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Housing shortage possible, northwest sales remain stable

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By Candace Birkelbach Friday, 27 February 2009

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Do you plan on selling your house in Northwest Austin?

Northwest Austin homeowners may want to wait before putting their homes up for sale — if economic forecasts are correct, a housing shortage could drive prices up in the next few years.

Development slowdown

In Angelos Angelou’s 2009 economic forecast for Austin, he predicted national builders’ shortcomings having an adverse effect on the Austin housing market.

“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.

To determine the number of new houses needed, population growth must be taken into consideration. Natural growth, or the difference between births and deaths, is approximately 18,000 people a year, Angelou said. In recent years, Austin’s population has grown by about 60,000 people a year, meaning 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. And Angelou said 2009 has an even lower expectation of 6,000 units.

“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,” he said.

Under construction

Some local and national builders with projects in northwest Austin say they have not had to stop any developments, while others say they are putting longer-term projects on hold.

“We have some developments currently on hold and have reevaluated most of the longer-term projects we were considering, but we are encouraged already this year,” said Samuel Morrisett, vice president of Wilshire Homes.

“We’ve seen a noticeable increase in the last few weeks in the [number of qualified] people looking at homes.”

Spicewood Development owner Randy Ziehe said production on his project, Bluffs at Balcones on East Hills Drive, has not slowed down due to its unique concept and location.

“In this market, you’ve got to measure your delivery to the market and try to do things that don’t have a lot of mass competition,” Ziehe said. “From what we’ve ascertained from our bankers, we were one of the last projects to get in under the wire before banks really shut off funding for new projects.”

Kent Zarbock, vice president of sales and marketing for D.R. Horton-Austin, said they have continued building on all projects in northwest Austin. Parmer Village opened in June, and construction on Colina Vista near FM 2222 is still moving along.

“Builders are cutting back on development and speculative construction; however, Austin is still gaining jobs and has strong immigration,” Zarbock said. “As a result, we believe a shortage in new housing in Austin is possible.”

Timing the market

Realtors and economists agree that now is still not the time to sell, and it probably will not be for another 18 months.

“You haven’t lost any equity if you haven’t sold your house,” said Mark Sprague, Austin partner for Residential Strategies. “It’s like a stock. You have to wait for that equity to come back.”

Angelou said those who must sell should consider renting out their home because rental rates have remained solid.

“The good news is our housing values have not appreciated as much in the last few years as they have nationally. But, we’re not immune from the national cycle, so we’re seeing the impact,” Angelou said.

Because some developments have slowed, the resale market is gaining back confidence.

“Given the opportunity to buy a new house or used house, the buyer will always choose new,” said Helen Edwards, president and chief operating officer for Coldwell Banker United, Realtors-Austin region. “The builders haven’t stopped here — they’ve slowed, and that’s what has helped our market tremendously.”

What buyers want

Every area goes through a housing cycle, and northwest Austin is currently experiencing price stabilization, Edwards said. The houses still have value, but development is being forced around the perimeters of town due to lack of land, creating suburbs like Cedar Park. Soon, remodeling will occur to make the old houses more attractive to new buyers.

“Northwest Austin has a wide range of pricing which allows the market to mature and turnover. You don’t want the market to go up or down a lot. Lots of price ranges enable everybody to participate,” Edwards said.

She also said home buyers are looking for higher-quality homes, but not necessarily larger homes.

“We’re past the point of bigger is better. Buyers are more concerned with quality of construction and energy efficiency,” Edwards said. “People are not looking for McMansions anymore.”

Angelou said land use and design standards should have a long-term view, rather than just building wherever open land is found.

“Economic development needs to drive land use, not the other way around,” Angelou said. “California has a lot of geographic limitations. We don’t. We just kind of move the fence a little more and build homes.”

Angelou said there is a demand for higher priced homes, with 40 to 50 percent of the housing market in the $200,000 to $250,000 price range.

The largest decline in home starts in Austin has been in the $200,000 and under price range since the fourth quarter of 2006, according to data from Metrostudy, a housing market research firm, released this month. During the two-year period, there were 5,135 fewer starts in this price segment, resulting in a 59 percent decline, compared with a 50 percent decline in the overall market.

“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,” said Eldon Rude, director of Metrostudy’s Austin division.

Recovery in sight

While local experts say Austin is faring better than other parts of the nation, recovery will depend on consumer confidence and buyers’ ability to obtain affordable mortgages. Angelou said he believes economic recovery will occur in the first or second quarter of 2010 and that 2009 will be a difficult year.

“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.

However, he still expects Austin to see historically high unemployment rates — up to 6.5 percent, compared with 9 to 10 percent expected 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. And this market will very quickly recover.”

Northwest Austin neighborhoods show the average number and price of houses sold on the resale market declined, while the time it took to sell them increased.

Northwest Austin home starts and closings

Austin metro had a 48 percent decline in single-family detached home starts from fourth-quarter 2007 to fourth-quarter 2008, according to a report from Metrostudy. Northwest Austin, an area without much vacant land, did not experience a tremendous change in the number of home starts and closings.

Annual new home starts*