Developers who put up shiny new towers during the boom have filed for bankruptcy protection and others are renting their high-dollar units because they can't sell them.
"In all of our projects, the market is really slow," said Ben Lemieux of Group LSR, which develops condominium buildings in the Houston area under the name InnerLoopCondos.
Sales and prices of these properties have fallen every quarter over the past two years.
During the last quarter, sales were down 17 percent and prices were off 20 percent compared with the same period in 2008, according to data from the Houston Association of Realtors.
Brokers are quick to point out, however, that Houston is no Miami. There, tens of thousands of high-rise units sit vacant, casualties of the nation's real estate crash.
On Houston's Multiple Listing Service — which doesn't include every building on the market — 486 condos are up for sale.
Unlike other cities whose condo markets cratered after investors bid up prices during the boom, Houston's troubles had other causes.
For one, developers misread demand for this type of housing, said Giorgio Borlenghi, whose firm built two condo towers in Uptown Park before the market began to sink.
He believes there's only demand for about 30 high-end units per year in Houston.
"If you have two or three buildings coming up at the same time, it will take some time to absorb," Borlenghi said.
Still, not everything that was supposed to be built here was.
Some developers pulled out of the market after trying to pre-sell units — but not until after spending millions on sales centers and lavish parties.
They were encouraged by the city's large population and the amount of wealth created by the energy industry.
But what they didn't realize was that the price of a single-family house or patio home in Houston is often less than a high-rise unit just a few blocks away.
"It's not housing you're selling, it's a lifestyle," Borlenghi said. "And when you're selling a lifestyle, it's an even smaller market."
Analysis: Downtown Condo Supply & Demand
In addition to explaining why it took 50 minutes for me to drive from Round Rock to downtown Austin this evening, this population explosion provides very important context for the downtown condo market. As Will Wynn, the former mayor of Austin, said about the portion of the metropolitan area population living within the city boundaries: "We have 88,000 more people here than we did 5 years ago. Experts predict at least another 75,000 in the next 5 years. And we've got only 400 new downtown condos remaining for sale for the next 5 years. That's right, only 400."
Over the last year, it has been common to hear the Austin condo market referred to as "overbuilt." This is an easy claim to make: any new unit is an excess unit in a market like this. What is important to note, however, is that it takes three to five years to bring a new project to market. With capital markets frozen, it's is unlikely that additional projects -- besides those currently under construction -- will hit the market for another five or six years.
This leaves us with the available inventory in projects currently under construction as the total supply for years to come. If you look at the buildings currently rising, projects like the Austonian, BartonPlace, the Four Seasons, the W Hotel & Residences, and the recently completed Spring, there are actually less than 1,000 units currently under construction in downtown Austin. The best estimates suggest that there are approximately 300-350 unsold new condo units in the pipeline for the Austin market. This is the total available inventory for the next half decade. These units will sell out and the market will be tight before new units are able to be funded, planned, and constructed.
It is important to remember that the fundamentals of downtown living remain strong: people are moving to Austin, downtown is being rapidly transformed into the center of the community, and people from across the region are looking at downtown Austin as a great place for a second home. As downtown Austin reaches a critical mass, the downtown migration is likely to accelerate.
While the downtown Austin market is doing better than almost any other market, there is no doubt that there are more units than buyers right now. Especially on the high end, for million dollar units, inventory absolutely exceeds current demand. But the market is turning — the bottom was likely reached in the early summer. Now, we're seeing sales numbers begin to increase. While it is still a buyer's market and deals can be found, this dynamic will not last forever.
The difficulty in adding future downtown condo supply makes it likely that the current condo slump will reverse sometime in the next 6-12 months. Given that many of the most prominent projects are not scheduled for completion until next year, people who want to live downtown will be limited to unsold units in the most recent projects and resale units in other recent projects until that time.
In summary, while it remains a buyer's market -- fundamentals suggest that the market may be nearing an inflection point. For units priced below $500,000, it's probably a good time to take a deal. For units over $500K, and especially units over $1,000,000, idiosyncrasies in the jumbo loan market and reduced demand will create buying opportunities for a while to come. But sometime in the next 12-18 months, it likely that the downtown Austin condo market will sell out completely.
The Downtown Density Debate Resurfaces
That's the big question this month as the Austin City Council reviews proposals that would dramatically change the rules for downtown development.
Over the last decade, the City has freely granted density variances in order to get more people downtown. During this period, downtown has been the one place where density has been encouraged. In fact, it has been a key part of the City's downtown Austin strategy. There are many reasons why downtown density makes sense: the environmental impact is minimized, public transportation is easier, sprawl is reduced, and tax revenue is high compared to the services and infrastructure required.
Today, Austin is not a high density city: even the central downtown area is relatively low density compared to the core of other major cities. Of the top 25 cities, Austin is the 20th most dense city. In Texas, Houston, Dallas, and San Antonio all have higher levels of density than Austin. If you you think Houston is sprawling, than you probably won't like Austin in a few decades if current growth rates persist. El Paso is the only large Texas city with a lower level of density than Austin.
While many people question whether downtown development is good or bad, there is no better way to improve population density. A dense urban core is vibrant, ecologically-friendly, and traffic-friendly. It is the best antidote to sprawl. While downtown development won't stop sprawl in Austin, it is the first step in the right direction. It provides people who want to bike to work or walk to dinner with an alternative that hasn't previously existed in Austin.
This month, the city council will decide whether or not to add new requirements for projects looking for density variances in downtown Austin. If the new rules pass, developers (and their tenants) will need to pay for parks, music venues, low income housing, child care, elder care, or a similar community offering. These are all good things --- but they all cost money. If density is a good thing, these requirements will act as a tax on new projects, making new development less likely and will likely result in reduced downtown density.
Today, downtown property taxes subsidize suburban infrastructure and services. This makes sense --- downtown property is expensive and residents are more affluent than the Austin median. But it is also true that downtown living is very efficient from a city service perspective: it takes fewer roads, pipes, wires, police officers, sanitation workers, and other city staffers to support dense downtown development than it does to support an equivalent suburban population. For this reason, it seems that the city should encourage additional density --- and not tax it --- and use the tax money it generates to support other City needs, including downtown services. Reducing density and discouraging downtown development --- we're not going to see much downtown development in the next few years anyway -- is not in the City's best interest.
A Tale of Two Unemployment Rates
"The unemployment rate in the Austin area dropped slightly in August as seasonally-expected hiring offset some of the significant job losses the region has endured."
"California's unemployment rate in August hit its highest point in nearly 70 years, starkly underscoring how the nation's incipient economic recovery continues to elude millions of Americans looking for work."
These stories continue to underscore how lucky we have been in Austin. When in comes to real estate values, nothing is more important than employment. People who don't have jobs don't buy houses. People who lose their jobs often sell their house, pushing values down. Job losses also lead to foreclosures which push down values significantly.
In general, Texas has been lucky with an unemployment rate of 8% -- significantly lower than the national rate of 9.7%. At 7.2%, Austin's rate is downright dreamy in these difficult times. In comparison, things are looking very bad in California.
According to the New York Times, "While job losses continue to fall, [California's] new unemployment rate — 12.2 percent, according to the Bureau of Labor Statistics — is far above the national average of 9.7 percent and places California, the nation's most-populous state, fourth behind Michigan, Nevada and Rhode Island. Statistics kept by the state show California's unemployment rate was 14.7 percent in 1940, said Kevin Callori, a spokesman for the California Employment Development Department.While California has convulsed under the same blows as the rest of the country over the last two years, its exposure to both the foreclosure crisis and the slowdown in construction — an industry that has fueled growth in much of the state over the last decade — has been outsized.
In Austin, by comparison, the Austin Business Journal reports that "The region added 900 jobs between July and August, with many of the gains coming in areas such as retail trade (600 jobs) and education and health services (300); gains in those sectors are typical in August. The professional and business services sector also saw an increase of 1,000 jobs, but that was offset by losses in areas such as construction (300 jobs lost) and manufacturing (200 lost)."
Throughout the turmoil of the last year, Austin is very lucky to have lost just 7,200 jobs --- less than 1% of its year ago job total. For anyone with a stake in local real estate, this is very good news.
Exclusive: Building-by-Building Condo Fees
Condo fees fund the daily operations and maintenance of most condo buildings. They cover security, landscaping, cleaning of common area, common area energy use, maintenance, and other key building functions. In addition -- and this is very important -- a portion of condo fees are held by the building as reserves to fund major maintenance projects. On average, our research shows, condo unit owners can expect to pay $0.41 / SF / per month or $410 in monthly condo fees for a 1,000 SF unit.
Looking at detailed MLS records on a broad range of units and through tips from buyers, we've calculated the rough fees for most of the major downtown condo buildings. The fees are universally calculated on a dollar-per-square foot basis that typically, but not always, remains constant throughout each building. Generally, condo fees are not higher for more expensive units, or units with more bedrooms, or units on higher floors compared to less desirable units of the same size in the same building.
The prices in new buildings that we have looked at are surprisingly varied -- they range from $0.28 / SF / Month to $0.64 / month -- an amazingly broad range. If anyone has numbers for other buildings, send them to us and we will add them to the list. Apprearing for the time on the list is Barton Place with monthly condos fees of $0.38 per square foot and Austin City Lofts with condo fees of $0.48 per square foot.
Here is our updated list of condo fees by project:
Fee by Building - - - - - $ / SF / Month
Avenue Lofts.................$0.28
The Sabine...................$0.33
Plaza Lofts..................$0.33
The Shore....................$0.36
Spring...................... $0.38
Barton Place................ $0.38
Five Fifty Five Condos.......$0.40
Austin City Lofts............$0.48
W Hotel & Residences.........$0.61
Four Seasons Residences......$0.61
Austonian.... . . . . . . . .$0.64
July Downtown Condo Sales Show Improvement
|Avg. Price
|Avg SF
|Avg Year
|% Ask
In the month of July, 12 downtown Austin condo units were transacted on the MLS: 2 more than in July of 2009 with a 5% lower price per square foot. In addition, the % of asking price jumped significantly from a June low of 87% returning to a more typical 97%. Average days on market for units that sold came in at 88, a 17% drop over last year. From an inventory perspective, months inventory droped from 33 months to 24 months -- a significant drop. This number, however, remains high as buyers seem to prefer units in new projects over MLS inventory.
As always, the results show the weakness of the MLS. While 12 units sold through MLS, additional units went ton sale at the Shore and other new projects outside of the MLS. While the MLS numbers continue to show a surprisingly small transaction volume, it is difficult to know whether sales were weakening or whether the most recent sales were simply closed off MLS.
A final observation is that the units that are moving are priced at less than $350,000. In July, 2 of the 12 units were priced uner $200K, an additional 7 were priced under $300K, and only 3 were priced over $300K with the highest priced unit fetching $350K. So far this year, there has only been one sale on the MLS for more than $1,000,000.
See the full index here.
New Condo Investment Model: The Emergence of the Bulk Discount Buyer
The Miami market with it's thousands of unsold units has led to a new investment model: bulk investment. In this model, bulk investors or bulk vulture buyers take the pressure of developers by negotiating to purchase multiple units at deeply discounted prices. Often, these investors or investment partnerships purchase 5 or 10 or more units in a single transaction. They than can rent or hold the units to turn a profit. Often, they purchase the least desirable units (small units on low floors) at rock bottom prices.
The presence of sophisticated bulk investors in the Miami market is a sign of the scale of the condo market problems but also a signal that smart buyers see paths to profitability in the chaos. While we have not heard reports of bulk buyers in Austin, over supply and discounting may lead to increased investor interest in the downtown condo market.
Here is a recent report from the Miami Herald on a typical bulk investment transaction:
Following the bankruptcy this week of Cabi Downtown Developers, the builder of the luxury condominium Everglades on the Bay, a new distress marker was revealed in Miami's downtown condo market.
In the lowest bulk price paid for condo units in the downtown area since the market crashed last year, Prodigy Capital Investments, a newly created corporation based in Miami, has purchased 10 units in the Brickell on the River South condominium for $156 per square foot, according to new research from Bal Harbor-based Condo Vultures, a real estate consultancy that closely follows the downtown condo market.
Prodigy Capital Investments, which incorporated in July and is headed by Rodrigo Nino, according to state records, paid$1.9 million for the units,which include five one-bedroom apartments and five two-bedroom units for 12,081 square feet of space. . .
``A key reason for the discount realized on the Brickell On The River bulk deal is the location of the units,'' Peter Zaleweski, president of Condo Vultures, said in a statement.
The 46-story south tower is located at 41 SE 5 St. in Miami. The prices were lower, Zalweski said, because the units, which are primarily suitable for renters, were located on the lower floors of the building.
Analysis: Understanding New Condo Pricing and Risk
For example, one reader told us that their large Shore unit recently appraised for $525K, roughly $250K less than last year and $200K less than what they the developer prior to completion of construction. This 28% drop in value is a big deal for any buyer -- and rightfully leads people to ask what the best strategy is for purchasing units in a new condo project.
Housing prices are set by supply and demand. When developers sell new or pre-construction units, pricing is based on construction costs, demand, and the developer's perception of market trends. The final price, however, is set by the sale of the first few post-completion units. So let's look at different scenarios for a fictional 100 unit project:
- If the developer sells out all 100 units, the final value will be set by the first resale units. In a strong market, they may very well be higher than the initial price as buyers who missed out on their original attempt to get into the project. The price growth may very well be higher than the appreciation in comparable units. If construction costs are rising quickly as they did between 2004 and 2007, than the original pre-sale prices may never be matched.
- For the same project In a weak market, prices will likely be lower than the original market price. The price drop will likely be similar to the overall market drop for comparable condo units.
