You might have seen this article recently. It’s an interesting read. Filled with quotes and bold statements. You might have also seen my recent article about the actual number of dwellings in Downtown Austin. As your loyal Downtown Austin Realtor (plug!), I thought I would dissect this article and give you the scoop from the trenches of Downtown Austin Real Estate.
I’m going to cut/paste a handful of quotes from the article, and then explain if that quote is, generally speaking, true or false. Let’s begin…
“If people are waiting for the crash to come and for people to give away condos downtown, it’s not going to happen,” Spring developer, Perry Lorenz
Know the truth after the jump!
True. Perry is right about this. The sky is not falling as some local papers would have you believe (cough, ***tesman). Yes, it is a buyers’ market, but it has been for a while. From September 1st through October 31st, the average discount from list price was 5.63% (pdf, source MLS for Area DT).
“People love to say that the condo market downtown is overbuilt. The ones that are built are sold. There aren’t empty condos hanging over the market.” Spring developer, Perry Lorenz
False. I could be misinterpreting what Perry is saying but, according to Mark Sprague who also appears in the article, we have 30 (thanks to Mark for contacting me with updated info!) 15 months of inventory. The bottom line is that each building has a handful of condos available to purchase. A healthy number is 10% of the total units in existing buildings are for sale.
“The next project to hit the market, 360, has 90 percent of its units under contract and more than 98 percent reserved” writer, Mark Collins
True-ish. 360 was, at one time, completely sold out. However, by the time the units were ready for move in, many 360 buyers could no longer obtain a mortgage. Today I am aware of about 15 units back on the market.
“As the next three major projects come online — Spring, The Austonian and The W — more than half of the condominiums have already been presold, despite the fact that they won’t be ready until 2010.” writer, Mark Collins
2/3 True. Spring and The W are more than half presold. The Austonian is notorious for not releasing sales data. My educated guess is that they are around 20% presold. (btw, if anyone has better information please send me an email).
“It is healthy to get everything absorbed and then have another [condo] product come to market. But the thing is, there isn’t another building coming to the market.” Broker, Kevin Burns
True. If it’s not already under construction, then we aren’t likely to ever see it built.
“…these condo developers all have hired attorneys to write their contracts for them, and obviously those contracts are written to protect the developers instead of the buyers,” real estate agent Mike Doerr said. “It ties the buyer into the contract price, regardless of how the market shifts.” Agent, Mike Doerr
True. Developers’ purchase contracts tend to favor the developer. (Does this really surprise anyone?). Developer contracts are typically used when buying pre- or mid-construction. Once the building is complete the buyer has more control over the terms of the contract.
“Some contracts also allow an increase of anywhere from 5-10 percent of the original price.” Writer, Mark Collins
Maybe. I’ve never seen a clause like this, nor have I heard of it happening. It is plausible, however. If anyone can substantiate this please send me an email.
“…a third of the people are walking away from contracts,” … “That is another condo that has to go back on the market, and the value of that condo is 20 percent less than what it might have been when the market was robust.” Agent, Mike Doerr
Possible, but misleading. Since developers aren’t inclined to release that data, it is impossible to say for sure. We are limited to rumor and word-on-the-street information. I didn’t see 360 condominiums lose 133 buyers. It’s statements like these, which cannot be supported with real data, that fuel misinformed media coverage. Conversely, can I empirically back up my claim that his statement is false? No, because the actual data is held in confidence by the developers. Buyer fallout was less acute than 1/3 in my observation.
“The real way to have affordable housing is supply, supply, supply. Developers will overbuild to the point that they wreck their own market. I’m not predicting a crash, but there will be some containment. Ultimately, the rich guys will get tired of their 10-year-old condo and want to move up. The natural occurrence is the older stuff will become cheaper,” Spring developer, Perry Lorenz
True with a caveat. Cheaper doesn’t imply loss of value. The older stuff becomes relatively less expensive. Over time, construction costs increase, thus new developments are more expensive.
“Having retail just for the sake of having retail doesn’t make it better. It has to be retail that people want,” … “Our downtown has to grow into being a real downtown that has everything you need within walking distance. We are still not willing to give up our cars.” Banker, Eddie Safady
True. Until recently Downtown Austin was pretty homogeneous in its use of real estate – offices and bars. Whole Foods is the anchor. 2nd Street has plenty to offer [albeit expensive]. Congress Ave recently added Patagonia and Jos. A Banks. Royal Blue Grocery is outstanding. We have a CVS. We have dry cleaning. We have the Alamo Drafthouse. We have so much more than before. Yes, I still use my car, but only a couple of times each week. The mix of retail is improving, not only as a destination, but for those of us who live in Downtown Austin.
“The average condo price in downtown Austin fluctuates around $450,000, which means buyers have to find a bank willing to give them a jumbo loan or have a substantial down payment.” Writer, Mark Collins
False (according to MLS). MLS sales data from September 1st through October 31st show an average sale price of $389,520 for a Downtown Austin Condo (pdf). Note: MLS does not reflect developer sales. Since these projects are more expensive per square foot, the developers’ sales data would most likely increase the average price.
“…we have a lot of units available right now today,” … “But looking at the number of units that are absorbing and knowing there aren’t going to be any new projects deliverable in the near future, it’s now or never.” Broker, Kevin Burns
True. Projects that haven’t taken their first draw on their construction financing aren’t likely to be built. What you see is what you get for the next few years.