by jude galligan
The Austin American Statesman is one of two local papers (the other being the Chronicle) that reach Austin’s masses. These newspapers set the agenda and guide the discussion on topics of their choosing. The words printed on the pages of the Statesman, Austin’s most widely read newspaper, have the power to affect the home values and lives of thousands of Austinites. With that power comes responsibility.
Wednesday morning I picked up a Statesman at Jos Coffee and in big bold black letters “Condos caught by crisis at last”, “Breakneck rate on sales of units, construction slows as credit and capital dry up”.
Curiously, neither of those dramatic headlines exist in the online version of the article. In the print edition, immediately to the left, in much smaller font, was the news – the government is injecting $800MM to expand the credit markets.
Shonda Novak is a staff writer at the Statesman and wrote the above article. Shonda has been reporting on Austin real estate for years. If Shonda writes that the sky is falling on Austin real estate, then 100k+ Austin readers look at their spouse and say “Hon, did you see that article in today’s paper about Downtown condos? I’m telling you, Babe, those developers will never sell all those condos! Just wait and they’ll be selling them at twenty cents on the dollar!”
I read and re-read the article. Seeing the print edition headline, I expected catastrophe. Instead, I found nothing at all particularly newsworthy.
Is it possible that the Statesman’s headline was overly sensational?
Taking a similar approach to how I dissected this article, after the jump, I’ve cut/pasted a handful of quotes from the article, and then I explain if that quote is, generally speaking, true, false, or if the quotes are generalizations or simply editorial in nature.
“Sales at the four towers under construction — the Austonian, the Four Seasons Residences, Spring and W — have slowed to a crawl since the financial crisis exploded in August…” writer, Shonda Novak
Editorial. These words are more true than false. Still, nowhere in the article is “crawl” substantiated with any numbers.
“The slowdown is the first break in a wave of residential development that has brought hundreds of new condominiums and apartments and several thousand new residents downtown in the past several years.” writer, Shonda Novak
Editorial, misleading. As it is written, the reader is expected to believe that this article is breaking news of “the first break in a wave of residential development”. In fact, reporting on the construction of the W Hotel on May 3rd, 2008, Shonda quoted Stratus CEO Beau Armstrong that “It’s a tough time to borrow money now, no matter who you are.” On October 24th, the Statesman published an article discussing Downtown Austin apartment vacancy rates. Real estate buyers have been bombarded with negative media for a long time.
“In recent years, announcements of bold new projects seemed to come every month.” writer, Shonda Novak
Generalization. While there were many announcements for new developments in 2006 and 2007, Shonda is editorializing to make her point that the market is slowing.
“…with the credit crunch, no new project has been announced this year.” writer, Shonda Novak
True. I did not find any articles in 2008 announcing a new project.
“Nationally, tightened credit requirements have made it harder for many people to get mortgages, including the so-called jumbo loans needed to buy the higher-priced units in projects such as the 56-story Austonian luxury condominium being built on Congress Avenue and Second Street or the 32-story Four Seasons Residences, going up adjacent to the hotel.” writer, Shonda Novak
True, misleading. The Austonian and Four Seasons are great projects, but to single out those buildings to paint a picture of Downtown Austin condos as a group is reckless. The current average price for a Downtown Austin condo is ~$382,000 (pdf), well under the jumbo loan threshold of $417,000 (wiki).
“Even if buyers can obtain financing, there’s a hitch: ‘They’ve got to sell something on the back end to buy something new, and they can’t unload their current property'” lender, Devlin McNamara
Generalization. Where is the data to support this? It’s reported as a blanket statement. Perhaps this was taken out of context. Devlin is one of the most knowledgeable mortgage guys in Central Texas. It might be true of mortgage applicants who are denied because they have an existing mortgage obligation but, in my professional observation and as a blanket statement, most Downtown Austin buyers do not need to sell their house before they buy.
“Sales of pre-owned homes in Central Texas have fallen for 16 months in a row.” writer, Shonda Novak
False. I researched the Austin Board of Realtors MLS data for month-to-month changes in 1) average price, 2) median price, 3) average price per square foot (SP/SqFt), and 4) ratio of sale price to list price (SP/LP) for Austin and downtown Austin over the past 16 months. While generally trending down, none of these indicators have declined for 16 months in a row. The SP/LP ratio for Austin has the most decreases. This is an indicator that Austin has been a buyers market for the past 16 months. The data comes directly from the Austin Board of Realtors’ MLS system. I’ve posted the data here (pdf). (I can hear some of you saying “Jude, we get your point and you’re nitpicking.” )
“Skeptics have warned for months that the downtown condominium market was overbuilt, and they say sales and prices are poised for double-digit percentage drops in the coming months.” writer, Shonda Novak
Editorial, unsubstantiated. More editorial. While most people can see that sales are slowing, not a single quote in the article predicts “double-digit percentage drops.” Furthermore, I researched the Statesman archives and could not find a single quote, in any article written by Shonda over the past six months, that contained any quotes predicting “double-digit percentage drops” or anything similar.