- If the developer sells 95 units and then drops the price by 10% prior to completion of the project and sells the final 5 units (still preconstruction), the final price will still be set by the first post-completion resale transactions. Thus, the price will likely increase or decrease in line with the general market.
- If the developer only sells 50 of the 100 units at the point the project is completed -- this has happened a couple of times this year -- than it will likely be bad news for the original buyers. To sell the remaining units and to try to move them fast, the developers will cut prices by 10, 20, or as much as 30%. The value of the original owners' units will fall at a similar pace. If the units do not sell, it will be very difficult for the original owners to resell their units at anything but a substantially discounted price.
There are lots of reasons to buy a pre-construction unit. If you have found the perfect building and perfect unit with the perfect view at a price you can afford, it's probably a good thing to do. If you want to stay put for a long time, your risk will be low. If the market is rising and costs are going up and you want to lock in on a unit, it may be a good time to buy. If the market is a mess and prices have been slashed to clear out inventory, it may also be a good time to buy.
But here is the important thing to remember: in exchange for getting an early pick and a pristine new unit, you will be facing additional risk and variability than you would on a completed unit on the resale market. To see short term appreciation, the building will need to sell out, the initial pricing will need to have been fair, and the market pricing will need to be stable or positive.
To maximize your chances of success, it is very important to remember that most people pick a building and than a unit. Cheap units in an undesirable building will be unlikely to appreciate as well as units in the most popular buildings.
In another year, this post would be very different. It would talk about how to pick the building with the best appreciation and how to get in early on the hottest projects. In 2009, there are no hot projects. It's a tough market. In a tough market, however, buyers can do very well by purchasing discounted units in desirable projects or by getting great units in buildings on track to sell out at current pricing.
June Downtown Condo Sales: Mediocre
|Avg. Price
|Avg SF
|Avg Year
|% Ask
In the month of June, only 8 downtown Austin condo units were transacted on the MLS with all the key metrics showing market stress. While the units were bigger, newer, and more expensive than the units sold in any month in recent history, the $ / SF dropped 3% and the % of ask dropped from 98% to 87% -- a big drop. Average Days on Market soared from 60 to 117 days.
While June sales show market weakness, the results also show the weakness of the MLS. While 8 units sold through MLS, approximately 15 units went under contract at the Shore alone, all of which were being transacted outside of the MLS. Over the last year, the MLS records a total of 94 downtown sales while we know that more than 400 units were sold at 360 alone. So while the MLS numbers show a surprisingly small transaction volume, it is difficult to know whether sales were weakening or whether the most recent sales were simply closed off MLS.
Interestingly, 3 of the 8 units sold on the MLS were in Milago. Looking at the last 10 Milago transactions, the average price has settled in at $286 / square foot. The 3 June Milago units were all under 1,000 square feet while the other 5 units sold were all over 1,000 square feet. Two June transactions were for units larger than 2,000 square feet --- very large by downtown Austin standards.
The New Downtown Austin Rental Market
Last year alone, more than 1,200 new downtown rental units emerged. Unbelievably, more than 900 of these have already been rented. These units fetch some of the highest rents in central Texas. At the Ashton, a new project in the 2nd street district across from the Dell Discovery Center, rents average $2,500 a month. That will rise to about $3,000 once incentives of two months of free rent ends. The 36-story $110 million project features marble-tiled bathrooms, two-story penthouses, a wine cellar and private movie theater.
Summary: Recent Downtown Austin Rental Projects
|800 W Fifth St
300 N. Lamar
|300 N. Lamar
Red River Flats
|901 Red River St.
AMLI Downtown
|201 Lavaca St
Robertson Hill Apartments
|1000 San Marcos St.
AMLI on 2nd
|421 W Third St
|127 E. Riverside Dr.
Legacy on the Lake
|43 Rainey St.
Gables on 5th St
|1611 W. Fifth St.
|300 S. Lamar
The Ashton
|101 Colorado St
Gables Park Plaza
|W Cesar Chavez St @ Lamar
Gables Pressler
|507 Pressler St.
While units are being absorbed at a record rate, it's taken lots of incentives to get leases signed. Most projects are offering 1-3 months of free rent to get people to sign leases in this soft, hyper-competitive market. Downtown rents vary greatly, from close to $1,000 per month to more than $6,000 per month.
Here is a summary of incentives from the Statesman:
- At the 29-story, 305-unit Monarch on West Fifth Street, developers are offering two months of free rent on some two-bedroom units, and three months of free rent on the four remaining penthouses. The project is 97 percent leased.
- At Greystar Red River Flats, at Red River and Ninth streets, rents for one-bedroom units have been lowered to $1,250 a month from $1,650, and two-bedroom units are renting $1,850 a month, $575 off the market rate, said Candiss Escobar, regional property manager. The project is 96 percent leased.
- On top of rent discounts, some complexes are offering incentives for tenants who sign a lease within 24 to 48 hours of seeing a unit, said Shannon Sullivan, leasing consultant for Robertson Hill Apartments on San Marcos at East 10th Street. With the three-month rent special, one-bedrooms at the complex now start at about $950 a month, down from $1,260 a month, and two-bedroom units normally priced at $1,800 a month are renting for about $1,400 a month, she said.
- At Cole, 119 new apartments on South Lamar Boulevard just south of Lady Bird Lake, it's been "extremely busy," said Jessica Higgins, a leasing professional with Lincoln Property Co. On average, five new leases a week have been signed since leasing began April 15, Higgins said. With current specials, studios start at $1,202 a month compared with the $1,420 a month market rent; one-bedrooms start at $1,384 a month, down from the $1,636-a-month market rate, and two-bedrooms start at $1,947, down from $2,301 market rent.
Exclusive: March Downtown Condo Sales Disappoint
Needless to say, March of 2008 was a very strong month. Amazingly enough, it wasn't a new project that drove last year's volume: sales during the month included 14 units in 11 projects including Milago, 5 Fifty Five, Brazos Place, Westgate, Railyard, Sabine, and the Brown building.
|Avg. Price
|Avg SF
|Avg Year
|% Ask
On the bright side, this March saw sales of three units larger than 1,000 square feet including a 2,500 SF unit in the Nokonah. However, this 41% increase in avg. SF was accompanied by a modest 22% increase in average price As a result, $/SF dropped by 17%.
During the same period, Inventory dropped from 187 units to 183 units with an average listing price of $613K.
See the updated index here.
Austin's Unique Urban Employment Core
This trend is no surprise. As cities grow, it's easier to add jobs to newly developed areas than to the previously developed urban core. More alarming, however, is that quite a few metropolitan areas actually lost jobs in their urban core during this period -- a trend which shows the urban deterioration of many metropolitan areas. On this list were Houston, Dallas, and San Antonio with absolute job losses of 17,683 (a 6.5% decrease), 19,356 jobs (a 7.8% decrease), and 2,655 jobs (a 2.6% decrease) respectively.
While Austin saw the percent of jobs located in the urban core slide from 27.8% to 24.4% between 1998 and 2006, the City actually added jobs to its urban core. During the period, Austin's urban core added 16,400 jobs, an amazing 12.6% increase. With 24.4% of jobs located in the core, Austin is far ahead of the average of 19.6% across all metropolitan areas.
What makes Austin different? First, in addition to a mostly-commercial downtown, the City has the University of Texas and most State government workers located well within 3 miles of the core. During the period covered in the report, a significant amount of office space was added downtown with the construction of the Frost Bank Tower, City Hall, CSC, and 300 West 6th Street to name a few.
Looking forward, the next decade may not show the same trend. With minimal downtown office construction planned, most of today's growth is occurring outside of Austin's urban core. Condo development may reverse this trend; if new projects bring residents downtown to live, retail and office capacity may not be far behind.
Condo Values by Building: Austintowers Exclusive
Not surprisingly, price per square foot varies widely for downtown Austin condo buildings. With values ranging from $197/SF at Greenwood Towers to $472/SF at the 5 Fifty Five Condos atop the Hilton, the data clearly shows that the building is the most important determinant of condo values. So, when you buy a condo unit, remember that the building will be the most important determinant of investment return.
Here are the details on actual building-by-building MLS sales over the last 14 months:
Downtown Condo Transactions: 1/1/2008 to 2/28/2009
|# Sales
|Avg SF
Five Fifty 05
Brazos Place
Austin City Lofts
Plaza Lofts
Posada Del Rey
Avenue Lofts
Cambridge Condos
Brown Building
Villas on Town Lake
Towers Town Lake
Greenwood Towers
As usual, these values exclude private transactions for units not listed on MLS. For example, hundreds of original transactions in 360 conducted by first time buyers purchasing from the sales center are not included. All resale and new transactions listed on MLS should be included.
Weaker Austin Housing Market May Lead to Tight Future Supply
With more than 40,000 new residents arriving in Austin each year, new housing units are very quickly absorbed. Since housing prices are determined by supply and demand, reduced supply relative to population will help restore market equilibrium, and may eventually cause prices to rise again.
Here is a summary of the very interesting article from Community Impact News:
National builders' woes will halt new home construction in a still-vibrant Austin market, Angelos Angelou predicted in his 2009 economic forecast, released in January.
"My fear is that national developers may have overreacted, and Austin may be penalized in the form of lower home starts, which eventually can create an artificial shortage," said Angelou, principal executive officer for AngelouEconomics.
Central Austin housing market data
According to Angelou's math, Austin has grown by about 60,000 people annually in recent years, with a natural growth (the difference between births and deaths) of about 18,000 per year. That means 42,000 people are newcomers to the area in need of housing.
In 2007, Austin had 18,000 home starts, but in 2008 only 8,100 housing units were built. He said 6,000 units are expected in 2009.
"That's not enough. The ideal number of home starts for Austin is 11,000. Obviously, business conditions dictate that only so many units are being built because the credit markets are frozen," Angelou said.
The largest decline in home starts has been in the $200,000 and under price range since fourth quarter 2006, according to data from housing data analysis firm MetroStudy.
"Capital constraints faced by builders and the tightening in credit for buyers played large roles in this decline," said Eldon Rude, head of MetroStudy in Austin. "While starts of homes priced below $200,000 will likely continue to slow in 2009, most of the decrease in activity will be in the higher price points."
Wait, wait — don't sell me
Angelou said that now is an ideal time to buy, but those thinking of selling should wait for the housing shortage.
"You don't want to be selling now. This is not a seller's market at all; it's a buyer's market," he said. "I would not even think of selling a house until two years from now, at least."
Owners whose home values have dropped should not panic and sell, said Mark Sprague, Austin partner for Residential Strategies.
"You haven't lost any equity if you haven't sold your house," he said. "It's like a stock. You have to wait for that equity to come back."
Renting out homes instead of selling them could be a viable option for homeowners wanting to move immediately, Angelou said. Rental prices are expected to remain stable, and the rent money collected should help cover the payments on a new home.
Read the full story here
Austin Market Fundamentals: 2 of 3 Indicators Strong
While job growth does not seem to be occurring -- layoffs are being announced every week in Austin much like the rest of the country -- the other two variables are surprisingly strong.
According to the Census Bureau, Austin/Round Rock was the 2nd-fastest-growing metropolitan area between 2007 and 2008. According to the Austin Business Journal, "the population in the Austin-Round Rock area grew 3.8 percent to 1.65 million between July 2007 and July 2008. Among major U.S. metros, that growth rate was second only to Raleigh-Cary, N.C., which experienced a 4.3 percent population uptick during the 12-month period."
This week, mortgage rates have dropped within striking distance of the all-time lowest rates, a record set earlier this year. 30-year fixed mortgage rates now average 4.98% for loans under $417,000. Jumbo rates, unfortunately, are still close to 7%. For all buyers, credit requirements remain tight.
While there is lots of bad financial news right now, the Austin market continues to hold its ground. While sales volumes have dropped significantly, prices have not. Hopefully, strong population growth and low interest rates will hold off the crisis that has effected much of the country.
Thinking About the Austin Market
Everyone Agrees: The January Real Estate Uptick
While the AustinTowers | urbanspace Downtown Market Index shows 4 transactions totaling roughly $1.5 million, we have been able to $10 million in downtown condos that was either put under contract or closed. After a very slow November and December, January was a positive surprise.
According to the analysts, price drops and record low interest rates have helped to spur a new round of real estate transactions. January, however, also included a couple of $1 million + reservations in new projects which would not have benefited from reduced interest rates (jumbos are high) or aggressive pricing. While one month does not make a trend, it's good to see increasing strength downtown and across the city. While activity has picked up, it is important to note that prices are not on the rise. Most experts still predict modest declines for central Austin during the first half of the year.
Article Continues Here: Read More...
Austin Home Building Plummets, Still Best in Nation
During 1998, Austin builders started construction on slightly more than 8,000 houses last year. This was the lowest number in 11 years.
According to Metrostudy, a Houston-based research firm, ustin has experienced a 66 percent decline in housing starts from its peak in the third quarter of 2006 to the end of 2008. This 2/3 drop represents a mammoth market shift. The drop, both in Austin and nationally, is the result of reduced demand for new units, restricted credit for buyers and developers, and falling prices which have made speculative projects unattractive.
Incredibly enough, this 66% drop ranks Austin #1 of the 81 markets studied by Metrostudy. Austin's relatively strong economy, continued inbound migration, steady home values, and lack of a bubble run up have helped to limit housing market erosion during the current credit and financial crisis.
Article Continues Here: Read More...
