Austin Texas Real Estate Blog

The State of Texas is prepared to spend big money to lure social networking site Facebook to the Austin area. The $1.4 million incentive package is intended to make Austin even more attractive to Facebook, which has its main corporate headquarters in Palo Alto, California and has recently announced plans to open a national office outside the California area. The new office is expected to provide around 200 well-paying jobs in the sales, customer service and risk management fields, making it a valuable asset for the city Facebook selects. The incentive package offered by Texas will be funded by the Texas Enterprise Fund and is dependent on the city of Austin agreeing to ante up approximately $200,000 worth of local incentives; the proposed incentive plan will go before a public hearing on March 11, 2010.

Austin has long been considered one of the high-tech centers in the region, and the addition of a national Facebook office would add to the city’s well-deserved reputation. Chief Operating Officer of Facebook Sheryl Sandberg indicated that Austin was under serious consideration as a potential site for the office, stating “Austin, with its deep talent pool, would allow us to hire the high-caliber employees we need to properly serve the people, advertisers and developers that rely on our service.” Facebook currently has over 400 million active users, so its presence in Austin would be a high-profile addition to the city’s already vibrant high-tech industry scene.

This is not the first time a major online company has chosen Austin as a site for expansion; Google opened an office in Austin in 2008, but closed it along with several other offices worldwide soon after due to financial cutbacks throughout the company. While only twenty jobs were lost due to the closing, the Austin community felt the blow to its reputation as a high-tech hub. If Austin is able to snag the Facebook office, the effects will be felt not only economically but also psychologically throughout the region.

Facebook’s interest in opening an Austin office follows on the heels of recent announcements by LegalZoom and Pioneer Surgical Technology to open offices in Austin; LegalZoom’s new expansion is expected to bring around 600 jobs to Austin in the next few years, while Pioneer Surgical’s new office will employ around 30 people when it opens in the second quarter of this year. These acquisitions are expected to boost the local economy still further in the latter part of 2010.

St. David’s HealthCare recently announced that it has reached an agreement to acquire the Heart Hospital of Austin, Texas from MedCath Corporation, headquartered in Charlotte, North Carolina. St. David’s, one of the largest employers in Austin, has long been considered a leader in the healthcare field throughout the region. This acquisition is expected to allow the St. David’s HealthCare team to provide an even higher quality of care and increase efficiency throughout the system.

St. David’s currently has twenty-four sites throughout Austin and the surrounding area, making it one of the largest healthcare organizations in Texas. It was the fifth largest employer in Austin before this acquisition, and is expected to move up in rank when the transfer becomes complete sometime later this year. The two companies are awaiting final regulatory commission approval for the acquisition.

St. David’s HealthCare has achieved high marks for employee satisfaction, ranking number one in the 2007, 2008, and 2009 Austin Business Journal’s list of “Best Places to Work” in Austin. It encompasses six of the metropolitan area’s major hospitals and has been awarded the Texas Award for Performance Excellence for its outstanding patient care and quality medical services. The addition of Heart Hospital will allow St. David’s to further solidify its position as the leading healthcare provider in the Austin area; the Heart Hospital of Austin was recently named by the Centers for Medicare and Medicaid Services as the best place in the country to be treated for a heart attack.

For Austin residents, this acquisition is expected to further cement Austin’s position as the leading healthcare industry center in the state of Texas and to provide additional employment opportunities in the area. Austin’s already high quality of life is also expected to improve as a result of the St. David’s HealthCare expansion and acquisition. Since the Heart Hospital of Austin will now be under local administration and ownership, the Austin economy is expected to see benefits from the acquisition as well; the streamlining of services and procedures will further improve the quality of patient care in the area and should serve as an additional attraction for businesses looking to relocate to the Austin area.

Austin officials recently announced a proposed $500,000 package of incentives for the Hanger Orthopedic Group to facilitate its planned relocation to Austin. The proposal is expected to provide $50,000 per year for ten years providing that Hanger meets certain stipulations. Hanger is an industry leader in medical equipment, prostheses, and orthotics and is relocating to Austin from Bethesda, Maryland. While current employees of the Hanger headquarters in Maryland will be given the opportunity to relocate, the company is expected to provide as many as 100 jobs for the local employment market.

