Rising home values may be silver lining for Austin's housing market

Rising home values may be silver lining for Austin's housing market

By Candace Birkelbach, Patrick Brendel and Eric Pulsifer Friday, 13 March 2009

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.

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.

“If you’re buying, now is the best opportunity to buy,” he said. “I wouldn’t wait for the market to go down any further necessarily because the minute it goes down further and the credit market is unfrozen, then a lot of people are going to jump in it.”

RE/MAX real estate consultant Shara Parker said thanks to lower interest rates and home prices, selling now can be a viable option, depending on the move a seller is looking to make.

“It is an excellent time to sell if you’re going to move up. If you’re buying more equity for a higher-priced home, then you’re cutting your losses,” Parker said.

Drops in some home values have put more homes within the average buyer’s price range, Parker said. At the same time, it has become harder to get credit.

“The guidelines have tightened so much now that even A+ credit buyers are challenged,” she said. “I don’t think it can get any tighter than it already is.”

Rick Minicozzi, whose ESR Development group built 41 Waller, a condo development east of IH 35 on Lady Bird Lake’s north shore, has had a different experience.

“I have seen zero incidents of folks who have good credit unable to get a loan,” he said, adding that the biggest obstacle is getting buyers to forget national news and pull the trigger on the sale.

Avoiding a glut

The series of skyline-transforming high rises springing from the Central Business District over the past few years sparked concerns among many residents that Austin was overbuilding and the shiny new towers were destined for permanent vacancy. That scenario has changed as developers are nixing major projects amid national economic problems.

“The best news that we’ve had in the past year in downtown Austin is that several of the announced projects are on indefinite hold. It is terrific for our local downtown residential economy. It’s going to bolster the price of our existing units,” said Realtor Jude Galligan of Downtown Austin Blog.

“We haven’t overdeveloped,” Minicozzi agreed. “Permits for new units are down significantly, which bodes very well for the future of the condo market.”

What you see under construction downtown is what you are going to get. All of the projects that could have been put on hold, have been put on hold, Galligan said. And the towers being built now will most definitely get completed, Angelou said, because the developers have already been paid to finish the work.

“If an atomic bomb went off in Austin, those developers will finish those projects because they’ve got the money. They’ve got to finish them,” he said.

Recovery in sight

Consumer confidence and affordable mortgages will dictate any economic recovery. Angelou believes a recovery may occur in 2010, but 2009 will be rough.

“Obviously, the psychology of the market is very important: If you expect that the economy is going to get better, it instantly gets better,” Angelou said.

He expects Austin to experience historically high unemployment rates — up to 6.5 percent — in Austin, compared to 9 or 10 percent nationally.

“In anticipation of an economic recovery, most people who have lost their jobs in a small city will move to a larger city, and Austin will be one of those cities that will actually gain people because the understanding is that if things are to pick up, they will pick up here first,” Angelou said. “So in a way we’re kind of blessed that we have a housing market that has a lot of challenges, but nowhere near what those challenges might be elsewhere. This market will very quickly recover.”