“Some real estate experts and developers of the four projects disagree, noting that three of the projects won’t be completed until 2010 or 2011. By that time, the hope is that the economy will have rebounded.” writer, Shonda Novak
True. The Four Seasons, Austonian, W Hotel.
“the misconception of the casual observer is that downtown is or will be overbuilt,” … “The reality is that the various projects in and around downtown are being delivered at staggered schedules and price points.” Four Seasons developer, Brett Denton
“Nearly half of the Four Seasons’ 166 units are under contract” Four Seasons developer, Brett Denton
“There are binding contracts, with nonrefundable earnest money, for about 45 percent of the 159 condos that will be built as part of the 36-story W Austin Hotel and Residences north of City Hall” W Hotel developer, Beau Armstrong (as quoted by Shonda Novak)
“More than half of the 246 units at Spring, under construction at West Third and Bowie streets, are under contract” Spring developer, Larry Warshaw (as quoted by Shonda Novak)
“When Spring is finished next summer, ‘it will be the only building where someone can buy a high-end condo in a high-rise in downtown Austin for eight to 10 months — the only one'” Spring developer, Larry Warshaw
“Last month, a ‘close-out’ unit in the 5 Fifty Five luxury condos atop the Hilton Austin sold for $700,000, $85,000 off its original list price. In August, a resale unit there sold for $795,000, $80,000 less than its original price, according to real estate data.” writer, Shonda Novak
True, misleading. These transactions are exceptions, not the rule, and do not reflect the average ratio of sale price to list price (SP/LP). October transaction data for Downtown Austin shows an average SP/LP of 93.71% (pdf). In other words, based on the data, in October you would expect to pay $300,000 for a condo that listed at $320,000.
“In May, a unit in the Austin City Lofts went for $530,000, $45,000 less than its asking price.” writer, Shonda Novak
True, misleading. The Statesman is reporting on a single transaction… that occurred in May… six months ago! Transaction data from this past May for downtown Austin indicate an average sale price to list price ration of 95.5% (pdf)
“We thought we got a good deal when we moved in,” Kennedy said. “If we were moving in today, we would get a better deal.” broker, Mike Kennedy
True. There is strong competition in the downtown Austin rental market. Tenants should expect to negotiate.
“… work has yet to start on the next tower, Ovation, planned for West Sixth and Nueces streets, and Novare is eyeing a 2010 or 2011 start for the tower planned for the post office site.” writer, Shonda Novak
True. If new construction has not broken ground or taken their first draw on their construction financing, then, in my professional opinion, that building is unlikely to get built. This is healthy for the market and puts upward pressure on prices of existing condos.
“The 34-story 7Rio project at Seventh and Rio Grande streets is on hold indefinitely.” writer, Shonda Novak
True. Good for now. See above.
“I’m not saying we’ll flood the market with contracts, but things will pick up again.” consultant, Charles Heimsath
Editorial. While I agree with Charles, it’s important to put this into perspective.
From August 1st-November 25th 2007 there were 45 transactions for Downtown Austin condos with an average sale price of 96.04% of the list price (SP/LP). During that same period in 2008 there were 40 transactions for Downtown Austin condos with an average sale price of 95.32% of of the list price. (pdf: 2007, 2008). These numbers reflect only transactions for pre-owned condos and do not include developer contracts.
I’m going to rant a bit: This is a throw away article attached to a big headline with a singular purpose to sell newspapers. To her credit, Shonda was relatively balanced in her presentation, but the drama of the headline doesn’t match the perspective of the article. I was reading the article and looking for catastrophe. I never found it. Why did the Statesman publish this article? Why did they use completely different headlines in the print and online edition? Which leads me to wonder who is responsible for the headlines? Shonda or someone else at the Statesman?
This is the formula to create news: 1) pick an industry, 2) add market crisis sensationalism, 3) give it local spin, and 4) attach a big headline above the fold.
Nothing occurred this past Tuesday to give the Statesman justifiable cause for printing, on Wednesday, the headline “Condos Caught By Crisis At Last.” The Statesman printed an article that is void of anything new, or newsworthy. The Statesman acted irresponsibly by attaching a sensationalized headline to a banal article.
I don’t want to paint too a rosy picture of Downtown Austin real estate. Sales have generally been slowing since January. Still, Downtown Austin is a great place to live. Be skeptical of what you read. Yes, it is a buyers market. Has been for a while.
Austin, the sky is not falling.
by Jude Galligan, your Downtown Austin neighbor and loyal Downtown Austin Realtor (plug!)