The Texas Association of Realtors released a report about condo sales in the Austin, DFW, San Antonio, and Houston metro areas. Values are strong in all, and sales are strong and improving except for Austin.
According to the report, Austin, Dallas, Houston, and San Antonio experienced an aggregate 1% decrease in condo sales between January and May 2015. While Dallas and San Antonio posted small annual gains of 3% and 6%, respectively, condo sales decreased 1% year-over-year in Houston and 12% year-over-year in Austin in the first half of the year. This sparked misplaced concern in Austin that the market was overvalued and over built.
Despite the short-term decline in sales in Austin, prices are up. The median price has increased 4% to $222,000, and price per square foot is up 9% to $222. There are 14% more listings, but units are selling faster with an average of 43 days on market. The important take away is that you cannot pick and choose one statistic and generalize an entire market. The headline of the linked article could easily be, “Condo market sees higher prices and faster sales”.
The reasons that sales are improving in Dallas/Fort Worth, Houston, and San Antonio areas is those markets are showing stronger development of condos in many of the older, central communities. Austin is about 10 years ahead of this curve with phenomenal acceptance of Central Business District (CBD) living, with over 10,000 living in the Austin CBD presently. The other Texas metros have begun to see this same level of interest in their downtowns.
Realize that downtown and inner ring living in Texas metros has not been that popular until the last few years. The demand for downtown has been driven by employment as well as desire to have a permanent residence where one can live, work, and play without commuting.
In reading this report, my first question is about inventory. Not all inventory that is available has been included. Two major residential towers in downtown Austin have not started construction, even though they are a 95% sold out (reservations with escrow money deposited). If you look at the values quoted for median ($222,000) and average ($284,089) values, they are very affordable comparatively to single family in the same neighborhoods.
Sales are a product of the market, and if buyers cannot find the product they want, they will wait for it. Presently, values are not being driven by speculation. Successful multifamily sales historically are 15% to 20% less expensive then the same single family square footage in the neighborhood in Texas. You can’t use this formula with CBD (Central Business District) multifamily because of lack of single family detached.
Unfortunately the higher values of the Austin CBD condos have captured everyone’s attention and focus. Also most condo resales, if priced properly, are seeing multiple offers, which is not a sign of a slowing demand on the market. In a given market if you continue to see multiple offers on properties, even though sales may slow, don’t make a snap decision that the market has an issue. Step back and look at the parameters of that decision. How much inventory is available? Less than sixth months of inventory is a seller’s market. All residential channels in Texas metros are a seller’s market due to limited inventory and high demand.
There is the question of affordability in certain areas of town. Values continue to rise strongly in the CBD and inner ring neighborhoods here in Austin and our other Texas metros. According to ABOR MLS statistics, larger downtown condos are going for over $750 per square foot – a lack of supply of 3 bedroom and larger condos has driven values of such units up. This is unusual – historically it’s the smaller units that are priced her per square foot. Note that many high-end condo transactions take place off MLS, and we’ve heard of large condos going for over $1100 per square foot.
Most residential properties in downtown areas are priced above what the median income can afford. The primary buyers for these closer in residences have always been buyers with substantial assets. Also realize that affordable housing has never been the highest and best use for CBD and inner ring land historically. Desirable, yes, affordable, no.
When will rising values downtown slow purchasing? As long as Austin and Texas metros have strong job creation there will be a desire for having a ‘place’ in Austin or your respective community.
Be reminded that Austin home sales in general had a slower month in June. This last month ABOR reported continued residential values rising, but the number of sales slowed just a little, which is probably a healthy respite for the market. Interest rates kicked up a bit, slowing sales. Values have continued to increase, which has made buyers wary. Inventory is tight in desirable neighborhoods. The biggest complaint is there is not enough inventory in the inner neighborhoods.
Yet the naysayers want to say the ‘Austin bubble’ has popped. That’s not what the numbers show presently. There still is not enough inventory in most channels. Not just residential, but across all real estate channels presently in most of state, particularly in the four major metros. The driving force of the market – job creation – is still here and continues to mature. Demand should continue based on job creation and relative affordability, compared to other job creating metro areas nationally.