Austin has participated in such agreements with other companies, most notably the 62.9 million dollar tax incentive package offered to Samsung Austin Semiconductor for the construction of a second plant that is expected to provide 500 jobs to Austin residents upon completion. Other significant incentive packages were provided to the television show “Friday Night Lights” and $37 million over 20 years to The Domain multi-use commercial and residential development in North Austin, slated to create 1,100 jobs. The latest set of incentives continues Austin’s tradition of proactive recruitment of jobs for its economy.

Hanger chose Austin as the site for its new headquarters in part because it already had a major subsidiary located here; Innovative Neurotronics manufactures the WalkAide system, a neuromuscular stimulating device that provides additional mobility to spinal cord patients and those living with multiple sclerosis. Austin also provides significant benefits to high-tech employers like Hanger, with a highly-educated workforce and respected institutions of higher education nearby. Company officials also cited the high quality of life available in the Austin area as a factor in their decision; Austin is widely regarded as one of the best places to live in the entire U.S. A large part of the decision, however, is due to Austin’s business-friendly policies, which are designed to attract and retain employers for the area. Austin’s central location will assist Hanger in communications with its subsidiaries throughout the country, and is expected to help the company improve its financial bottom line performance.

Austin has weathered the recent economic downturn better than most other cities in large part due to active recruitment of new employers and businesses to the area. Austin and Texas government officials have been aggressive and proactive in offering incentives for investment in the region, ensuring that the vibrant Austin economy continues to grow. The addition of the Hanger headquarters is expected to make Austin even more desirable as a location for new business, especially in the medical and pharmaceutical fields.

Austin is slated to receive $4.8 million in funding for job education and training in the high-demand field of solar technology through the U.S. Department of Labor. The program, administered by the Electrical Joint Apprenticeship Training Program, is expected to provide training for approximately 1,000 workers in the Austin area, preparing them for crucial positions in solar power plants throughout the region and as far afield as Kansas, New Mexico and Arizona. The Electrical Joint Apprenticeship Training Program is sponsored by a number of national and Austin-based groups, including the Austin Workforce Investment Board, the International Brotherhood of Electrical Workers, the National Electrical Contractors Association, and ImagineSolar.

Part of the economic stimulus package passed by Congress, the initiative is one aspect of the American Recovery and Reinvestment Act of 2009. It is intended to provide employment opportunities for veterans, women, and minorities as well as offering unemployed individuals the chance to learn a new set of job skills. Austin’s highly-trained workforce and commitment to green technology played a significant part in its selection; it is one of only 25 sites to receive similar funding. The initiative is slated to distribute $100 million in funds over the next year; grants available through the stimulus program range between $1.4 million and $5 million, making the Austin grant one of the largest distributed to local programs.

This news comes on the heels of an initial report by the Cleantech Group and Deloitte showing a 33% decline in venture capital investment in the green technology sector in 2009. While at first glance these figures seem to spell bad news for the overall clean and green technology industries, the overall picture for venture capital investment was far worse. In relative terms, green technologies still attract investors and funds at a higher rate than most other sectors of the investment economy. Solar technology still leads the pack, with about 21% of all green technology investment in this area.

Texas ranks third in green technology investment in the nation, with only California and Massachusetts investing more in this area. Austin is especially proactive in the area of green technology, with many homes and businesses incorporating solar collection and energy efficient design in their initial construction. The additional funding provided through the Electrical Joint Apprenticeship Training Program will help Austin remain on the cutting edge of clean, green energy sources and ensure a brighter economic outlook for the entire area.

Austin commercial real estate foreclosures in 2009 increased to more than double their 2008 levels, reflecting the effects of the recent nationwide real estate market difficulties. Austin suffered the highest rate of commercial foreclosures in the state of Texas, but other large metropolitan areas were significantly affected as well. This increase is attributed in part to large-scale layoffs in the manufacturing sector, which have created problems for a number of local industrial concerns. The commercial foreclosure trend is expected to continue throughout the first half of 2010, due to continuing economic woes; experts warn against overly optimistic expectations for the manufacturing and commercial sectors. Approximately $500 billion in commercial loans are expected to come due for refinancing in 2010, with as much as $800 billion more in 2010; this will likely spur additional periods of high foreclosure rates as businesses struggle to find financing in the current lending climate.