New Market Data: 2008 Downtown Condo Sales Analysis
The data does, however, provide a very clear view of the downtown resale market. It shows the price per square foot that buyers are willing to pay for real units, provides information on building-by-building sales prices, and shows how long it takes for units to actually sell. Here is the summary of 2008:
Market Summary - MLS recorded 130 downtown Austin condo transactions during 2008 with an average sales price of $345,856 which represents and average price per square foot of $308. Units sold for 95% of listing price in an average of 91 days. The project with the most sales on MLS was Milago with 25 transactions. Here are the details:
- 130 DT Condo Transactions in 2008
- Avg. Sales Price: $345,856
- Avg. Listing Price: $362,750
- Sales were 95% of Listing Price
- Avg. Sold $/SF: $308
- Avg. Listing $/SF: $322
- Avg. Days on Market: 91
- Avg. Unit Size: 1,126 Square Feet
Old v New - The MLS data clearly shows that the downtown Austin condo market is really 3 separate markets. Read More...
Is Downtown Austin Overbuilt: Understanding Austin Condo Supply & Demand
In this market, it is common to hear the Austin condo market referred to as "overbuilt." This is an easy claim to make: any new unit is an excess unit in a market like this. What is important to note, however, is that it takes three to five years to bring a new project to market. With capital markets frozen, it's is unlikely that additional projects -- besides those currently under construction -- will hit the market for another five or six years.
This leaves us with the available inventory in projects currently under construction as the total supply for years to come. If you look at the buildings currently rising, projects like the Austonian, BartonPlace, the Four Seasons, the W Hotel & Residences, Spring, and Zilker Park Residences, there are actually less than 1,000 units currently under construction in downtown Austin. According to Kevin Burns, there are approximately 360 unsold new condo units in the pipeline for the Austin market. This is the total available inventory for the next half decade. These units will sell out and the market will be tight before new units are able to be funded, planned, and constructed.
It is important to remember that the fundamentals of downtown living remain strong: people are moving to Austin, downtown is being rapidly transformed into the center of the community, and people from across the region are looking at downtown Austin as a great place for a second home. As downtown Austin reaches a critical mass, the downtown migration is likely to accelerate.
While the downtown Austin market is doing better than almost any other market, there is no doubt that there are more units than buyers right now. Especially on the high end, for million dollar units, inventory absolutely exceeds current demand. As interest rates drop there will be an opportunity for buyers to have the best of both worlds: negotiating power and cheap mortgage funding. Whether this is enough to drain inventory in advance of a true economic recovery remains to be seen. The difficulty in adding future downtown condo supply makes it likely that the current condo slump will reverse sometime in the next 12-24 months. Given that many of the most prominent projects are not scheduled for completion until late 2009 or early 2010, people who want to live downtown will be limited to unsold units in 360 and resale units in other recent projects until that time.
In summary, while downtown Austin inevitably appears overbuilt today, there are just 360 units to sell over the next five years. Over this period, the current trends are almost sure to reverse, likely making the next twelve months seem like an ideal opportunity to enter the market.
Uh Oh. Austin Homes Sales Fall 39% in November, Prices Down 3%
In looking at this data, it's the sales volume that is the big news -- much more so than the small price drop. From a volume perspective, last month was the weakest November in 11 years. The number of transactions was roughly half the number 2-years ago during the 2006 market peak. While median sales prices dropped 3% year-over-year, it's important to note that median price changes do not necessarily mean that home values have changed. The median price factors home sales prices and the mix of sales. So, if prices increase slightly but sales boom for inexpensive houses while sales fall on expensive house, the median price will likely decrease while house values may actually go up. In the current market, we're seeing both ends of the market under unusual pressures: new home buyers have trouble getting credit and high-end houses are being hurt by very high jumbo mortgage rates.
The rapid drop in sales volume clearly reflects uncertainty about the ongoing economic crisis. While many forces effect sales --consumer confidence, mortgage rates, credit availability, net migration, and local employment --it is important to note that mortgage rates have dropped to a nearly 40-year low since the end of November, providing a very strong reason for buyers to jump back into the market and reverse the November trend.
For historical context, the following table shows November sales volumes and median sales prices in the Austin MLS for the last 15 years:
Year # Sold Median $
2008 1,086 $179,000
2007 1,771 $185,200
2006 2,141 $172,200
2005 1,975 $167,900
2004 1,630 $147,500
2003 1,362 $151,500
2002 1,304 $149,800
2001 1,388 $152,400
2000 1,245 $148,000
1999 1,340 $130,800
1998 1,222 $119,300
1997 1,004 $113,600
1996 861 $109,400
1995 928 $103,200
1994 727 $ 98,100
The numbers reinforce the point that sales volumes have dropped dramatically -- to 1997 levels -- while median prices have dipped just slightly, behind only last years record levels. Read More...
State of the Downtown Condo Market
- With mortgages tough to get and consumer confidence eroding, it is a tough time to sell real estate
- The capital markets are a mess, making it difficult for new projects to get the financing they need to get off the ground
- Sales absorption has slowed as the economy has weakened
These comments are all true and all derivatives of a single fact: the national economy is a mess. Over the last few months, the financial markets have plunged, the government has invested $8 billion in bailouts, and U.S. real estate is experiencing an unprecedented erosion of value.
It is true, it is a very difficult time to be raising money for a project or selling real estate --- no matter who you are. The Austin economy and real estate market has eroded but still remains much stronger than similar markets in almost every other city in the country. And the problems here are the same whether you are selling a million dollar house in Barton Creek or a million dollar condo: fewer people think it is a good time to buy real estate.
What does this mean for the downtown condo market? Let me start by what it does not mean: it does not mean that the new buildings will never be filled, it does not mean additional buildings will never be built, and it does not mean condo values will plunge disproportionally. What it does mean is that the condo market is not isolated from the real estate problems facing the rest of the city, especially when it comes to million dollar units. In addition -- because condo projects take a long time to be built -- it means that the new units currently under construction will be all that is available for the next 2-3 years.
For buyers, the current market provides additional leverage. In this environment, buyers should be able to get price reductions or free upgrades in many of the projects. At this point, there is no fire sale: developers would prefer to wait out the market than give unbuilt units away.
As part of their survey of the market, the Statesman provided updated sales numbers for four of the largest projects:
360 - 96% under contract, 91% closed
Spring - 50% under contract
Four Seasons Residences - 50% under contract
W Hotel & Residences - 45% under contract
As usual, the Austonian did not provide any sales numbers. As we wrote in mid-2007, "It remains to be seen how many high end condo units can be absorbed by the Austin market. In the Austonian alone, there will likely be more than 100 units priced over $1 million -- that is a lot of inventory in one building. The project's construction budget alone is greater than $1 million per unit which should provide an indication of the average unit selling price."
Here are key excerpts from the Statesman Article: Read More...
How Many Units Exist Today in Downtown Austin?
The list included 35 buildings with a total of 3,954 units. Of these, 2,380 of these units are condos and 1,574 are rental units. All of them are available for occupancy today although many may not yet be occupied (i.e. The Monarch). As would be expected, 75% of available downtown units are in just 15 buildings:
# Units
|Gables West Ave
|AMLI on 2nd
|AMLI downtown
|Legacy on the Lake
|Towers on Town Lake
|Cambridge Tower
|404 Rio Grande
|300 North Lamar
|Red River Flats
|Greenwood Tower
|Railyard Condos
The other buildings included in the count are-- in size order -- 555, the Nokonah, Brown Building, Westgage Towers, Austin City Lofts, Penthouse Condos, Sabine on 5th, Brazos Place, Plaza Lofts, Posada del Rey, Villa on Town Lake, Regency, Avenue Lofts, Brazos Lofts, Littlefield Quarters, 904 West, House Park, Hickory Hill Apartments, 706 West, North Cottage, and the Burke Hendricks House.
AustinTowers is currently tracking another 781 condo units which are currently under construction and expected to be delivered over the next 2 years. A number of large rental project are also currently under development.
For a metropolitan area with nearly 1.6 million residents, there is enough capacity downtown today to house a miniscule .5% of Austin residents. With high land and construction costs, however, downtown units remian out of reach of a large portion of Austin area home buyers.
Interestingly enough, the estimated downtown Austin population of approximately 6,000 residents is substantially lower than the number of Austinites who used to live downtown in the 1940s, 1950s, and 1960s. In 1940, when the entire population of Austin was 87,930, approximately 13,000 people representing nearly 15% of the population lived downtown. During this period, residents lived mostly in single family homes and small housing projects. During the later half of the 20th century, Austin's downtown population steadily declined as commercial, retail, and industrial development displaced downtown housing and as many residents fled for the newly emerging suburbs. The downtown population bottomed out at 3,500 in the 1980s and has been slowly increasing ever since.
While the current downtown building boom is unprecedented, it will not create enough capacity to meet Mayor Wynn's goal of 25,000 downtown residents.
New York Times: Downtown Austin is Attractive Second Home Location
The New York Times also indicated that buyers are increasingly able to negotiate with developers and condo owners for price reductions and free upgrades. In this tough market, where too few buyers can get decent loans, developers are increasingly eager to cut deals with prospective buyers.
Here is the full article from the New York Times:
MORE than 200 live music sites, weather with annual temperature averages in the 70s, and thoughtful urban planning make downtown Austin an appealing second-home location.
Beginning in the 1990s, city planners decided to model its urban core on the downtown in Vancouver, British Columbia. The result is an area of high-density housing; vertical mixed-use building; plenty of cafes, restaurants and bars; and pedestrian-friendly public spaces that include biking and hiking trails around Lady Bird Lake (formerly Town Lake).
Buyers of second-home downtown condominiums come from larger cities like Boston, New York, Dallas, Houston and San Francisco. Some choose the area based on their experiences there while attending the University of Texas. Others, like young technology professionals, come to the city while on business, then choose to purchase small units for use on weekends or vacations.
Retirees and those who are about to retire are often attracted by the area's amenities, real estate agents said. Another group of buyers are people who don't want to be dependent on cars.
Eric Winkler, owner of E. J. Winkler Realty Company in Austin, said the supply of new construction condominiums now exceeds the demand. "Prices are negotiable," he said. "I've seen $90,000 come off a $490,000 list price."
Buyers at the Plaza Lofts at Republic Square Park can find one-bedroom units listing for about $329,000. Cory Culpepper, an agent at van Heuven Properties, said that the price is about $100,000 less than a year ago.
Dave van Heuven, owner of van Heuven Properties, said that changes in lending practices, not an excess of building, account for a trend in pricing. "If you look at the 43-story 360 Condominiums, all 432-plus units were sold out, most of them preconstruction," he said. "Now some of these same units are being offered again because of financing that didn't go through."
At the low end, listings range from about $250,000 to $450,000 for an 800-square-foot unit in a new building. At the high end, prices range from about $750,000 to $1 million, with penthouses in luxury buildings listing for up to two-thirds more.
Overlooking Republic Square Park, this 12th-floor, 2,900-square-foot penthouse condominium is in a six-year-old building called the Plaza Lofts at Republic Square Park. A staircase inside the unit leads to a private rooftop terrace providing more than 600 square feet of outdoor space. The living area includes floor-to-ceiling windows, custom-made wood cabinets, polished and stained concrete floors and 13-foot-high ceilings. Electronic solar shades cover the windows, and the heating and cooling systems are zoned and computer-controlled. Glass inserts in interior walls allow natural light to pass through. The master suite is 900 square feet, and there are two and a half bathrooms. The building's amenities include concierge service, a rooftop pool and a fitness center. Fees: $1,040 monthly. Taxes: $21,869. Listing agent: Kumara Wilcoxon, van Heuven Properties, (512) 480-8944; www.downtownaustinliving.com.
Ten-foot floor-to-ceiling windows and a 64-square-foot balcony face west from this condominium with a view of Lady Bird Lake. It has 812 square feet of living space, which includes oak hardwood floors, granite countertops in both the kitchen and the single bathroom and an area for a stackable washer and dryer. Stainless steel appliances are included. The building provides wireless Internet service in all common areas. Other shared amenities include a ninth-floor activity deck with a lap pool, an outdoor living room with a fireplace, a catering kitchen, a movie theater, a fitness center and 24-hour concierge service. Fees: $247 monthly. Taxes: $5,590. Broker: Taylor Andrews, Andrews Urban LLC, (512) 477-0360; www.lifesurroundsyou.com.
September Update: Prices Hold Steady
The news, in general, was stronger in some of the more central areas and weakest in the more distant high-dollar suburbs. In Area 1B, just west of downtown, prices dropped by 2.8 percent. In far out 8W, just outside the 360 loop South of the bridge, prices dropped by a whopping 26.4 percent.
While downtown condo numbers have not been published, the numbers tend not to be very useful anyway. Most new downtown units are never listed in the Multiple LIsting Service -- they are sold directly by the sales office -- and as a result they never hit the MLS statistics. The inventory of existing downtown condos remains very small and only covers a part of the market (existing buildings). As a result, the market statistics are not always representative of the downtown Austin condo market.
Here is a summary from the Statesman:
Sales of existing homes fell 8 percent in September, but the median price was flat at $182,600 — the first time in months it had not increased, according to the Austin Board of Realtors.
The year-over-year price drops included 2.8 percent in Area 1B, which includes Tarrytown; 7.6 percent in Pflugerville; 26.4 percent in 8W, the affluent suburbs of Southwestern Travis County; and 18.2 percent in west Georgetown.
Local real estate experts had been anticipating that prices would start to drop, as a near-record supply of homes for sale gave buyers plenty to choose from. New-home builders also have been offering aggressive incentives, providing more competition for buyers.
In other parts of the country where prices have been falling for months, sales have picked up sharply. For example, Southern California home sales jumped 65 percent last month as prices fell 33 percent to a five-year low.
In Central Texas, there were 1,670 sales last month. There were 1,520 pending sales — transactions in the pipeline — down 10 percent from a year ago.
There were 10,217 homes on the market, up 2 percent from a year ago.
