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Is Austin now a Seller’s Market? or is it just smoke and mirrors?

In Austin on January 13, 2010 at 4:43 pm

I read an article the other day that claimed Austin is now becoming a Seller’s market. This means when inventory levels for homes fall below 5.5 months (number of listings divided by the number of sales) sellers are in a good position to sell. In a Buyer’s market which many of us know we’ve been living in over the last 3-4 years simply means that their are more houses on the market compared to the relative number of buyers. This means that buyers have negotiating power and have plenty of homes to choose from. The influx of foreclosures and excess inventory of new homes have contributed to this in a big way. It’s been estimated that 1 in 3 buyers are looking at foreclosures to try to get a good deal. Unfortunately many buyers have learned over the last year particularly that foreclosures are not always as good of a deal as they sound. Repairs are rarely done to make the house livable, and even if the house appears to be in decent shape, many buyers are finding problems and costly defects that where not discovered in the initial inspection process. “Caveat Emptor” is a phrase I believe best describes these types of purchases.

The second part to this equation is new construction. I remember the days just a few years ago when builders had the capital to go out and build spec (pre-built) homes in new communities by the dozens. It was a great way for builders to sell back in the day, because if you could fog a mirror you could pretty much qualify for a home. So the shelf life for spec homes was relatively short. Then you add the vast amount of capital that builders could raise to take down large tracks of land and off they went.

As we all should know the economic crisis has changed the world we live in. Foreclosures, although still on the rise, are not saturating the market. Fannie Mae, among other investors are now piloting a program called the Deed for Lease. If you own a home and cannot be approved for a loan modification, Fannie will allow you to give back the deed to your house and in exchange allow you to lease back from them for 1 year. So why do we care? Well, think about it, if the owner of the property leases the property back than that’s 1 less REO property on the market. This may seem like a good thing for distressed homeowners at first. However, Fannie Mae is not going to be in the property management business instead they will contract out the property management to third party management companies. Furthermore since the management companies will not technically own title to the property, expect these management companies to put these properties back on the market and inventory levels to creep back up in the next 12 to 18 months.

As for new home construction, if you want a new home expect to wait. Builders are no longer building spec homes. You’ll see 1 or 2 model homes but that’s it. New homes will be sold on dirt. Meaning you need to contract first before they start construction. Plus, don’t be surprised if you will be asked to get the construction financing in your name as well. And land acquisition by builders, depending on who you talk to is down as much as 50-60%.

So what does this all mean? Well if you are a current homeowner and want to sell your property, now is the time! That’s what a Seller’s market means. However, don’t expect to get a high return on your investment though. Remember the house still has to be appraised, and with the new appraisal standards and valuation code of conduct, appraisers are literally killing deals left and right. I myself sold a listing for full price only to have an appraisal some back $5,000 less a week before closing. It was not fun. There are some ways you can protect yourself when it comes to valuation issues. One of them is larger cash down payment requirements. I have a formula based off the type of contract that I use for my clients that helps them understand what to expect and how to evaluate offers beyond Price.

In today’s market you have to read between the lines. for more information find me contact me at 512-656-4243.