Industrial real estate properties were hardest hit, with a 400 percent increase in foreclosures over 2008. Retail shopping centers and vacant land also experienced a less dramatic rise in foreclosure rates. Some economic analysts see this as an opportunity for businesses to acquire additional space at bargain prices; with real estate prices in some areas at near-record lows, many companies that are currently renting space may be able to purchase property instead. This may actually spur an increase in commercial real estate sales during 2010 as businesses take advantage of the opportunity to expand their holdings at discount prices.

Commercial foreclosures represented about seven percent of foreclosures in the Austin area. One bright spot in the economic outlook for these properties is the increase in companies looking to expand into the Austin business market. Austin is an attractive location for commercial relocation due to its highly-trained labor force and resilient economic base. Most analysts in the area expect that corporate relocations and expansions will continue to increase in Austin, spurred in part by the lower cost of commercial real estate in the overall market.

A recent deluge of short sales is creating difficulties for home sellers and buyers alike according to most real estate analysts. Lenders are overwhelmed by the number of short sales requests and are taking far longer to process offers from willing buyers. This delay often causes buyers to withdraw their offers and contracts to fall through, necessitating the relisting of the home and further delays for anxious sellers. Banks and mortgage providers simply don’t have the staff in place to handle the increased volume of short sales, and further delays result when lenders must request necessary paperwork from investors and secondary lienholders.

Short sales occur when lenders agree to discount the remainder of a mortgage balance rather than foreclose on the property; the lending institution then puts the home on the market, and the bank collects the proceeds of the sale as payment in full for the outstanding debt. Because of recent market conditions, many homeowners have found themselves in serious financial difficulty; their home’s value has dipped, sometimes to less than the remaining mortgage debt. Typically the bank is willing to take the current appraised value of the home as full payment, even when this does not cover the entire amount of the mortgage. In some cases, however, lenders have been known to cancel contracts and raise the price of the property, sometimes to an unrealistic level. This is due in part to changes in the appraisal process, which have also led to serious underappraisals of properties in cities like Austin. The use of foreclosures as comparables is only one of the many deficiencies in the current system; in short sales especially, it can be difficult for lenders to obtain an accurate appraisal of the property’s true worth.

While Austin has seen fewer short sales than many other metropolitan areas, the continuing rise in short sales volume has some real estate experts worried. Short sales are expected to increase still more in response to the November 30, 2009 announcement of a federal program that provides financial incentives to sellers and lenders who avoid foreclosure through short sales. These transactions place an additional burden on all parties. Sellers must provide proof of economic hardship before their request for a short sale will be approved. Lenders must assume responsibility for paperwork relating to the sale of the home; buyers and real estate agents must be prepared for lengthy delays in processing and accepting offers and closing on the short sale property. The entire process takes much longer than traditional home sales, and can be further delayed if banks and buyers cannot agree on a mutually acceptable price.  While Austin’s real estate market remains comparatively stable, analysts are watching the situation closely to ensure that short sales do not drive down home prices in our area.

Austin’s inventory of unsold homes decreased by about 20% over the last year, according to real estate analysts ZipRealty Inc. This is in contrast to several other housing markets, which are still seeing increases due to foreclosure and voluntary surrender of homes by financially insolvent owners. Austin joins cities like San Diego, Los Angeles, Las Vegas and Phoenix in reduction of outstanding home inventories over the last year. This shift may indicate the end of the buyer’s market that has been prevalent throughout the United States; while some urban areas will be slower to recover from the housing market downturn, the reduced inventory of homes will help drive up home values and increase the likelihood that homes already on the market will sell more quickly.