Austin Rental Market Deteriorating
Since the vast majority of Austin rental units are outside of downtown, the recent slide most effects large commodity complexes in the areas surrounding the city. In downtown, where there are few units but where prices are much higher, developers are working equally hard to fill large new projects such as the Monarch & Legacy on Town Lake. For these developers, the hardest units to fill are the most expensive. Demand still remain solid for all sorts of affordably priced downtown housing, whether condos or rental units.
Here is a summary from the Austin Business Journal:
The Austin apartment market experienced one of the biggest drops in annual rent growth in the country during the third quarter, a new report shows.
Austin's annual rents increased just under 1 percent in the third quarter, down from a 5.6 percent increase in the third quarter 2007, according to the report from Dallas-based Axiometrics.
"We've seen a big change in Austin from a year ago," Axiometrics President Ronald Johnsey says. "Austin had been experiencing incredible job growth, and now that's fallen off the cliff. The apartment vacancy rate has increased from 5 percent to 6 percent in the last year. Meanwhile, developers are delivering 8,000 new units this year."
Johnsey predicts the market's vacancy rate will rise to 8.1 percent in 2009. But developers have recognized the need to curtail new product. New multifamily permits dropped nearly 30 percent in the last year, and that leveling of product against demand should help stabilize the market in coming years, he says.
"That makes me a little more optimistic for Austin going forward," Johnsey says.
Austin is likely to fare better than the rest of the country in the rental realm. Nationwide, rent growth is the slowest its been since early 2004, the report shows. The apartment vacancy rate increased to 6.5 percent last quarter, up from 5 percent a year ago.
Johnsey attributes both factors to the slowing economy and lack of new jobs. He says the significant inventory of unsold houses and condos has put pressure on housing prices nationwide and made it more difficult for apartment companies to raise rents.
Be it Known: Austin is Very, Very, Very Lucky
According to the Journal:
The result of homeowners being "under water" is more pressure on an economy that is already in a downturn. No longer having equity in their homes makes people feel less rich and thus less inclined to shop at the mall.
And having more homeowners under water is likely to mean more eventual foreclosures, because it is hard for borrowers in financial trouble to refinance or sell their homes and pay off their mortgage if their debt exceeds the home's value. A foreclosed home, in turn, tends to lower the value of other homes in its neighborhood.
About 75.5 million U.S. households own the homes they live in. After a housing slump that has pushed values down 30% in some areas, roughly 12 million households, or 16%, owe more than their homes are worth, according to Moody's Economy.com.
The comparable figures were roughly 4% under water in 2006 and 6% last year, says the firm's chief economist, Mark Zandi, who adds that "it is very possible that there will ultimately be more homeowners under water in this period than any time in our history."
In Austin, however, we are very, very, very lucky to have been spared from the worst effects of this emerging crisis. While real estate values across the city have dropped by a percent or two, we have largely avoided the catastrophic drops that have plagued California, Florida, Michigan, Arizona, Nevada, and other parts of the country.
When home values spiked across the country, values in Austin grew at a much more moderate pace. This trend has benefitted Austin on the way down: As the bubble burst across the country, Austin prices have stayed relatively stable.
Wall Street Journal Map: Red Indicated Areas Where Large a % of Homeowners Are Under Water
When home values fall dramatically, homeowners are left without attractive options. In addition to losing their down payments and home equity, buyers across the country have found themselves unable to refinance unattractive mortgages because they lack real equity in their homes. In addition, many buyers are unable to sell their houses because they do not have the cash required to bridge the gap between the homes value and the large mortgage balance that they owe.
While national financial markets continue to deteriorate, the Austin market could always turn negative. So far, however, reasonable prices, a strong local economy, and net inbound migration have kept prices stable. If the current trends continue and Austin real estate values hold, we should count ourselves as incredibly lucky.
Analysis: The Impact of U.S. Financial Market Turmoil on the Downtown Austin Condo Market
Like all major products and markets, the downtown Austin condo market will be directly effected by this economic turmoil. Here are some of the ways that downtown condo projects may be effected:
(1) Conservative Spending Will Slow Demand: Yesterday alone, more than a trillion dollars in value was lost in U.S. equity markets. While the markets rebounded today, severe drops in major markets have left buyers with less money, and less confidence in the earning power of their assets. During bear markets, even the rich reduce spending to preserve assets in the face of uncertainty. In tough times, large discretionary purchases are often the first to be deferred. While the Austin real estate market remains one of the strongest in the country, the market turmoil will inevitably hurt demand for downtown condo units -- especially demand for units that may have been purchased as second homes.
(2) Mortgage Rates are Rising: After the rescue of Fannie Mae and Freddie Mac, conforming mortgage rates dropped significantly across the U.S. Last week, with turmoil in the markets, mortgage rates jumped again as credit markets began to freeze. In addition, the gap between the rates on conforming loans and jumbo loans over $417,000 remains large. With many units priced over $500K or even $1 million, rising rates will also likely effect demand.
(3) Precarious Project Funding: While many of the projects currently under construction are fully financed and will be able to continue development as long as sales continue at a steady rate, turmoil in the credit markets will make it difficult for new projects -- including some projects still in the pre-sale phase -- to receive financing. If the market problems continue, we may see some yet-to-be-built projects cancelled.
(4) Lower Supply Increases Long Term Appreciation: For owners of downtown condo units or buyers currently waiting for delivery, the current turmoil could ironically lead to higher long-term appreciation. Demand for downtown housing remains very strong and continued migration into Austin will lead to a steady stream of new downtown residents. With the current turmoil and the general real estate meltdown of the last year, fewer units will be built over the next few years than might have been. When the market does recover, more buyers will be competing for a smaller pool of units, pushing prices higher than if more units had been constructed.
(5) Unexpected Consequences: Since Austin is not a closed economy, it's hard to know all of the ways that this week's market turmoil will effect the downtown Austin condo market. When times get tough in California, home owners may cash out and come to Texas, providing an unexpected boost to the local market. If economic conditions hurt the technology industry, Austin may be disproportionately hurt by the downturn.
Nobody knows how long the current economic crisis will last or how it will effect the downtown Austin condo market. While things may get better or worse, one thing is clear: national economic events will have a direct effect on the local real estate market, and a particularly strong effect on the nascent high-dollar downtown Austin condo market.
Where are the 360 units?
360 has been successful because it is tall, offers great amenities, is well located, and also because it's priced affordably with the bulk of units originally priced between $200k and $500k.
While much has been made about the project's sales -- they have been very strong -- we have received recent reports of units becoming available through the sales center. While 360 does have a wait list for some units, it's still possible to get into the project if you are flexible when it comes to view, floor, and floor plan.
But, given that they have built 430 units, why have no resale units hit the market? The answer lies in specific rules put in place by the 360 developers:
- A non-refundable earnest money deposit is required at the signing of the contract and will be applied to your purchase at closing. At 360, we are offering a six-day rescission period on all contracts. After the six-day rescission period has passed, you may not terminate your purchase contract without forfeiting your earnest money. Also, resale of homes will not be allowed within six months of the first home closing.
- Unless it is otherwise approved in writing in advance by 360 (who has the sole discretion of withholding approval), you may not advertise your 360 home to a third party or offer your 360 home for sale until 6 months from the date of the first home closing.
- The contracts that buyers will be executing for homes at 360 are not transferable to 3rd parties. If you are unable to close on a home you have under contract, 360 will retain the home and earnest money.
- 360 Investor restriction: In total you may purchase two homes; one as a primary residence and one as an investment.
Because of these rules, the first resale units are likely to hit the market around Thanksgiving. Given the demand, it will be interesting to see if these first units carry a premium over the original units prices.
The Future of the Austin Condo Market: AustinTowers.net Featured on News 8 Austin
Here is the transcript of the News 8 Austin story (Original story and video can be found here):
Living in a condominium has its perks.
Lou Talamo lives at The Shores on Davis Street in Downtown Austin.
"I'm close to everything," he said.
Talamo is one of a growing number of condo owners in Downtown Austin, and more are on the way.
According to the Sales and Marketing Director for The Shores and Four Seasons, Brandon Miller, demand is high.
"Of the 1,000 condos under construction, at least half have already been sold," he said.
According to Austintowers.net Editor Paul D'Arcy, four downtown condos have been cancelled and seven are pending.
"Certainly, when I started this a year and a half ago it was boom time for condo projects. It seemed like every week another one was being announced. Since then, many of the projects have disappeared," he said.
Plans for Aqua Terra Condos on Barton Springs are on hold as are plans for Sungari Pearl Lofts on East Fifth Street.
JMI Realty President and CEO John Kratzer said they've decided not to build condo units on top of the hotel they plan to build on Davis Street.
Kratzer said it all boils down to money.
"As you know, we had the meltdown in the sub-prime mortgage market last fall," he said.
That's why many lenders aren't willing to invest in these major projects anymore.
"I would say you could count them on one hand across the whole country," Kratzer said.
Those wanting to buy into the condo projects are finding it equally difficult, according to Melanie Taliaferro, Fairway Independent Mortgage Company loan officer.
"The big banks are starting to take a closer look and say, 'Now before we lend anybody money to buy into these projects, we want to see that they are at least 50 percent pre-sold," she said.
Miller said the stalling condo market could be good news.
"That means what is being built and what's under construction today is all that's going to be under construction. You're not going to see any new building start up which means we are not bringing a lot of supply to Austin," Miller said.
But D'Arcy said developers shouldn't throw in the towel just yet.
"There still seems to be enough demand for those projects to be successful," he said.
Condo Prices by City: How Does Austin Compare?
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:
$ ('000)
San Francisco-Oakland-Fremont, CA
Honolulu, HI
Los Angeles-Long Beach-Santa Ana, CA
New York-Wayne-White Plains, NY-NJ
Sarasota-Bradenton-Venice, FL
Austin-Round Rock, TX
(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:
$ ('000)
Syracuse, NY
New Orleans-Metairie-Kenner, LA
Houston-Baytown-Sugar Land, TX
Norwich-New London, CT
Chicago-Naperville-Joliet, IL
Austin-Round Rock, TX
Jacksonville, FL
Miami-Fort Lauderdale-Miami Beach, FL
Las Vegas-Paradise, NV
Reno-Sparks, NV
Sacramento--Arden-Arcade--Roseville, CA
(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:
$ ('000)
Salt Lake City, UT
Austin-Round Rock, TX
Bismarck, ND
Portland-Vancouver-Beaverton, OR-WA
Honolulu, HI
Los Angeles-Long Beach-Santa Ana, CA
Reno-Sparks, NV
Las Vegas-Paradise, NV
Cape Coral-Fort Myers, FL
Sacramento--Arden-Arcade--Roseville, CA
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.
Surprising Results From New Downtown Living Survey
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!
Construction Costs Continue to Rise
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.
Austin Downtown Rental Glut?
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.
Updated: Building-by-Building Monthly Condo Fees
Condo fees fund the daily operations and maintenance of most condo buildings. They cover security, landscaping, cleaning of common area, common area energy use, maintenance, and other key building functions. On average, our research shows, condo unit owners can expect to pay $0.42 / SF / per month or $420 in monthly condo fees for a 1,000 SF unit. For more information on total condo costs, check out our detailed posting on condo cost of ownership.
Looking at detailed MLS records on a broad range of units and through tips from buyers, we've calculated the rough fees for most of the major downtown condo buildings. The fees are universally calculated on a dollar-per-square foot basis that typically remains constant on all units throughout each building. So, condo fees are not higher for more expensive units, or units with more bedrooms, or units on higher floors compared to less desirable units of the same size in the same building.
The prices in new buildings that we have looked at are surprisingly varied -- they range from $0.28 / SF / Month to $0.64 / month -- an amazingly broad range. If anyone has numbers for other buildings, send them to us and we will add them to the list. Apprearing for the time on the list is Spring with monthly condos fees of $0.38 per square foot.
Here is our updated list of condo fees by project:
Fee by Building - - - - - $ / SF / Month
Avenue Lofts.................$0.28
The Sabine...................$0.33
Plaza Lofts..................$0.33
The Shore....................$0.36
Spring...................... $0.38
Five Fifty Five Condos.......$0.40
W Hotel & Residences.........$0.61
Four Seasons Residences......$0.61
Austonian.... . . . . . . . .$0.64
Look! Is that a kid in a downtown condo?
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.
Betting on a Project: The Pre-Construction Purchase Process
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.
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.
2008 Downtown Condo Property Assessments: Shockingly Modest Growth
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%.
Austin Real Estate: The State of the Market
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.
Austin Foreclosures and Loan Delinquencies
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.
Who is Buying Downtown: 5 Statistics that Summarize Downtown Condo Demographics
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.
2008 State of the Market: Updated Condo Sales Statistics
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.
Great News: Austin Home Prices up 0.33%!
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. "
National Condo Market Continues to Implode
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.
Economist: Downtown Condo Market To 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.
Statesman Article: Why Live Downtown?
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
Forbes: Austin to Lead Nation in Economic 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, Seattle, Orlando, Houston and San Jose, Calif., also appear high on the list. What do they all have in common? They're tech hubs with proximity to universities and a healthy increase in population. Austin's population, for example, is expected to increase by nearly 15% by 2012, according to Moody's Economy.com forecasts.
The full article and rankings can be found here.
Another Option: Older Downtown Austin Condo Projects
If you are interested in a 3 bedroom 2,000 square foot high-rise downtown condo unit for $425,000 or a 1,000 square foot condo with 2 bedrooms and 2 baths for under $250,000, many buyers would be surprised that they exist today. While the older buildings may not offer the same amenities and quality of build-out -- especially when it comes to kitchens and bathrooms -- the older building do offer a unique combination of location and space that can't be beat.
To help downtown Austin condo buyers evaluate all available options, we have further expanded our Listings page to include four older projects. Now, the expanded Listings include virtually every downtown Austin condo unit listed on MLS today. There is not better place to search for units or track the downtown condo market!
