Do you believe downtown Austin is overbuilt? If you do, I don’t blame you for thinking that. Over the past two years, the traditional local media outlets have delivered an array of sensational headlines, like “Condos Caught By Crisis At Last“. But, dig a little deeper and you could find a new perspective based on data, rather than some columnist leading a band wagon.
At the Downtown Austin Blog, we are passionate about downtown and urban Austin real estate, but we can recognize that prices have softened. In fact, we think that’s a good thing – more people can afford to move here! As much as I’ve railed against certain Statesman columnists for their curmudgeon style sensationalism, ironically, perhaps it was those stories that drove this summer’s buying spree. If you advertise a sale, then you expect buyers to come. That’s what happened.
We’ve written about the auctions and discounts. We’ve observed how an average 25% – 30% discount will clear out a building quickly – like 90 minutes quick. We’ve seen this at Brazos Place, at 360, and at the Shore where residences which had been trading at upwards of $400 per foot in 2007 are for all intents and purposes gone.
NOW WHAT?
Recently, you might have heard former Austin Mayor Will Wynn’s radio ad for downtown living. I’ve only heard this ad on KGSR, but it could be playing elsewhere. Click below to listen to it.
This advertisement directs you to a website called downtownaustinfacts.com. The goal of this website is to combat mis-information about downtown Austin being over built. To quote the website…
While many people believe that the Downtown Austin condo market is overbuilt, the fact is only about 400 new condos remain for sale downtown. With the economic downturn and continuing tight credit markets it is very unlikely that any more new condos will be built downtown for at least another 5 years. That means there are only 400 new downtown condos for sale for the next 5 years.
By my count this number is low. If you only count Spring, W Hotel, Four Seasons, and the Austonian, then 400 units is close to accurate. If you include the remaining units at the Sabine and 904west, (those are rehabs, not new construction) then the number is closer to 475. Those extra 75 don’t make a big dent in the argument, however.
THE INVENTORY IS LOCKED IN. You will not see any new projects come out of the ground until at least 2013, perhaps longer.
Here are more facts that DAB has come up with.
1) # of downtown Austin condos available for sale and ready for immediate occupancy = 284, approximately (156 in MLS + 128 Spring units, not including 44 units at Sabine)
2) # of downtown Austin condos under $300 per foot = 42 (from MLS, not including the 44 units at Sabine)
By and large, the new product under construction in downtown Austin is considered luxury product. Downtownaustinfacts.com makes this point salient, even if not overtly. Sabine will go to auction, soon, and then what is left that’s under $300 per foot? The answer: only resales. Over the next few years expect this shortage to drive demand for resales.
The past few years have been dominated by new construction. That’s over. The remaining inventory of new construction in downtown Austin happens to also be the most expensive. We can speculate on pricing discounts, but until those buildings are complete, and we see contracts converting to closings, it’s too early to tell what the velocity of sales will be, and how aggressively they will negotiate with buyers. What the data clearly shows is a shortage of attainably priced homes in downtown Austin. There is no slowing the demand for downtown living.
-Jude
Hi Jude, who is putting the money for downtownaustinfacts.com ?
Also, I’ve never quite trusted $/sq ft for condos as a good marker. I think absolute price is more important. What percentage of the ~475 condos for sale are under $400K? To me that’s the critical shortage that is looming.
Not sure who is funding it, but a simple whois search shows Larry Warshaw owns the domain.
Most likely, all of Sabine will be under $400k. Several units at Spring are under $400k, same with 904west. So, to answer your question, perhaps 15-20%. At current prices, you won’t find much of anything at the W, Four Seasons, or Austonian below $400k. But, with nothing coming online for years, the supply and demand curves may intersect higher, and these prices might not be as soft as predicted.
There is a shortage of attainably priced product coming online – this was the point of my post – and there will continue to be a shortage until the capital markets fund new construction. One result will be upward pricing pressure on resales under $400k.
$/ft is a good tool for normalizing prices in order to compare buildings. Absolute pricing tells you if you can afford it.
Ah, didn’t think of doing the whois. So sounds like the Constructive Ventures guys are behind it.
I agree with your analysis of the downtown market, but no one seems to be talking about the looking glut of $600K+ units. We’ve probably got a 3-5 year inventory of those units coming online. So what I see shaking out is under $400K stays really strong. Units around $500K are going to have a good bit of competition and older units will probably drop in price due to the competition in the newer luxury condos. Above $600K total stagnation (or price cuts for those that are desperate to get out).