This news comes on the heels of RealtyTrac’s announcement that foreclosure filings are continuing to decrease. November 2009 marked the fourth straight month of lessened foreclosure activity throughout the United States; recent federal initiatives including the Home Affordable Modification Program and other Fannie Mae programs are credited with a large portion of the decrease in foreclosures and defaults. Much improvement is still needed, since it’s estimated that one out of every 417 homes is currently in some phase of default or foreclosure, presenting an overwhelming burden on the housing market during a crucial stage of its recovery. Nevada, Florida, and California have the dubious honor of holding down the top three spots in foreclosure proceedings compared with number of homes.

The reduction in unsold homes in Austin is expected to drive home prices higher and result in increased competition for available homes. The buyer’s market in Austin may be coming to an end, making this the best possible time to investigating home buying options before the prices return to their pre-slump values. Bargains are still available, but it’s necessary to act quickly before the home of your dreams is off the market for good.

According to the Urban Land Institute, Austin is one of the real estate hot spots for 2010 development. Along with Washington, D.C., Boston, San Francisco and New York City, Austin is expected to see a surge in commercial development in coming years; the study indicates that 2010 will be one of the best times to buy, coming as it does at the expected bottom of the cyclical market. For those in a position to acquire real estate at this advantageous time, the return on investment is likely to be exceptionally high; 2010 may well be the year to watch in terms of commercial real estate investments.

Austin’s low rate of state tax and continuing commitment to corporate investment is credited with a large part of its economic stability and potential for growth. Its position as the capital of Texas provides robust support for its local economy, while its highly desirable residential environment has helped to keep housing prices stable during recent housing industry downturns. Austin’s high-tech industrial base also contributes to the overall real estate market stability, ensuring high demand for commercial and residential real estate continues well into the future.

The study also outlines some strategies for commercial real estate investors throughout the U.S. market. One of the most crucial is, of course, to invest in high-growth areas like Austin; this ensures the ability to attract and retain high-quality tenants for commercial properties. Additionally, investors should be highly selective in their choice of properties. Class A properties offer higher quality in materials and manufacture, and therefore represent a better long-term investment than other buildings. Location remains a key element to return on investment; cities like Austin offer investors a much better chance for a high rate of return on their initial investments. The study also recommends sticking to a cash basis for all real estate transactions; this will allow investors to take advantage of exceptional opportunities as they arise. Finally, the Urban Land Institute study recommends patience; by remaining steadfast and purchasing wisely, investors will be set to reap the profits when the commercial real estate rebounds over the coming years.

Austin’s real estate market offers unique advantages to investors and homebuyers. The commercial real estate picture in Austin is already showing signs of recovery, making this an optimal time for investors to jump into the market and take advantage of current low prices. Austin’s combination of desirable residential areas and robust economic growth makes it the perfect arena for commercial real estate investment in today’s market.

What Did Interest Rates Do This Week?

** based on Freddie Mac weekly average survey **
30-yr Fixed – Slightly Lower
This Week:  4.91%
Last Week:  4.98%
1yr Ago:  6.14%

15-yr Fixed – Slightly Lower
This Week:  4.36%
Last Week:  4.40%
1yr Ago:  5.81%

Jumbo Fixed (Average 30-yr Fixed)
Last Week:  5.75%
Previous Week:  5.895%

Highlight of This Week’s Major Economic Reports

Trading activity in the bonds market, as well as the release of new economic data, was light during this holiday-shortened week.  One bright note, however, was that the government reported the latest unemployment benefit claims dropped by 12,000 last week, which conveys (in the past four weeks) the emergence of a slight improvement in the job market.  Of course, we’re still far from a full recovery in the labor sector, but we’ll take any good news we can get.

Additionally, the Fed just hit the $1 trillion milestone for its purchase of mortgage-backed securities.  This program has kept mortgage rates remarkably low throughout the year, and the Fed is committed to spending the full $1.25 trillion through the end of March 2010.  Once this program ends, all expectations are that mortgage rates will start to climb to more closely align with yields on US Treasuries.

What to Look for Next Week

Inflation and housing take center stage next week.  The latest Retail Sales figures are also due out, and it’s expected to post a slight gain from the previous month.

