With an unemployment rate of only 7.3 percent in August, it’s no secret why Austin is on everyone’s list of top recovering housing markets. Here’s a special report on the Austin market from Mark Sprague, director of business development at Mission Mortgage in Austin.
The positive news is the job creation in Texas and Austin. Looking at August 2011, 94 percent of the total jobs shed by employers during Texas’ shorter recession have already been recovered as our economy has rebounded more quickly than the U.S. as a whole. Nationally, only 22 percent of recession-hit jobs have been recovered. Local employers expect to hire at a healthy pace during Quarter 4 2011, according to the Manpower Employment Outlook Survey. Among survey participants, the Austin-Round Rock, TX MSA employment outlook is the fifth best in the nation. From October to December, 19% of the companies interviewed plan to hire more employees, while 8% expects to reduce staff. Another 71% expect to maintain their current workforce levels and 2% are not certain of their hiring plans.
Residentially, we are still slow, but better than last year. Over 17,000 single family resale homes have been sold Year to date according to MLS. However presently there is just over 9789 listings, or 43% of what has already been sold. Or another way to look at it, would be if no more homes were listed, at current absorptions you would go through remaining listing in just over 6 months. This represents a very balanced resale market locally. Should the market pick up slightly, we will see values increase.
Speaking of values, as a market we continue to see the Austin market appreciate very slowly, 1.5% to 2% annually. The good news is that Austin turned positive last spring. Houston this spring. Barring a catastrophic event, with a tightening of the market values should continue to increase.
Residential rentals and construction continues to be a bright spot in Austin with continued improvement in rent, which should continue with a limited number of units coming on line this year and 2012. Realize that this rental market is over 96% (considered at full occupancy in most markets, because of the constant turnover in rentals.) Builders will bring 250 units online this year, down from 2,860 apartments in 2010. Compared to the 9,000+ units that allowed a construction bump in 2009. With limited Real estate funding, progress for projects has been sluggish through 2011, but renovations and demand-driven supply will pick up beyond 2011 / 12. Asking rents are forecast to continue to climb.
Office space in Austin will continue to strengthen over the remainder of 2011 as a significant increase in employment is met with limited new construction. Employers in most sectors expanded staff levels in the first six months of the year, recouping all of the jobs lost during the recession and contributing to positive absorption during this year. Several companies l continue to expand in the second half of this year, generating additional office-space demand. Electronic Arts, for instance, will add 300 spots to its EA Sports division near the Domain, while Progressive Insurance swells operations by 100 positions in the third quarter. BazaarVoice continues to increase their staff by 250+ this year. As in all real estate, Office building construction has slowed. However, remodeling of existing space continues to be a strong point of this market, particularly in your ‘core’ properties.
Lack of funding, therefore building and the Austin entitlement process will continue to influence the amount of properties being permitted and built. As a result, occupancy is projected to improve to over 80 percent by year end for the first time since 2009. The rapid economic recovery continues to generate interest in Austin office properties from local and out-of-state investors. Local buyers remain focused on finding distressed properties. Their biggest hurdle seems to be the resurgence of the market, causing ‘reluctant sellers’ that are willing to offer at discounts from prices recorded a few years ago. Again ‘core’ properties are what the quality equity and institutions are targeting. ‘B’ and ‘C’ properties, however, have traded less frequently due to a gap between buyers’ and sellers’ expectations stemming from still-high overall vacancy. Smaller properties in locations west of Interstate 35, where numerous employment hubs and desirable residential neighborhoods exist, have been the first of these assets to change hands.
Austin continues to be a tight market due to lack of real estate financing by equity or banks. Demand continues to be strong across most Real Estate channels in Austin. While it has improved dramatically in the rest of the state, I am not aware of another market that is as tight as we are presently. Investors realize it, Banks realize it, and the consumer has got to realize that they have “limited opportunity in this market’.