Here are links to the the new listings pages for older downtown Austin condo projects:
Cambridge Condos (18th & Lavaca) -- MLS Listings
Penthouse Condominiums (12th & Guadalupe) -- MLS Listings
Towers of Town Lake Condos (I35 & Town Lake) -- MLS Listings
Westgate Condos (11th & Colorado) -- MLS Listings
Balancing Music & Growth: Austin's Unique Downtown Challenge
Whenever a conference planner chooses Austin for an event, they typically need to sell the city to potential attendees as much as they need to sell the conference event. Time after time, they use the same hook: visit the Live Music Capital of the World.
Between SXSW. Austin City Limits, and the daily music shows throughout downtown, live music supposedly contributes $420 million in direct sales and $580 million in tourist revenue each year to the city economy. By the way, these numbers exclude all of the convention-goers drawn to the Live Music Capital of the World for a medical, education, technology or other non-music event -- but who sign-up partly to experience Austin's unique music scene.
The issue is that downtown land -- especially land that can support high-rise development -- is extremely limited. As a result, new retail, residential, and commercial buildings have been replacing older music venues. With scarce land, property values and property tax assessments have been skyrocketing, forcing landlords to raise rents on music venues. At the same time, musicians and the rest of the creative class have been increasingly pushed out of central Austin as rents have risen. As if that is not enough, some new downtown condo residents have been complaining about the noise created by music venues. The bottom-line, Austin's music scene is under siege.
The Austin music scene is a fragile ecosystem. SXSW requires 50+ venues to keep the event in downtown Austin. As venues are lost, musicians have fewer places to work, and the music community shrinks making it more difficult to support new venues. Today, believe it or not, 20,000 Austin resident make a living in the music industry. If music gets forced out of downtown, the whole city will suffer.
The New Austin Music Hall
Fortunately, the city is looking closely at this situation. As part of a new cultural arts master plan, the city is looking at creating a downtown entertainment district covering sixth street, the red river area, and the warehouse district. Some private developers are also helping out. Novare, for example, helped to fund the redevelopment of Austin Music Hall when it began construction of the adjacent 360 project.
The next few years represent a critical opportunity for the city to permanently protect it's status as the Live Music Capital. Otherwise, as downtown growth accelerates, one of the main draws for downtown living may itself be endangered.
Welcome to Austin: The New Migration Boom
Today's news is good news for downtown residents and bad news for anyone that sits in Austin traffic: new statistics from the census bureau show a dramatic acceleration in migration into Travis county and the rest of the Austin metropolitan area. The latest statistics, covering the full year 2006 (Thanks Census Bureau for the quick turn around!), show that a net 9,405 migrated into Travis county in 2006. This tops the tech boom record of 8,575 set in 2000 and represents a strong turn-around from 2002, 2003, and 2004 when the county experienced a net outbound migration.
Here are the migration statistics from 2000 - 2006:
2000 | +8,575
2001 | +4,867
2002 | -11,402
2003 | -7,152
2004 | -1,787
2005 | +1,602
2006 | +9,405
In addition, total migration into central Texas from California more than doubled over the last two years. Californians represent a major portion of new Austin residents, many of whom come with large amounts of home equity. AustinTower's own survey and readership statistics show that Californians are the most active out-of-state shoppers for downtown Austin condos -- followed by residents of New York, Florida, and Illinois.
For Austin Condo Investors, the Math Doesn't Add Up
There are lots of reasons why investors have stayed away: anti-flip provisions in contracts, credit issues in the mortgage markets, special deed requirements for renting, etc. One likely reason that has not received much attention is that investors may not stand to earn much money in the current condo market.
Let's say that you purchase a 1,200 square foot unit in a new building for $400 per square foot. Your unit would cost $480,000 and you would likely need to put up at least 10% -- $48,000 -- early in the construction process. If you are like many real estate investors, you would likely finance 80% of the purchase price to take advantage of cheap real estate financing. By taking loans, you can increase your total return by buy speading your cash across multiple properties .
Since restrictions would likely prevent you from flipping the unit until after construction is complete, you would have two choices: either trying to earn money by flipping the unit once no-flip provisions have expired, or by holding the unit for a longer period of time. By holding the unit, an investor would hope to capture rental income during the short term and capital appreciation over the long term.
Here is the problem, downtown Austin rental rates won't cover the costs of the unit. Let's review the math:
Monthly Revenue Received From Renter
$2,700 (Rent @ $2.25 / SF)
- $ 540 (20% Allowance for unrented months / leasing costs)
$2,160 Total Income
Monthly Costs Paid by Owner:
$1,920 (Interest-Only Mortgage @ 6%)
$ 504 (Condo Association Fee @ $0.42 / SF)
$ 878 (Monthly Property Taxes @ $2.20 / $100 Assessed Value)
$3,302 Total Costs
Monthly Loss from Renting: - $1,142
So, on a $480,000 unit, an invest-and-rent strategy would likely loose $13,704 per year on a $96,000 (plus fees) cash investment: a rate of return of (-)14.3%. In order to break-even on paper, a unit would need to appreciate at 2.5% per year. While this is possible, that just gets the investor to break-even, which is not a very exciting return. One important thing to note is that the economics change over time for investors that plan to hold for a decade or more. While mortgage payments stay level, and may even go down if the owner refinances, rents will likely continue to rise over time. Although property taxes and condo association fees also rise, they are only 40% of the cost equation in the first year.
But that's not all! If you are buying a unit in a new project, you will likely have to put money down --$48,000 in this case -- at least a year before project completion and sometimes even earlier. This money doesn't begin earning a return until a renter occupies the unit, adding to the start-up costs required to invest in a downtown condo.
Finally, one more issue for investors is that the Austin condo market is new. Nobody knows what the demand will be for the planned supply of units. It is a market that doesn't exist today, and there is always a risk of under or over-building. For investors, returns must be weighed against the risks of the individual investment. Since market uncertainty raises the perceived risk, investors will only put money on the table if they believe that they can achieve an appropriately high return.
These economics explain why there has not been much of an investor market for downtown condos. At this time, it is important to note that these economics don't really apply to buyer who plan to live in their units. For one, the economics of buying are very different as mortgage interest and property taxes are fully tax deductible. In addition, buyers get value out of their owner-occupied unit every month that they live there without the costs of finding and keeping renters.
These economics are not permanent, three variables can change the math at any time. If prices go down, rental rates go up, or interest rates go down, the economics can look very different. In the current market, rental rates are going up as interest rates continue to drop, making investor returns more attractive everyday. While construction costs are unlikely to drop significantly, oversupply could possibly lead to a drop in purchase prices. More likely, new unit costs will continue to inch upward. So if you are thinking of investing and can get the right deal, it may be possible to make the numbers work.
The Scary "B" Word: Will Investors Create a Downtown Austin Condo Bubble?
In the 10-years prior to the Miami condo boom, 7,000 condo units were built. At the peak of the boom, a total of 55,000 new units were announced. This is a LOT of units: enough apartments to fill 275 separate buildings with 200 units each for a city about twice the size of Austin. When the bubble burst, 22,000 were still under construction. The bubble ended badly with steep price declines, a lack of market liquidity for condo owners, and bankruptcy for some large-scale projects.
Will the same thing happen in Austin? The answer is that it is very unlikely. While future condo demand, prices, and appreciation (or depreciation) remain an absolute mystery, the market forces in Austin are very different from the market forces that drove the Miami condo bubble.
The problem in Miami was that prices were driven up by speculators who had no intent to live in the units they owned. Their hope was to sell the contract for a profit as soon as possible to another buyer. With too many investors and not enough real buyers, the cycle eventually ended. As investors pulled out and prices started to drop, speculators stopped investing in condos, significantly lowering demand. With a large supply of units and relatively few real buyers, prices continue to drop today. Like all declining real estate markets, many real buyers wait out the fall, waiting for the bottom to buy again.
So why won't the same thing happen in Austin? Developers have learned from the Miami example and put significant protections in place to protect themselves from speculators. When someone buys multiple units and goes bankrupt, developers are often left to pay the price -- as a result, they have a strong incentive to carefully screen investors.
For example, most major projects in Austin include the following investor safeguards:
- No flip provisions that prohibit owners from selling their contracts or units until after construction is completed. At projects like 360, some contracts limit owners from selling until 6 months after closing.
- Limitations on leasing units: Many projects require special deeds for investors who plan to rent their units to others. In some projects, these deeds are limited to 25% of the buildings units.
- Most projects that offer special deeds for investors that permit renting also require higher deposit requirements. Often, initial deposits are twice as high for investors as they are for owner occupants.
Together, these requirements make it less attractive for investors to speculatively invest on downtown Austin condo units in the same way that they did during the southern Florida condo bubble. In addition, the condo financing market has also changed significantly in the last 6 months, making it much harder for investors to borrow money for speculative units that they do not intend to occupy. Finally, while the rate of condo development in Austin is unprecedented by historical standards, it is far below the rate of development in Miami. During he Miami boom, 24.4 units were planned per 1,000 population. In Austin, the equivalent rate is 5.6 per 1,000 population, including thousands of units in projects that may never be built.
While nobody knows if Austin condo units will be a good or a bad investment, it's a healthy fact that many of the larger projects have protections in place to protect against Miami-style speculation.
Austin Real Estate Market Forcecast
Here is a summary of the results:
Greater Kansas City
National Average
East Bay, Calif.
The good news is that Austin is ranked higher than 72% of metropolitan areas with a projected value decrease of 4.4% over 5 years. This is substantially better than the 14.7% average projected for the average metropolitan area. The bad news is that prices are expected to decrease. Obviously, this data does not really say anything about the condo local market.
While reports like these always sound authoritative, it's useful to look closely at the methodology. This survey is based on a historical home price-to-typical rent ratio and assumes a return to historical averages. It doesn't look at any other market fundamentals: growth rates, employment, desirability, etc. In fact, the markets with the highest inbound migration are rated as the weakest markets while those where people are fleeing in droves -- detroit --are rated very high. For Austin, the bottom line is that the market was never caught in the boom that was experiences throughout the country, and the fundamentals are strong: for example, people are coming to town and employment growth is strong. That said, no one really know whether the local market will in fact go up or down over the next 5-years.
Density Bonuses: A New Urban Planning Model for Austin?
Here is a summary from the Austin Chronicle:
The incentives are the "bonus." For a developer, adding density is gaining additional project entitlements and additional value – more square feet, building floors (height), condo units, retail or office space to lease or sell. Zoning code limits the size of buildings; for example, in the Central Business District, entitlements are limited to an 8-1 floor-to-area ratio, or FAR. To reward developers whose projects advance urban planning and community goals, the city would grant them bonus entitlements in exchange for voluntary developer-funded community benefits – say, funding for affordable housing, parks, walkable streetscapes, and space for small, local businesses.
The thing that makes this a tough issue is the value judgment that it places on density: it assumes that high density projects are bad, and that developers should pay for the right to build bigger projects. The problem is that the Mayor and City Council's actions suggest that they believe the opposite to be true: they have worked hard to encourage high density projects for downtown.
The problem with density bonuses is that they don't seem to be supported by logic. The bonuses penalize dense projects, but do not prohibit them. If you believe that density is good, as much of our local elected officials seem to, then it doesn't make sense to put obstacles in place that will limit density. If you believe density is bad and that the current zoning rules are good, then it might make more sense to simply enforce the zoning rules and limit variances as opposed to allowing developers to pay for something which may not make sense for the city.
As we recently reported, Austin is not a dense city. While people disagree on whether they want tall buildings in Austin, density does have measurable benefits. For example, increased density is better for the environment, it enables mass transportation, and it provides for a vibrant downtown core with more residents and workers per square block. The alternative to density is suburban sprawl which has significant social costs. Additionally, dense projects provide significant tax revenue that can be used to fund important services. A large downtown condo project might contribute $50 million per year in property taxes which can pay for a wide variety of services. That revenue stream seems much more valuable than the hundreds of thousands of dollars in density bonuses currently being proposed by planners. (For more on the benefits of density, read this article).
In fact, the push for density bonuses is not really about density as much as it is about affordable housing. With rapid downtown condo development targeted toward high-end buyers and East Austin development replacing more affordable options, there is a growing consensus that action needs to be taken to ensure a diverse city center. The City wants to make sure that there will be affordable options for central Austin living. Unfortunately, the City's past efforts to achive this goal have not really worked. It's important to note that density is not the challenge to affordability. It makes perfect sense for the city to encourage bith density and affordable housing as important social goals.
When it comes to affordable housing, the big issue is cost. It is expensive to develop affordable housing when land and construction costs are skyrocketing. What the City likes about density bonuses is that they allow the city to tax large-scale projects to fund affordable housing. As reported by the Chronicle, this quid-pro-quo has not been a secret:
Last year, the City Council directed the Design Commission to recommend density bonus options. In the past several years, Downtown high-rise developers had been negotiating ad hoc exchanges of community benefits for neighborhood, commission, and council support of the variances needed to exceed existing entitlements. One early adopter was Constructive Ventures. On its Spring condominiums, the developer pledged to give $250,000 total for an affordable-housing fund and for park improvements along nearby Shoal Creek. This effectively countered Old West Austin Neighborhood Association opposition; Spring received variances at council to build a slender 400-foot tower on land zoned Downtown mixed use (which sets a 120-foot height limit). That $250,000 was also the magic figure for the variance-seeking CLB Partners condo tower, T. Stacy & Associates condo tower, and Gables Park Plaza; the Novare/Andrew Urban Downtown post office projects got additional height for $200,000. (Austin has probably been leaving money on the table; by contrast, the density models suggested at right would generate millions in value for the community.)But everyone involved in all that one-off deal-making – including City Council – found the negotiations exhausting, time-consuming, random, and potentially inequitable. So council members began to push for a standard density-bonus policy.