Short-Term Rate Outlook
Relatively Unchanged

Stay Informed:  What’s in the News

“Texas Cities Dominate List of Top Performers” from Milken Institute via Texas A&M RECON

Texas metros, led by number one Austin–Round Rock, claimed four of the top five spots and nine of the top 16 in the 2009 Milken Institute/Greenstreet Real Estate Partners Best-Performing Cities Index.

Also making the list were Killeen–Temple–Fort Hood (2), McAllen-Edinburg-Mission (4), Houston–Sugar Land–Baytown (5), San Antonio (11), Fort Worth–Arlington (12), Dallas-Plano-Irving (13), El Paso (14) and Corpus Christi (16).

Austin–Round Rock was the first metro to ever be ranked number one twice on the index, the last time being in 2000.

But it doesn’t stop there. Nine other Texas metros made the top 25 out of the 124 smallest metros that were studied.

Those were Midland (1), Longview (2), Tyler (4), Odessa (5), College Station–Bryan (14), Texarkana (17), Waco (18), Laredo (20) and Abilene (21).

Leaders in this year’s index, which ranks U.S. metros based on their ability to create and sustain jobs, are all metros that succeeded in avoiding the worst of economic declines driven by falling housing markets and job losses in manufacturing and global trade.

Regional economic factors also strongly influenced the rankings this year, with the oil and gas sector, technology and alternative energy providing stability among metros in Texas, North Carolina, Washington and Louisiana.

Another factor helping Texas metros move up in the rankings is the state’s favorable business climate and its ability to attract jobs and corporations away from higher-cost states.

“Economists See Fed Raising Rates Near Midterm Election” from The Wall Street Journal

Economists in the latest Wall Street Journal survey, on average, expect the Federal Reserve to raise interest rates around September 2010, a politically sensitive time considering midterm elections will be right around the corner and unemployment is forecast to still be over 9.5%.  The 52 surveyed economists—not all of whom answer every question—on average expect the unemployment rate to rise to 10.3% by the end of this year from its current 10.2%, and they expect it to stay above 9.5% through 2010. The respondents expect job growth to return over the next 12 months, but the forecast calls for an average of about 50,000 jobs to be added per month over that period. The economy needs to add about 100,000 jobs a month just to keep up with new entrants to the labor force.

“Foreclosures: ‘Tide may be turning’” from CNNMoney.com

Could the foreclosure plague be ending? Foreclosure filings were down 3% in October, the third consecutive month-over-month dip, according to RealtyTrac, the online seller of foreclosed homes. To be sure, foreclosure rates are still elevated from a year ago: They’re up 18% compared with October 2008. But the month-over-month decrease followed a 4% drop in filings during September and a 1% fall in August.

“5% of Americans Plan to Buy a Home Next Year” from CNBC.com

Just one in twenty Americans say they plan to buy a home within the next year, and they’re most likely to be 34 years old or younger and living in the South or West, according to a survey released Wednesday. Roughly a quarter of potential buyers said the No. 1 reason they would buy now is because prices have bottomed out. That reason topped bargain-priced foreclosures, worries about rising interest rates and a wide selection of homes.

“The Recession’s Over, but Not the Layoffs” from The New York Times

The Great Recession is over — not officially, but by popular acclaim — and in this accepted fact we are invited to take comfort, even as the unemployment rate last week rose into double digits for the first time in a quarter-century.  Experts have long assured us that economic life is governed by the business cycle, a repeating loop of downturn followed by expansion, as reliable as the seasons. In this context, worsening joblessness is like a punishing blizzard in April: Misery notwithstanding, the calendar promises spring.

“Texas Employment Feeling Pinch” from Texas A&M Real Estate Center

The Texas economy lost 292,700 nonfarm jobs from September 2008 to September 2009, an annual job loss of 2.8 percent.

Over the same period, the U.S. economy lost more than 5.7 million jobs, or 4.2 percent of its total nonfarm jobs.

The state’s seasonally adjusted unemployment rate rose from 5.1 percent in September 2008 to 8.2 percent in September 2009, while the U.S. rate rose from 6.2 percent to 9.8 percent during the same period.

