Austin at Risk for Price Decline?

Question

Hugh Ayles · Answer

Sounds like dotcom stocks circa 2000.  Back then I wondered how a stock reporting "only losing x" was cause for the price to go up.

I am shocked at what some houses are selling for before rehab right now.  I think some "investors" have the outlook that everything will sell for a profit.  It does not help that every couple of weeks a guru is having a seminar in town.

Matthew Vitlin · Answer

It is a tricky business.  On the one hand people are still flooding into Austin, on the other hand I'm seeing a good number of people feeling priced out of the market and looking to the areas around Austin to buy/invest.  For my sake I hope prices keep going up, but I wouldn't be shocked if we saw prices stabilize in the near future.

Andre Key · Answer

Austin,

Has many IT companies bringing jobs here investing in new campuses, and promoting the many jobs that they plan to create in the media. However it appears that alot of the IT companies are bringing moderately paying customer service jobs and majority of the other jobs that Austin claims to have created are service jobs. I fear that these jobs will not support the rising housing prices.

Jared Watson · Answer

for what is worth, I already have s buyer on a property that I haven't even started, $875

$75k over our ARV

I think it's important to target the right buyers

Bryan Hancock · Answer

CodeNext sounds great in theory and I hope it works out.  I'm not confident that the city's dysfunctionality can be influenced by a handful of people with good intentions though.  It may take some really embarrassing media story to really effect positive change.  I guess we will see and my comments are really pretty jaded with respect to this city based on years of brain damage with them.

Modifying setbacks and compatibility items would really help a lot of sites I look at.  If CodeNext improves that you should expect to see more development in non-residential product types.  Most of the smart developers I know are migrating toward projects like this and away from residential projects.  Competing with owner-occupants for inputs is a recipe for poor margins.  This is especially true in the urban zip codes that most small folks are working in.  The large developers operating in the outskirts probably have a whole different take on things.

Overall I plan to invest in other people's projects now using crowdfunding and diversify my holdings both in product type and in locale.  Investing in the safer part of the capital stack with hard money loans or other types of arrangements where you can get good (but not great) yields seems like the right play to me right now.

Bryan Hancock · Answer

Hopefully prices will moderate.  I haven't seen much lift in the product I build in about a year.  A lot of it is driven by appraisers reading reports like this and undervaluing properties when you try to exit.

Honestly I think this is a good thing.  There is too much dumb money sloshing around in Austin right now.  We're due for a small correction or prices leveling off.  The city making it harder and harder to get permits isn't helping though.  Constraining permits and inventory while input prices (land, labor, materials) rise is a recipe for smaller margins and more dumb money and fewer good developers building.  Thus rationality will exit the decision process and things will be more bubble-like.

We're planning to exit our remaining 28 units and do something else the 2nd half of 2016.

Jon Klaus · Answer

With population and job growth still strong, housing demand will stay strong. Will supply keep up?  Are we getting to an over supply situation?  I also see price increases slowing, but it remains a healthy market and will for some time if the supply side doesn't go overboard.  I think the best locations (close to downtown and UT) will continue to do well as there is little land available for for new housing.