As this debate evolves into policy, stakeholders will have to decide what is truly important for the downtown Austin. The recent report from the City's density bonus task force has expanded the debate by encouraging not just requirements for variances but also incentives for meeting other urban planning goals. If projects hide the parking garage or include a cultural institution or non-profit, they would be eligible for incentives. Certainly, it makes sense for the city to use every tool that they have to achieve their urban planning objectives. But the risk of density bonuses is clear: blocking variances is one of the city's only sticks, making it tempting for officials to penalize projects that would bring beneficial density in order to achieve other important objectives. If developers opt for lower density projects because the required concessions are too expensive, everybody will lose.
Austin's Low Population Density
There are many benefits to having a higher density city. The environmental impact is minimized, public transportation is easier, sprawl is reduced. Today, Austin is not a high density city: even the central downtown area is relatively low density compared to the core of other major cities. Of the top 25 cities, Austin is the 20th most dense city. In Texas, Houston, Dallas, and San Antonio all have higher levels of density than Austin. If you you think Houston is sprawling, than you probably won't like Austin in a few decades if current growth rates persist. El Paso is the only large Texas city with a lower level of density than Austin.
While many people question whether downtown development is good or bad, there is no better way to improve population density. A dense urban core is vibrant, ecologically-friendly, and traffic-friendly. It is the best antidote to sprawl. Downtown development won't stop sprawl in Austin: the number of building permits for single family homes in Austin is nearly the highest per capita of any city in the country, it is the first step in the right direction. It provide people who want to bike to work or walk to dinner with an alternative that hasn't previously existed in Austin.
Here is the raw data from Demographia. The data is from 2000 and just looks at the city of Austin --- it excludes many of the suburbs with the lowest population density.
|Pop / SQ Mile
New York city
San Francisco city
Chicago city
Boston city
Philadelphia city
Washington city
Baltimore city
Los Angeles city
Detroit city
Seattle city
Milwaukee city
San Jose city
San Diego city
Denver city
Dallas city
Columbus city OH
Houston city
San Antonio city
Phoenix city
Austin city
Memphis city
El Paso city
Indianapolis city
Jacksonville city FL
Austonian Condo Fees Set a New Record!
These luxury features, however, are not free. Units in the Austonian start at $500K and top out at more than $7 million -- more than the selling price of almost any apartment or single family home in the history of Austin. On top of this, residents will pay the highest condo fees of any project in the city -- an amazing $0.64 per square foot per month which equates to almost $1,300 per month for a 2,000 square foot unit.
Condo fees fund the daily operations and maintenance of most condo buildings. They cover security, landscaping, cleaning of common area, common area energy use, maintenance, and other key building functions. Prior to the introduction of the W and Four Seasons Residences, the highest condo fees in Austin were $0.40 per square foot and the average was a low $0.34. At $0.64, the fees at the Austonian are the highest in the city. According the sources, the $0.64 fee is actually a reduction from the $0.67 per square foot which was originally offered to buyers.
Here is our updated list of condo fees by project:
Fee by Building - - - - - $ / SF / Month
Avenue Lofts.................$0.28
The Sabine...................$0.33
Plaza Lofts..................$0.33
The Shore....................$0.36
Five Fifty Five Condos.......$0.40
W Hotel & Residences.........$0.61
Four Seasons Residences......$0.61
Austonian.... . . . . . . . .$0.64
Austin in 2010: The Tallest Buildings
Between the Capital (#10), the Dobie (#5), and the UT Tower (#12), many of the tallest buildings have been around for a long-time:
Ten Tallest Buildings in Austin - 2007
1. 515 Feet - Frost Bank Tower
2. 395 Feet - One American Center
3. 391 Feet - One Congress Plaza
4. 377 Feet - Austin Hilton Convention Center Hotel
5. 367 Feet - Dobie Center
6. 329 Feet - Bank of America Center
7. 325 Feet - 300 West Sixth Street
8. 325 Feet - Chase Bank Tower
9. 320 Feet - 100 Congress
10. 311 Feet - Texas State Capitol
Over the next three years, the Austin skyline will change dramatically. If all proposed buildings are built, only one current building - the Frost Tower - will be in the top ten. In fact, 5 new buildings will be taller than any building currently occupied in the city. Of the future top-ten, four are already under construction and five are still in the planning stage.
Here is the full list:
Ten Tallest Buildings in Austin - 2010*
*(If all proposed buildings are completed)
1. 705 Feet - 501 Congress
2. 683 Feet - The Austonian
3. 580 Feet - 21C Austin
4. 563 Feet - 360 Condominiums
5. 550 Feet - 401-499 West 6th Street
6. 515 Feet - Frost Bank Tower
7. 450 Feet - 501-599 West 6th Street
8. 433 Feet - W Hotel & Residences
9. 432 Feet - Spring
10. 416 Feet - Altavida
Condo Sales: How Firm are They?
So what's the deal? Is the Austin market so strong that people keep on buying as rates go up? Is everyone in town paying in cash? Is there really demand for another 136 buildings? The answer is no. In reality, some of the buildings have made the reservation process so painless that with $5,000 or $10,000 and a dream you can reserve a unit. If interest rates rise, contractual provisions may allow you out of the contract. If you can't get financing, you get your money back. In fact, at some buildings, the deposit is fully refundable. Go ahead, reserve a unit and then decide if you want to live downtown. If not, just ask for your money back.
For example, the W Hotel and Residences has a $10,000 fully refundable deposit policy. While they report that they have "sold" 150 of their 196 units, this number will certainly drop when the hard earnest money is due at ground-breaking in October, or when some occupants find out that they will not qualify for a jumbo loan.
This isn't true for every project: once a building commences construction the deposit requirements typically become much more strict with as much as 10% of purchase price due to the developer. It's the buildings still in pre-construction sales whose "sales" are the hardest to gauge.
The Monthly Cost of Luxury Living
With this posting, we are publishing the condo fees of two new ultra-luxury projects, The W Hotel & Residences and the Four Seasons Residences, for the first time. Our previous analysis has noted that he prices in the new buildings that we have looked at are surprisingly constant -- they have varied from $0.28 / SF / Month to $0.40 / month -- an amazingly tight range. With these two new projects, this is no longer the case. According to our research, the condo or home owner association fees at both buildings are set at $0.61 per month -- 50% higher than any other building we have reported on and 85% higher than middle-of-the-road projects like 360. While it should be no surprise that the Four Seasons and W are more expensive than the Hilton, it's sets a new and unprecedented price for luxury condo living in Austin.
Almost universally, Austin condo fees are calculated on a dollar-per-square foot basis. The rate typically remains relatively constant on all units throughout each building. So, condo fees are not higher for more expensive units, or units with more bedrooms, or units on higher floors compared to less desirable units of the same size in the same building. The only thing that matters is the number of interior square feet. If anyone has numbers for other buildings, send them to us and we will add them to the list.
Here are the updated building-by-building statistics:
Fee by Building - - - - - $ / SF / Month
Avenue Lofts.................$0.28
The Sabine...................$0.33
Plaza Lofts..................$0.33
The Shore....................$0.36
Five Fifty Five Condos.......$0.40
W Hotel & Residences.........$0.61
Four Seasons Residences......$0.61
The Shrinking Downtown Austin Rental Market
Despite the strong rental market, plans for hundreds of planned downtown rental units have recently been abandoned to make way for condos. At the both the Four Seasons Residences and the Monarch, no rental units remain even though hundreds were originally planned. The Monarch, in fact, was originally proposed as an all-rental project before switching to an all-condo design during construction.
What is driving the change? The answer is simple: cost. The downtown condo boom has driven up both land costs and construction costs for downtown projects. As the cost of building downtown goes up, property taxes have also risen at a rapid rate. As these costs go up, developers are forced to pass on the increases to renters or buyers to maintain the viability of the project. So far, the condo market has shown strong resilience --- units continue to sell well even as prices increase. The rental market, however, is very different.
Today, there is only a small high end rental market in Austin. For rentals in the $2,000 - $5,000 / month range, the market is relatively limited. Today, the downtown premium for rentals is very steep -- downtown rents are as much as twice the rents for comparable luxury units in other parts of the city.
Unlike other cities, affluent Austin buyers prefer to buy houses or condos, they do not seem as inclined to rent big dollar downtown rental units. As costs have driven the required rental rates higher, developers have become concerned that they will not be able to rent all of their units at a high enough rate to make their projects financially viable.
While many units have been redirected from rentals to condos, there are still a few projects such as the new AMLI tower that are still slated to be 100% rental projects. As future downtown rentals do come to market, developers will likely focus on smaller unit sizes in order to keep rates competitve in the face of rising construction costs.
Forecasting Downtown Condo Sales
With the ongoing mortgage crisis, the billion dollar question is how the Austin condo market will fare. The answer: while the Austin market is one of the strongest in the country and condo demand remains strong, nobody really knows. The issue is that this is a new market: there is really no good parallel in the history of the city. According to the Statesman:
Forecasting demand for luxury condos is difficult, partly because there is little historical data for the fairly new phenomenon in Austin, said Eldon Rude, director for the Austin market of Metrostudy, which tracks the housing market.The next 12 months will be telling, Rude said. "We won't know how strong this market is until we see some of these projects get completed and begin to close units and move residents in."Their performance will depend on the economy, he said, "and it's impossible to forecast the state of our economy 12 months from now. "
As we have discussed, thousands of units are being planned for downtown Austin -- more than 1,000 are currently under construction. In fact, hundreds of units have been reserved in the last two months alone. For comparison, only 15 downtown condo units have sold on the resale market in this same time period. The difficult thing is that it is dozens of new projects which are being simultaneously introduced to the market. While demand has been strong for the prime projects, it can't be bottomless and nobody knows where the market ends.
One thing which is clear is that the market is stronger on the low end than the high end. The lowest priced units are moving very quickly while it remains to be seen how the high end units will fare. Like many other markets, it will likely be years before we know how many people want to live in a downtown condo and have the resources to afford it!
July Sales: Central Austin Demand & Appreciation Remain Strong
The best analysis of the market comes from Ki Gray and his blog:
All.........Outer Austin.......Inner Austin
If we look at the numbers, we saw a total increase in inventory of 1083 homes. If we break this down, we saw an increase of 1050 in outer Austin and an increase in inventory of 33 homes in central Austin. So this is an increase of inventory in the suburbs of 15 percent compared to an increase of 2 percent for central Austin.Another way to look at this is to look at months of inventory on the market:
So in summary, the numbers for the Austin market are better than what we see in an average market (6 months of inventory) but we have slowed down a bit from the fasted pasted market that we saw last year. Also we are seeing central Austin again outperform the suburbs.
When analyzing these numbers, there are a few things to note. First, prices are increasing sharply in downtown neighborhoods: as much as 20-30% in the prime neighborhoods over the last year. Second, these statistics do not include the strong sales of downtown condos which are not listed in MLS. In fact, when these units are considered, it is possible that citywide sales actually grew in July. Finally, it is very important to note that these numbers do not reflect the dramatic changes in mortgage lending which occurred in mid- August. While iy will will take a few months to see the full effect of the current lending environment, it will be strong and negative. The good news is that Austin is better prepared than almost any other metro area: with a strong market and low inventories, Austin should ride the down market quite well.
Austin Housing Prices Increase 5.6%
According to the Austin Business Journal:
The cost of Austin-area homes has increased 5.6 percent in the last 12 months as prices on the national stage dropped 1.5 percent, a report released Wednesday shows.The median price for a home in the Austin-Round Rock metropolitan market stood at $186,600 at the end of the second quarter, up from $176,700 in the second quarter of 2006, according to the National Association of Realtors' quarterly housing report.
While this growth does not reflect what has happened over the last couple of weeks, and provides no guidance as to what will happen in the next couple of months, it is better to enter a difficult period from a position of strength.
Economic Analysis: 2008 Job Growth to Drive Austin Housing Price Appreciation
The good news is that job growth in Austin is expected to remain strong. According to Mark Dotzour, chief economist and director of research at the prestigious Texas A&M Real Estate Center, 2008 should be a great year for the Austin housing market.
The Statesman reported that:
Dotzour said national job growth will be only about 1 percent but that Texas' rate probably will be double that. And he predicted that Central Texas will outperform both the nation and the state with 3.5 percent job growth. "Austin is blowing the doors off the state of Texas," Dotzour told a crowd of more than 1,000 people. On the housing front, Dotzour said, the Austin metro area should see healthy sales and price appreciation. . . Home sales were at near-record levels at mid-2007 with a low, four-month supply, Dotzour said. . . It's no surprise, he said, that Central Texas home prices appreciated 11 percent in early 2007 compared with a year earlier, according to federal housing data. That outpaced rates of 6.87 percent in Texas, 4.34 percent in Florida and 1.19 percent in California. "I would expect at the current low levels of inventory, home prices are likely to continue to appreciate substantially in the next 12 months, possibly rising in the 8 to 10 percent range," Dotzour said in an interview.
For condo shoppers, market appreciation and rapid increases in construction and land prices are clearly putting upward pressure on condo prices. As long as demand remains strong, condo prices will likely continue to slowly rise.
Reserving a Condo: Up-front Payment Requirements
In the current hot condo market, top projects will sell out before the first ceremonial shovel of dirt is removed from the lot. In these circumstances, buyers will be required to pay deposits years before they will be able to occupy their newly selected home. The deposit requirements vary widely among projects. Typically, buyers will be required to pay between 3% and 10% of the purchase price of the unit in order to execute a sales contract. The projects that are super-upscale or in high demand are the ones most likely to have high condo fees.
A typical payment scheme would be an initial payment of $5,000 or $10,000 to be paid at contract signing. This payment reserves the unit. The balance of the deposit would be paid over 90 or 120-days (or with some projects all money is due by ground-breaking). In addition, most buyers are required to pay 50-100% of upgrades such as wood floors, premium appliances, and sound system packages.
