Your grandfather always said, “Real estate is about location.” Well, I am here to tell you, first, that it is about “timing in specific locations” and second, why the timing for Central Texas is NOW.
Interest rates are at historical lows
Mortgage rates have been holding steady at historical lows for the last couple of months; however, this is not sustainable. With the start of QE2 and with multiple signs of inflation emerging in the food and energy sectors, I believe that these rates will be rising in the near future. Not only does a low rate help on the affordability side of homeownership but it alsoplays a large part in the ROI of investment homes and the level of leverage needed.
We are in a post-bubble market going into the winter months
Real estate is like a roller coaster (see my previous article), and it is all about timing the bottom. In my opinion, this winter will be that bottom in the current cycle; and, although we can never perfectly time a bottom, prices in all likelihood will increase as the spring and summer buying seasons begin in 2011.
Rental rates in the Austin area are rising
Rentals are in short supply in the Austin metro area; and, with no significant multifamily projects planned in the near term and SFR permits at record lows, future supply will remain tight, thereby increasing the rental rates.
Central Texas is experiencing a high rate of migration from other states
During the last few years Central Texas has been adding 30,000-50,000 to its population as people from other states flock to Texas with the hope of finding a better job environment. A quick check of the U-Haul Index shows greatly increased rental rates for moves to Texas, which a 2009 Forbes study has ranked first for economic climate.
Central Texas is one of the few places in the country that is adding jobs to the local economy
Austin’s job growth for September 2010 was 2.3 percent, which is the highest growth rate among major cities in the United States. Moreover, Austin’s unemployment rate dropped to 6.8 percent from 7.2 percent last year. Low taxes and a pro-business stance from the local government is attracting many companies to this area.
QE2 will be an inflation concern in the near future
It is not a question of if but a question of when QE2 will lead to inflation nationwide as the Fed injects $600 billion more into the system. In fact, one of the Fed’s directives is to create inflation. Smart investors are aware of this, and we only have to look at the latest price of metals like gold and silver to see a flight toward protection. Real estate—quality real estate—can also be a safe harbor from inflation.
Signs indicate that multifamily existing home sales are exploding
September 2010 home sales for 2-, 3-, and 4-unit homes rose 58 percent from the previous year; as of the writing of this article there were 64 pending and 70 active listings, thus making the supply side about one month’s worth of inventory. This is a sign that those with cash and looking to protect that cash are starting to come off the fence.
Rental rates in the Austin market have created a floor on SFR sales prices locally
Rental rates play an important role in the minds of potential buyers. I believe that buyers have incentive either to buy or not to buy. The incentive may be socially driven by the buyer’s perception of the market and what the conventional wisdom is, or the incentive may be financial in nature and driven by an equal choice. Given a choice of the same payment for either renting or owning, most would choose homeownership, given the availability of down payment. (Central Texas has a zero-down program available for a majority of buyers.) Central Texas rental rates in the median price range are comparable to what a mortgage payment would be for the same house.
Banks are willing to negotiate with sellers and buyers for short sales
The robo-signing disaster plaguing national banks may have created a short-term window of opportunity for investors and homeowners looking to negotiate a short sale. Because banks are holding onto homes and keeping them off the courthouse steps, they may be more willing to negotiate during this moratorium.
The masses are afraid to buy right now
Warren Buffett once said, “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.” Buffet is saying this: You don’t want to be a lemming, don’t follow the masses, and make your own educated decisions about the timing of real estate.John McClellan Branch Manager Supreme Lending – Austin 3420 Executive Center Dr. #300 Austin, TX 78731 512-279-1150 John.McClellan@SupremeLending.com