Bill Morris: Investors: Time to get in, in Austin

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


Hi Bill, Austin is a great area, and I think it's perfect for an investment property. Great post.

Posted by Rob Magnotta, Huntington Beach & Newport Beach Coastal Specialist (Huntington Beach, Newport Beach, Seal Beach, Irvine REALTOR) over 9 years ago

Thanks, Rob.  I love Southern California, too, but you have certainly felt the brunt of this housing downturn.  Here's to a great 2011!

Posted by Bill Morris, ABR, CRS, CDPE, ePRO, MBA (RE/MAX Capital City) over 9 years ago