One comment we have heard from buyers is that it is currently a seller's market: prices are non-negotiable, deposit requirements are steep, reservations require a sales contract, and there are very few good deals or incentives to be had. While the 360 supposedly provided a 3% down incentive for a limited time to move some remaining units, these sorts of incentives are hard to come by and almost never available on the prime units that tend to sell first.
While the current market for condos may be a sellers market, this won't be true for every project that comes along over the next couple of years. The name brand projects such as the Four Seasons, the W Hotel & Residences will see high demand from people who value the brand. Other projects, like the tall and reasonably-priced 360, will also sell well. For the other downtown projects, competition for buyers will be fierce. It is inevitable that some buyers will be able to negotiate better deals, free upgrades, or reduced deposit requirements by shopping around and playing projects against each other.
Updated: Condo Fees by Building
Condo fees fund the daily operations and maintenance of most condo buildings. They cover security, landscaping, cleaning of common area, common area energy use, maintenance, and other key building functions. On average, our research shows, condo unit owners can expect to pay $0.34 / SF / per month or $340 in monthly condo fees for a 1,000 SF unit. For more information on total condo costs, check out our detailed posting on condo cost of ownership.
Looking at detailed MLS records on more than 30 units on the market today, we recently calculated the rough fees for the major downtown condo buildings that currently have units on the market. Since then, we have received updated numbers from some of the projects and some additional data on two new projects. Almost universally, the fees seem to be calculated on a dollar-per-square foot basis that seems to remain relatively constant on all units throughout each building. So, condo fees are not higher for more expensive units, or units with more bedrooms, or units on higher floors compared to less desirable units of the same size in the same building.
In addition, the prices in the six new buildings that we have looked at our surprisingly constant -- they vary from $0.28 / SF / Month to $0.40 / month -- an amazingly tight range. If anyone has numbers for other buildings, send them to us and we will add them to the list.
Here are the building-by-building statistics:
Fee by Building - - - - - $ / SF / Month
Avenue Lofts.................$0.28
The Sabine...................$0.33
Plaza Lofts..................$0.33
The Shore....................$0.36
Five Fifty Five Condos.......$0.40
As we get more information on additional building fees, we'll keep updating this posting!
Update: Further Analysis of June Sales
In our first posting on this subject, we concluded that the negative statistics do not really effect the downtown condo market which does not include units below $130K where the most dramatic market changes seem to be taking place. Today, thanks to Ki Gray, we have much more detailed statistics to analyze.
These statistics allow us to look more closely at neighborhood-by-neighborhood sales details for the high end area closest to downtown. Here is what this new data shows:
In June:
- Price per square foot increased in June in 20 of 23 central austin neighborhoods analyzed by Ki
- In the 20 most central areas in the first Half of 2007 (v. the period one year earlier):
- Prices increased by 12%
- Sales volumes decreased by 15%
- Days on Market increased from 49 to 52
So what does this data add to the picture? As we stated previously, the culprit is clear when it comes to the change in the broader Austin market: the current sub-prime lending crisis means that many first-time buyers with borderline credit can no longer qualify for mortgages. This is resulting in a decrease in sales of low priced sales -- i.e. houses priced under $130k in Austin.
To our surprise, It does look like similar market forces are effecting the prime central areas. While there may not be many units priced under $130k, the same trend is occurring: sales volumes are dropping while prices are rising. The most likely interpretation is a strong broad market with weakness at the low end. The high end seems to be strong while sales of lower priced houses -- and not just units priced under $130K — suffering.
Will this effect the downtown condo market? The data suggests that it will: buyers with borderline financing qualifications will be excluded from the market. However, with strong price appreciation and low inventory, the numbers still look good for developers and buyers alike. But the thing to note is that the June statistics do show a change in the market which should be closely monitored in the upcoming months.
June Home Sales
What is going on? Does this mark an end to Austin's defiance of national trends? How will this effect downtown condo sales?
According to the Austin Board of Realtors, the biggest volume change occurred with sales of single family homes priced below $130,000. This explains both the volume drop and the decrease in the median price. The culprit is also clear: the current sub-prime lending crisis means that many first-time buyers with borderline credit can no longer qualify for mortgages. This is resulting in a decrease in sales of low priced sales -- i.e. houses priced under $130k in Austin.
When low priced sales are taken out of the equation, it does seem that sales remain strong. One important thing to note is that MLS statistics do not include the many new condo units that have been sold directly by the developers without ever listing the units on the MLS. Since these numbers are not included in the Austin Board of Realtors' statistics, it is hard to know exactly what is happening in the market at large. The only thing we know is that the volumes and median prices would both be higher if all downtown condo sales were included.
In summary, today's negative statistics do not really effect the downtown condo market which does not include units below $130K where the most dramatic market changes seem to be taking place. But that said, any Austin real estate deceleration is reason for concern, especially after 5 consecutive years of sales increases.
Update: The Million Dollar Austin Housing Market
The big Austin downtown condo question remains: how big is the market for million $ condo units in downtown Austin?Some new market stats from Ki Gray of Escapeso Austin Real Estate provide some context on the high-end downtown market and it's performance so far in 2007.
Here are the number of houses that sold for $1 million or more by year and that were recorded in MLS in the Austin metropolitan area:
2004 - 152 houses
2005 - 213 houses
2006 - 341 houses
2007 - 181 houses (1st Half of 2007 Only)
The amazing thing is that the size of the market has more than doubled in just 3 years. As one of the fastest growing segments of the market, high-end inventory and demand have been rapidly expanding.
It remains to be seen how many high end condo units can be absorbed by the Austin market. In the Austonian alone, there will likely be more than 100 units priced over $1 million -- that is a lot of inventory in one building. The project's construction budget alone is greater than $1 million per unit which should provide an indication of the average unit selling price.
The good news for the high-end projects are that they are adding much needed downtown inventory in the fastest growing segment of the market. The bad news is that nobody knows how deep this market is -- or how many units can reasonably be sold in any given year,
How easy is it to sell a downtown condo?
The market for downtown condos is very active but quite different from the single family home market in two key facets.
First, downtown condo owners who want to sell are currently competing with new units entering the market. If too many units come on at once, downward pricing pressure may ensue. That said, developers are very good at controlling prices and surprisingly patient. However, it's important to note that condo projects are more commodity-like than single family houses in established downtown neighborhoods.
Second, units for sale within a building compete directly, and brutally, with other units within the same building. As we have written before, If you buy a house in central Austin, the odds are that it is different -- in one way or another -- from every other house in central Austin. When it comes time to sell your unique house, you may get lucky and sell for more than it's worth, or you may be unlucky and have it sit on the market for a long time. Setting a price is a key variable, but pricing a unique house is as much art as science.
The issue is that the value of unique single family homes is subjective and highly personal. Every house, every street, and every aesthetic is valued differently. The single family home market, as one would expect, is very different from the downtown austin condo market.
Every high-rise condo project has a large number -- sometimes hundreds -- of interchangeable commodity-like units. Unit 16B is essentially identical to unit 17B. The result is a much more efficient resale market. When it comes time to sell a downtown condo, there will likely be similar units on the market. If they are cheaper, they will sell faster. If they are more expensive, the may never sell at all.
While the floor (the higher the better, stay away from the ground floor) matters and in some buildings the view can vary greatly from side to side, the effect on value is not as dramatic as one might think. Our ongoing analysis of Nokonah values and appreciation confirms this: units on floor 11, the top floor, are valued at just 11% more than units on the second floor. Buyers seem to pick a building first, and then look for the right unit weighing size and price. This approach leaves very little room for creative pricing.
Yet, it's amazing how differently sellers price similar units. The AustinTowers listings pages provide a few great examples of this. For example, there are two units currently for sale in the Nokonah: a 670 SF 1/1 for $450K and a 1,225 SF 2/2 for $550K -- the smaller unit is almost certainly overpriced.
Because it so easy to compare prices, downtown condo values will be efficiently set by the market. The building will make a huge difference, but actual prices will be set by your neighbors. This has some benefits and drawbacks. On the positive side, accurate comparables make it easy to set the right price and correctly priced units should sell quickly. On the downside, pricing may fluctuate more widely with supply and demand: when there are lots of people selling at the same time, it's likely that prices will drop. And there is very little chance to get lucky and sell your unit for above market value --- if a unit doesn't sell, the most likely reason is that it is overpriced.
The NEW Austin Luxury Condo Market
When 21c Musuem & Condos, the latest downtown luxury condo project, was announced on June 11, many interesting questions were once again raised about the downtown luxury condo market. While the market remains strong for units priced below $400K -- such as many of those in 360 and Milago -- the market for high end units is not yet proven. With a bunch of high-end developments in the works including the Austonian and the new Four Seasons Residences, we should find out soon whether a real market exists for hundreds of units priced over $500K, and dozens priced over $1M as these projects come to fruition. As none of these projects have broken ground, it's hard to know where they really stand.
When the 21c project was announced, some interesting speculation on the Austin luxury market made it into the news coverage. Here is an excerpt from the Statesman:
Some observers question whether downtown might end up with a glut of high-end condos, as has happened in some other major cities. But Poe and some local real estate developers and consultants insist demand remains strong locally as baby boomers, young professionals, empty-nesters and others seek an urban lifestyle."I think your market is pretty deep," Poe said. He noted that developers would have three years to sell units before the building opens, adding that selling 65 units a year is "not an unreasonable goal."Charles Heimsath, president of an Austin-based real estate consulting firm that advised developers on the project, said strong pre-sales and reservations at both the Austonian and the Four Seasons suggest a solid demand.
The information from Charles Heimsath, an independent consultant, is very encouraging if true. It makes sense that the 21c developers did their research before deciding to proceed. We'll keep our eyes open to see if we can uncover any additional information on the state of presales at the current set of high end projects.
The Strong Austin Home Market
Interest rates keep going up. Sub-prime lending has been cut back. The rest of the country is watching housing values drop. In Austin, however, it's a very different story.
May real estate statistics were released today and the numbers show a surprisingly strong market. According to the Office of Federal Housing Enterprise Oversight, housing prices in Austin are up 10% so far this year. According to MLS statistics released by the Austin Board of Realtors, the average number of days on market in May was just 55 days and the median sales price was $183K.
As we've mentioned before, these numbers provide a context for looking at the Austin condo market without providing the complete picture: many condo projects are privately marketed so that the units never hit the MLS and aren't included in the monthly statistics.
The Million Dollar Austin Condo Market
How big is the market for million dollar condos in downtown Austin? Developers are betting that hundreds of buyers are willing to invest $1 million or more on high end units in projects like the Austonian, 21c, the Four Seasons Residences, and in the condos at the W hotel.
To get a sense for the competition for million dollar homes and condos in the Austin market, I scoured current MLS listings for homes and condos currently on the market with asking prices above $1 million.
Surprisingly, there is an amazing amount of single family home inventory priced over $1 million:
Current MLS Inventory by Listing Price
$1M + -- 572 Homes
$2M+ -- 171 Homes
$3M + -- 70 Homes
$4M+ -- 29 Homes
$5M+ -- 12 Homes
$10M + -- 1 Home
And how about the Austin condo market? Currently, there are just 9 condos priced over $1 million in all of Austin. While the MLS numbers include projects that are being marketed directly without an MLS listing, the number is still amazingly low. While the number of houses in Austin with a Tax appraisal over $1 million has grown from 1,602 to 2,981 between 2005 and 2007, the million dollar market is the fastest growing segment of the Austin real estate market. While it remains to be seen if downtown Austin demand grows proportionally, it seems quite likely.
Strong Job Growth = Price Appreciation
It's no secret that housing prices are strongly correlated with employment growth. Demand for homes increases when jobs are created and this demand pushes housing prices up. It's no the only factor -- interest rates are very important as well. But, all things created equal, when new jobs come to town, housing prices go up.
Today, the Texas Workforce Employment released the latest unemployment statistics for the state. The news: unemployment dropped to 4.1%. This is very low. In fact, it's lower than the peak of the dot com boom. It's also lower than the peak of the wall street boom of the early 90's. It's even lower than the peak of the Texas oil boom of the 1980s. Believe it or not, the current rate of Texas unemployment is the lowest reading since 1976. And in Austin, the unemployment rate is 3.2%: nearly a full point lower than the rest of the state.
Over the last year, 240,000 new jobs were created in Texas. If interest rates were lower, price appreciation would likely be very strong. With the uncertainty around rates and weak appreciation around the rest of the country, the strong Texas job numbers should help support continued market appreciation throughout the rest of the year.
East Avenue: $750M Development Near Downtown
A lot of money is being spent on downtown development -- more than $2 billion in condo projects alone at last count. And while it is technically outside of downtown, it seems another $750 million mixed use development is about to break ground. The project will develop 2.75 million square feet across 22 prime central acres near downtown Austin.
The project, East Avenue, will be on the former campus of Concordia University just North of the University of Texas on the West side of I-35. The goal is a new mixed-use "downtown" with residential, commercial, retail, parks, and a hotel. Here is the summary from the Austin Business Journal:
With a three to five-year build-out timeframe, the project will eventually include 1,450 residential units, 600,000 square feet of office space, 325,000 square feet of retail and a 250-room luxury hotel. Pocket parks, public spaces and an interconnected network of walkways will also be included in the layout of East Avenue, which developer Andy Sarwal hopes will become an entertainment and shopping hub, providing a dense, urban-living alternative to downtown.
