Austin Texas Real Estate Blog

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.

Some analysts are worried about the increase in short sales.

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.

Inventory down, foreclosures down

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.

In September, Austin experienced a dip in foreclosure rates. This comes at a time when most market analysts predict that with a change in lending practices, this current mortgage crisis has peaked and will only get better. Austin has remained steady in light of the national issues. The city has stayed high on several lists of the best housing markets over the past year. With foreclosure rates now starting to lower, Austin can only continue to stay at the top.

A September report focusing on third quarter results by RealtyTrac showed that the state of Texas has reduced its foreclosure rates by over 15% from just a month earlier. This same study states that the state has lowered the rates by over 35% from the same quarter in 2007. What this proves is that overall Texas has fared well in regard to the housing market. Austin has done even better than other similar sized cities in other states. Part of this study includes a listing of high foreclosure cities. The higher the rate, the lower on the list a city appears. Austin is ranked 85 on this list. About .25% of housing units, or just over 1,500 homes were in foreclosure status in Austin at the time of the report.

During a time when many other metro cities are reporting higher foreclosure rates, both Austin, and Texas as a whole, are leveling out. It will be some time yet before this national crisis begins to steady. Because Austin has thus far maintained its housing market, there is the expectation of foreclosures to continue their decline.

Finished before it was even started, the Magnolia condo project was forced into foreclosure in July 2008.

The Magnolia was to have been a five-story condominium building close to the downtown area, consisting of 139 units priced at between $220,000 and $600,000. Amenities were to include private balconies or courtyards, an outdoor pool on the second floor, a fitness center, rooftop gardens, retail space, and granite counter tops among others. The project was estimated to cost $40 million and would have covered three acres on the corner of South Lamar and West Gibson Street.

A series of events, combine with bad luck and difficult topology, have scuppered plans for these luxury condos.

In February of 2007, the lender who was to finance the construction, Fremont Investment & Loan from Los Angeles, reneged on its loan promise. It seems the Federal Deposit Insurance Corporation (FDIC) refused to allow the lender to fund any new projects, as regulators tighten the purse strings on a nationwide scale.

Then, in October of 2007, the development company, Avena Development LLC, attempted to sell the project, and it was reported they had a buyer. The deal fell through in June of 2008 and foreclosure proceedings loomed. The undisclosed buyer backed out of the project purchase when they failed to find a partner to commit to the project.

The site is in a prime location, close to downtown and in a corner lot. There are projects with tree preservation and topography that were threatening to raise construction costs. Still, experts are cautioning against panic, saying this incident is isolated and “is related more to the specifics of the project and to the overall slowdown in residential sales and does not necessarily indicate the beginning of a trend in foreclosures.”

October 30th, 2007 10:54 AM

As a Realtor in Austin’s ever changing market, I often get questions about the bubble. Sometimes, I even get the uninitiated investor’s summary of a plan that involves waiting for the bubble to break and then swooping in and offering seller’s pennies on the dollar for their real estate. I RUN, not walk away from these investors.

As far as I can tell, there is no bubble in the Austin/Central Texas real estate market. We tend to see regular, steady appreciation in our market. We have a reasonable amount of inventory, property taxes high enough to keep rampant speculators at bay, and a strong economy and work force that is supporting our growth. That said, the Austin Texas real estate market does fluctuate from a buyer’s market to a seller’s market to a balanced market. Like most markets a broad generalization such as “Austin is a buyer’s market” is usually wrong. The market can be segmented various ways and those segments are whatreally shoudl be commented on. As an example, ACTRIS (the Austin Central Texas Realty Information System – our MLS), shows over 15 months of inventory for homes over $1MM and only 4 months of inventry for homes up to $100k. Clearly both market segments are different for the buyers and sellers playing in those markets.

The excerpt below from The Neal Spelce Austin Letter (www.AustinLetter.com) supports the idea that we’re not facing a dwnturn in the market.

The Austin metro was different. New home prices have steadily increased over the past three years, not skyrocketed.Mark Sprague, the Austin area partner for Residential Strategies Inc. (RSI), points out the median home price in the 3rd Qtr 2005 was $181,108, in the 3rd Qtr 2006 was $197,103 and in the 3rd Qtr 2007, it was $208, 583. “The area median new home price is up 5.8% for the past 12 months,” he noted. Bottom line: there is no bubble to burst in the Austin area.

Another factor to consider is the number of vacant, developable, lots. Currently, Sprague estimates there are 26,058 lots and at the current absorption rate, this represents a 22.3 month supply. RSI, a market research and consulting firm, considers a 24-month supply to represent equilibrium. As Sprague put it: “The fact of the matter is that, although the housing market has slowed over the past year, Austin doesn’t have the problematic excesses of lot and housing inventories that are prevalent in most other major markets of the United States.”