Bill Morris: Texas

Investors: Time to get in, in Austin

Austin has weathered the housing downturn much better than most of the United States, but not all market segments are rosy.  All real estate is hyper-local, with market conditions varying widely from one neighborhood to another, even within a very strong local and regional market.  One market segment that has suffered in the Austin/Central Texas market over the past few years is multifamily housing -- i.e., duplexes, triplexes, and fourplexes.  This chart highlights the difference between our single family housing market and the multifamily market:

Austin SF vs. MF Sale Prices Q4 2006 - Q4 2010

The peak in multifamily sale prices in 3rd Quarter 2006 is obvious, and with the exception of a failed resurgence one year later the trend has been clear for more than three years.  At the same time, median pricing in the single family market, while erratic, has continued to trend upward.  (See for more details, updated monthly.)
Averages always conceal the extremes, and in this case the extremes can be dramatic.  I have clients who own duplexes that have lost 35% or more of their value during the timeframe covered by the chart above, even though the purchase prices at the time were well-supported by gross rents and comparable sales, and even though gross rental incomes today would still justify those higher values.  Without any doubt, very weak demand for these properties is the reason for the decline in values, but demand for single family homes has also been down, although not nearly as significantly as in the multifamily market:

Austin SF Home Sales Q4 2006-Q4 2010

Austin MF Sales Q4 2006-Q42010

Sales of multifamily properties have declined almost twice as fast as sales of single family homes, and time on market has quadrupled!  However, notice that sales volume stabilized over the past three quarters of 2010 -- a sign of a turning tide.

At the same time, leasing activity has been relative unscathed:

Austin SF vs. MF Leases Q4 2006-Q42010

Austin SF vs. MF Lease Pricing Q4 2006-Q4 2010

Lease volume and pricing of both the single family and multifamily properties are up, albeit by relatively small margins.  That said, a decline in rental income opportunities does not explain the reduced demand for multifamily properties, or for their decline in value.

Without speculating on why this disparity exists, what this data indicates is an opportunity to buy multifamily properties at significantly reduced values, and therefore with stronger net cash flow results than just a couple of years ago.  The strength of current gross rents, and the stability in multifamily pricing for most of last year, suggest that we have seen the bottom of this cycle.  New project announcements and building permits for multifamily construction (including substantial additions to the inventory of available apartment units) show that large investors and developers are betting on coming growth.  Now is the time for smaller investors to take advantage of the trend as well.

Bill F. Morris, ABR, CRS, CDPE, e-PRO, MBA
RE/MAX Capital City
Call or Text:       512-785-3345
Toll-Free:           1-800-692-8784, x 162

Your personal referrals are the best measure of my success!

Comment balloon 2 commentsBill Morris • March 20 2011 12:47PM
Investors: Time to get in, in Austin
Austin has weathered the housing downturn much better than most of the United States, but not all market segments are rosy. All real estate is hyper-local, with market conditions varying widely from one neighborhood to another, even… more
Sales and Prices -- Austin compared
A few weeks ago the National Association of Realtors® reported: Existing-Home Sales Rise Again in January <! -- WebTrends Script End--> (02/23/2011). Among the available supporting data were comparisons of single family home sales -… more
Growth in multifamily building -- a good sign
A couple of weeks ago I wrote about the strength and optimism of the multifamily residential market in the Austin/Central Texas market: A strong sign of confidence in multi-family properties I promised to keep an eye on this and report… more
2010 Job Growth in Austin
Opportunity Austin, an economic development arm of the Austin Chamber of Commerce published its 2010 Annual Report today. Introductory comments include this: "Austin has topped countless national rankings for job… more
Great expectations among Texas manufacturers
The Austin Chamber of Commerce posted an interesting report today based on the Texas Manufacturing Outlook Survey: Central Texas Economy in Perspective The outlook is optimistic. I want to comment on just a couple of charts … more
Austin leads the recovery!
Throughout the recession and housing downturn, I have written about the difference in the Austin/Central Texas experience and press reports about nationwide hardships. Now, in less than four minutes, here is a great summary. .. more
Another sign of strength - new apartment construction
In early February I wrote about rising rents and planned construction in the Austin/Central Texas multi-family residential sector. (See Rents rising in Austin and Austin/Central Texas -- building permits and market outlook ) This morning's Austin… more
Home Ownership Still Makes Sense!
Much has changed in the housing industry over the past few years. Every day we see and hear on the web and radio and TV and newspapers what a disaster real estate ownership has been in recent times. Not to rehash what I have… more
RE/MAX Capital City Pride
Twice each year, Jeff Osborne, Broker/Owner of RE/MAX Capital City conducts business meetings with all company agents and staff. Discussion is wide ranging and mostly forward-looking, but reporting on past performance versus our… more
Austin and U. S. Average - Foreclosure Impact
RealtyTrac reports that foreclosures accounted for 26% of all residential sales nationwide in 2010 : Foreclosure Homes Account for 26 Percent of All 2010 Residential Sales, According to RealtyTrac That… more