As we have asked before, how many downtowns does one city need? It's hard to tell what is happening: the optimistic view is that responsible developers are working hard to create model mini-communities that represent a new sort of urbanism. I hope this is true -- and that Austin is becoming a leader in a new sort of urban or quasi-urban growth. Clearly, it's too early to know how these projects will fare --- my sense with all of these (the Domain, The Triangle, etc.) is that they don't really become interesting until after a few phases of development when they reach a scale that provides a critical mass for people to live, work, shop, and have fun. So far, only the Domain seems on track to reach this objective.
The following images, courtesy of East Avenue, show the site and renderings of the new neighborhood:
The Efficient Condo Market
If you buy a house in central Austin, the odds are that it is different -- in one way or another -- from every other house in central Austin. When it comes time to sell your unique house, you may get lucky and sell for more than it's worth, or you may be unlucky and have it sit on the market for a long time. Setting a price is a key variable, but pricing a unique house is as much art as science.
The issue is that the value of unique single family homes is subjective and highly personal. Every house, every street, and every aesthetic is valued differently. The single family home market, as one would expect, is very different from the downtown austin condo market.
Every high-rise condo project has a large number -- sometimes hundreds -- of interchangeable commodity-like units. Unit 16B is essentially identical to unit 17B. The result is a much more efficient resale market. When it comes time to sell a downtown condo, there will likely be similar units on the market. If they are cheaper, they will sell faster. If they are more expensive, the may never sell at all.
While the floor (the higher the better, stay away from the ground floor) matters and in some buildings the view can vary greatly from side to side, the effect on value is not as dramatic as one might think. Our ongoing analysis of Nokonah values and appreciation confirms this: units on floor 11, the top floor, are valued at just 11% more than units on the second floor. Buyers seem to pick a building first, and then look for the right unit weighing size and price. This approach leaves very little room for creative pricing.
Yet, it's amazing how differently sellers price similar units. The AustinTowers listings pages provide a few great examples of this. For example, there are two units currently for sale in the Nokonah: a 670 SF 1/1 for $450K and a 1,225 SF 2/2 for $550K -- the smaller unit is almost certainly overpriced.
Because it so easy to compare prices, downtown condo values will be efficiently set by the market. The building will make a huge difference, but actual prices will be set by your neighbors. This has some benefits and drawbacks. On the positive side, accurate comparables make it easy to set the right price and correctly priced units should sell quickly. On the downside, pricing may fluctuate more widely with supply and demand: when there are lots of people selling at the same time, it's likely that prices will drop. And there is very little chance to get lucky and sell your unit for above market value --- if a unit doesn't sell, the most likely reason is that it is overpriced.
Condo Fees by Building
Condo fees fund the daily operations and maintenance of most condo buildings. They cover security, landscaping, cleaning of common area, common area energy use, maintenance, and other key building functions. On average, our research shows, condo unit owners can expect to pay $0.34 / SF / per month or $340 in monthly condo fees for a 1,000 SF unit. For more information on total condo costs, check out our detailed posting on condo cost of ownership.
Looking at detailed MLS records on more than 30 units on the market today, we've calculated the rough fees for the major downtown condo buildings that currently have units on the market. Almost universally, the fees seem to be calculated on a dollar-per-square foot basis that seems to remain relatively constant on all units throughout each building. So, condo fees are not higher for more expensive units, or units with more bedrooms, or units on higher floors compared to less desirable units of the same size in the same building.
In addition, the prices in the six new buildings that we have looked at our surprisingly constant -- they vary from $0.28 / SF / Month to $0.40 / month -- an amazingly tight range. If anyone has numbers for other buildings, send them to us and we will add them to the list.
Here are the building-by-building statistics:
|Fee by Building
|$ / SF / Month
|Avenue Lofts
The Sabine
Plaza Lofts
The Shore
Five Fifty Five Condos
Maintaining a Quirky Yet Vibrant Downtown
There has been lots of talk about gentrification of central neighborhoods such as south and east austin over the last few years. It seems that central living is in high demand -- prices are going up, developers are moving in, and whole swaths of central austin are being gentrified. But no area is being gentrified faster than downtown where warehouses, parking lots, and office buildings are being replaced by large condo projects.
With this wave of development, downtown Austin should gain a much more vibrant downtown. At the same time, the city is losing some landmarks. Las Manitas is being displaced by a hotel, Austin Music Hall is being razed and rebuilt. And now, the bright pink Railyard condos are being painted a much more neutral palette.
The Railyard of Today: Bright Pink
The Railyard of Tomorrow: Cream, Tan & Red
Here is the summary of the change from the Statesman:
For decades, Austin's Railyard Condominiums on East Fourth Street downtown have been a blast of Pepto-Bismol pink stucco amid the drabber hues of nearby commercial and public buildings. But faced with a more competitive downtown real estate market, with hundreds of new condominiums coming online this year and next, the Railyard is trying to update its look. The board of the Railyard Condominiums Owners' Association Inc. has voted to pitch the pink for more muted colors of brown, cream and dark red. "The (directors are) working hard toward the changing of the pink to multiple wonderful colors to continue to raise property values for the association as well as the downtown area," said David Wang, community association manager for the Railyard.
As downtown becomes a hotbed for residential development with rapidly increasing condo prices, it seems the Railyard community association has decided to ride the wave by trading the development's quirky allure for a much tamer palette.
For Austin, the challenge will be to balance preservation of the fun downtown landmarks with the benefits and vibrancy that come with the current downtown development boom. It is the balance of density and quirkiness that will give downtown Austin a lasting allure.
Flipping in Austin?
Now that it is open and available for occupancy, the 240 unit Milago is completely sold out. Despite the fact that all units have been purchased, it is curious to see 30 units -- 1 / 8th of the building -- currently listed on MLS. While some could be from people whose plans have changed between when they signed the contract and now, the most likely option is condo flippers.
It will be interesting to see what happens. While the Austin market increased by 5% last year, this is hardly the sort of growth that gets flippers excited. Now, with 30 units competing for buyers, it will be interesting to see how fast they turn and whether prices increase as the market strengthens.
More on Downtown Living Costs
When you focus on price-per-square-foot in evaluating costs, downtown condos may seem expensive. But there is more to the cost:
- Energy costs in a condo are typically very low: it's not uncommon for average utilities in a 2,000 SF unit (Electric + Gas + Water) to be under $100 per month. A similar house with a lawn could have average monthly utilities in the $300 - $500 range.
- Maintenance costs are included so you won't have to spend $10K for a new HVAC unit, roof, or other potentially expensive repairs.
- Downtown living can enable a different life style. Some couples or families may be able to eliminate a car and the related gas, insurance, and financing payments that come with it.
- Many buildings include amenities such as swimming pools, shared "guest" bedrooms, etc. that allow tenants to live in smaller units that they might otherwise own. If the building has an extra bedroom that can be used when guests are in town, you may be able to live in a unit that is smaller than a comparable single family house.
- And there are many more economic benefits: you won't need a paid security system or service, your insurance premiums will likely be lower and you won't spend money on landscaping, exterior painting, or pool maintenance.
So while the price per square foot may seem high, think about the complete picture. There are some great economic benefits to life in a downtown condo.
How much does it cost to own a condo?
The price of a condo is only one component of the final cost. In addition, you'll need to think about monthly condo fees, property taxes, utilities, etc. The good news is that the price is relatively fixed: unlike owning a single family house, you won't need to worry about surprise maintenance projects like a new roof or new AC that can cost thousands of dollars.
Here are cost estimates for three size condo units in a new downtown high-rise development:
Typical 1-Bedroom Unit
Square Feet: 750
Price: $281,250
Monthly Payments:
Mortgage: $1517
Condo Fees: $255
Taxes: $592
Total: $2,364 / Month
Typical 2-Bedroom Unit
Square Feet: 1500
Price: $562,500
Monthly Payments:
Mortgage: $2,995
Condo Fees: $510
Taxes: $1,184
Total: $4,689 / Month
Typical 3-Bedroom Unit
Square Feet: 2,200
Price: $825,000
Monthly Payments:
Mortgage: $4,392
Condo Fees: $748
Taxes: $1,736
Total: $6,876 / Month
All of these cases assume a standard 30-year mortgage with 10-percent down and the balance financed. The cost assumes an average purchase price of $375 / SF and the monthly condo fees are calculated at $0.34 / sf. What does it add up to? Plan on spending about $3.15 / month per square foot to live in a typical downtown condo building.
Do Downtown Residents Work Downtown?
Demographic analysis reveals the following facts about downtown residents:
- Less dependent on cars (60% drive to work v. 92% across Texas)
- High utilization of public transportation compared to Texans (14% take public transportation to work v. 2% across Texas)
- Crazy high walking / biking (19% bike or walk to work v. 3% across Texas)
- More work at home (7% work at home v. 3% across Texas)
- A quicker commute (16.3 minutes v. 20.8 minutes across Texas)
Who lives downtown?
So who lives downtown?
- 4,322 people
- Not that many people ( just 4,322 at last count)
- Mostly Men (65% men and 35% women)
- Well Educated (52% have college degree v. 26% across Texas)
- Racially Diverse (61% white, 21% Hispanic, 9% African American, 3% Asian)
- Single, No kids (94% of households do not have kids, 22% households are married couples)
- Age groups without Kids (Lots of people 20-40 and over 70, very few people under 20)
- High Income ($55K per capita v. $21K across Texas)
See the full demographic profile here.
Why it is Hard to Track Downtown Condo Sales
The only upside is that the lack of transparancy may help buyers get better deals. When a large project is marketed on MLS, developers are very resistent to give discounts as every future buyer will ask for the same deal. They are much more likely to stick to list price or standard discounts to protect their margins. When the sale is non-public, the developer doesn't have to worry about providing a break on an uncontested unit as nobody else will know.
This trend towards in-house marketing is one of the reasons that the current MLS statistics show a 14% year-over-year drop in February of condos and townhomes in Austin. While sales volumes of single family homes are flat amid tightening supply and quicker sales, the condo and townhome data is useless because it does not include any of the in-house sales.
Austin Luxury Market
The market for high-end homes has been one of the fastest growing segements in the Austin market. According Sam Chapman, "there are [currently] over 400 homes priced for over one million dollars on the market in the Austin area. The average price of these Austin luxury homes is $1.8 million and the average size is over 5,000 square feet. The most expensive listing is an over 17,000 square foot home that is listed for $7.5 million. There are more than 40 homes on the market in Austin priced over $3 million."
When you look at actual sales over the last few years, exceptional high-end homes near the water, in Westlake, or downtown now sell for as much as $500 / SF or more. No matter how nice a smaller house is in a prime neighborhood, it's rare to see houses under 4,000SF sell for more than $300SF. The average for the Austin area is well under $150SF. So, the key is that the luxury market is a distinct market of large houses in select locations, on prime lots, with very high-end finishes. In December 2006, 28 houses and condos in Austin sold for more than $1 million. In the scheme of things, this is not a very large market.
Read more to see detailed statistics on high-end sales by MLS area . . . . Read More...
Nokonah Pricing Analysis: Part I
The Nokonah, A luxury high-rise project completed in 2002, was one of the first successful projects that helped to ignite the current condo boom in downtown Austin. The 11-story project is located at 9th and Lamar just north of Whole Foods and on the western border of downtown. When the Nokonah was built, the real estate market in Austin was stalling as the regional economy slowed. It was not clear how well the new project would do. Five years later we know the answer: the project sold out and the buyers have seen significant appreciation in the value of their units.
In order to better understand condo values in the downtown market, we've begun a comprensive analysis of public tax records (tax records are available online through the Travis Central Appraisal District) to better understand downtown condo market values and how they have changed over the last five years. This analysis, which tracks every unit in the Nokonah, shows appraisal value and $ / SF by floor, apartment size, # of bedrooms, and year. The data is fascinating and will be a useful tool for anyone looking to purchase a downtown condo (Register for the full report).
For example, the analysis shows that the average appraisal value of Nokonah units rose 61% from $233 in 2003 to $376 in 2006 - a growth rate of 17% per year. This is more than trible the 5% annual growth rate in sales prices for the Austin market during the same time period. Even as other projects have hit the market, Nokonah values have continued to increase in value.
While the average appraised value is $376 / SF today, there is incredible variance. If you're trying to figure out what the right price is to pay for a new unit, the Nokonah data is very interesting: current appraised values actually range from $230 / SF to $498 / SF depending on size, floor, bedrooms, etc. In future postings, I'll dive deeper into the factors that make a unit more or less valuable.
Over the next few weeks, I plan to post more information from the Nokonah analysis in this blog. In addition, I am going to provide all registered members with direct access to the spreadsheet with all of the data. This will be a great tool for anyone who is trying to ensure they don't overpay for an Austin condo or anyone who is interested in better understanding Austin condo market dynamics. Registration is absolutely free -- just click the link on the top of the page and complete our very brief survey. The summarized data will be published in a future post, and it will help AustinTowers better understand our readers. Please register -- you'll receive a link to the full Nokonah analysis later this month!
Austin Growth & Migration
In the 1990's Austin grew by an incomprehensible 41% as it added more than 190,000 new residents. Growth comes from two source: net migration and organic growth. The net migration is the gain from people moving into the city while organic growth occurs when more people or born than die during the year. The Statesman stats focus only on migration. So what is the bottom line? A net gain of 8,079 households (approximately 19,400 people). Very solid growth but about 30% lower than the peak year, 2000. The counties that saw the most people coming to the region were overwhelmingly in California. Still, Austin population is growing at a very fast rate. Read More...
How many buildings fit downtown?
Read More...
The Downtown Condo Market: 2003-2006
So what do the numbers show? Downtown condo sales grew from 2004-2006 by 33% while sales volumes in the larger Austin market grew by 27%. In fact, downtown condo sales as a % of all Austin condo sales actually shrunk from 31% to 25% during the same period. In 2006, a total of 619 condo units were sold in areas 1B and 4.
I draw three conclusions from the numbers: Read More...