Only three Texas industries (education and health services, other services, financial activities) and the government sector had more jobs in September 2009 than in September 2008. Eight other industries experienced net job losses over the same period.

Only one Texas metro area, McAllen-Edinburg-Mission, posted a positive employment growth rate from September 2008 to September 2009. Twenty-five metro areas had net job losses.

The state’s actual unemployment rate in September 2009 was 8.3 percent. Lubbock had the lowest unemployment rate followed by Amarillo, Midland, Abilene and College Station–Bryan.

Marie Funston | Sr. Mortgage Advisor | (512) 750-7270
9442 N Capital of Texas Hwy., Suite 1-600
Austin, TX 78759
Fax:  (512) 343-1224
Marie@austinmortgageadvisor.com

What Did Interest Rates Do This Week?
** based on Freddie Mac weekly average survey **

30-yr Fixed – Slightly Higher
This Week:  4.92%
Last Week:  4.87%
1yr Ago:  6.46%

15-yr Fixed – Slightly Higher
This Week:  4.37%
Last Week:  4.33%
1yr Ago:  6.14%

Jumbo Fixed
Average 30-yr Fixed:  5.895%

Highlight of This Week’s Major Economic Reports

Who would’ve thought a few months ago that we’d see the Dow top 10,000 again this year, but here we are at the beginning of the 4th quarter, and the stock market seems to be on a relentless drive, further fueling what is now the expectation of economic growth before the end of the year.  And, while money was being poured into the stock market, they were pulled out of the safe haven of US Treasuries, which has consequently caused the spike in interest rates.

Furthermore, recent readings on local market conditions across the country have revealed growing stability – and even some consistent improvement – the likes of which we haven’t seen in two years.  This supports the consensus that a technical end to the recession is looming near.  However, with unemployment still problematic and the issue of health care still unresolved, consumers aren’t feeling as upbeat as the numbers may convey.  As a result, consumer spending is still lagging with Retail Sales reporting a 1.5% slide last month.

What to Look for Next Week

More inflation reports and an updated peak at the housing market will headline next week’s economic calendar.  Inflation is expected to remain tame, while home sales are expected to post positive results, as first-time buyers flock to take advantage of the tax credit.

Short-Term Rate Outlook

Relatively Unchanged

Stay Informed:  What’s in the News
“When Will Recession End?” from Texas A&M Real Estate Center
Three things have to happen before the current recession can be declared ended. One is underway, said Dr. Mark Dotzour, chief economist for the Real Estate Center at Texas A&M University.

“I think the economy will begin to turn for the better once the health care and cap-and-trade issues are settled. Those two political debates are creating substantial uncertainty for business owners and investors,” he said.

The personal savings rate is the second trend to watch, said Dotzour.

“Over 70 percent of the U.S. economy is consumer spending,” he said. “When the savings rate finally levels out, consumer spending will start to increase again.”

Increased corporate profits are the third trend that must occur to bring the recession to an end. There is some indication that has already begun. The last three data points were all up. Rising profits lessen the urge for companies to lay off workers.

Research Economist Dr. Jim Gaines added that the increased corporate profits have come from reduced costs, not the kind that leads to expansion.

“Keep your eye on these three issues,” Dotzour said. “When they are resolved, the economy will begin to turn the corner.”

“Texas Cities Labor Away” from Texas A&M Real Estate Center
Four of the five best labor markets in the country are in Texas, according to a new study compiled by Portfolio.com.

Austin leads the way, followed by San Antonio. Houston ranks fourth and Dallas–Fort Worth fifth.

Landing at third is Baton Rouge.

All 100 metropolitan areas in the study, including those in Texas, have seen employment decline since last year. However, while 5 percent of the nation’s private-sector jobs have disappeared since June 2008, the collective decline for the ‘Texas Four’ has been 2.6 percent.

The Texas markets still have 589,500 more jobs than they did five years ago.

Portfolio.com used a nine-part formula to analyze employment trends in the nation’s 100 largest labor markets. The formula used midyear U.S. Bureau of Labor Statistics data for 2004–09, including unemployment rates and trends, and raw and percentage changes in private-sector employment.