Energy Efficiency Requirements

Austin has long been among the most environmentally conscious, and active, cities in the country.  That is part of what makes Austin Austin.  An energy audit is required for all resale homes (1-4 family) at the time of sale, and new construction has been subject to required energy efficiency sampling for a long time.  Now, it appears that 100% of homes built in Austin next year will require an energy audit for compliance with international standards.  Today, I added this article to my Market News page:

Austin Business Journal, November 20, 2009

Proposal ruffles builders

The new rule will instead mandate testing for every single- or two-family unit by outside contractors.  More:  http://austin.bizjournals.com/austin/stories/2009/11/23/story3.html?b=1258952400^2478101

I am all for improvements, but it seems to me that the market has pushed builders to improve energy ratings and will continue to do so.  The “good” builders obviously market their superior efficiency and the utilities savings that will result for homeowners.  Other builders won’t be able to substantiate such marketing claims, but may be able to sell their products at lower prices.

Of course, the market will also determine how much value buyers attach to improvements, and there is a limit.  This proposal will “level the field” by imposing the same costs on all builders equally, but buyers will still limit how much they are willing to pay for better energy efficiency.  At some point, that will limit the sale of new homes in Austin and/or push new construction farther and farther from the city.

The article notes that statewide adoption of the international standards is required to qualify for federal stimulus funds.  Does increasing the cost of housing and increasing sprawl really qualify as “stimulus”?

Interesting information …

Interesting information from another blog …

http://activerain.com/blogsview/1344985/interesting-info-on-who-is-buying-and-how-the-housing-market-heals-from-the-bottom-up

Much of this is certainly true in the Austin area, but market conditions vary one client and one neighborhood at a time.  Give me a call to discuss your specific needs.

Austin — not a place … a way of life!

Austin has long been known for extended debates about environmental initiatives and development regulations.  In the 80’s there were actually new subdivisons where homeowners moved in and discovered that our “anti-growth” city council had not gotten around to providing services like water supply.  I remember photos in the local newspaper showing people who had just moved into their brand new homes and had to install rainwater collection systems immediately, just to have water for daily use.

Since then, the situation has not been that extreme to my knowledge.  But the tension between development and environmental priorities continues — and that’s healthy as far as I am concerned.  Now there is a dispute about cutting trees:

Austin Business Journal, 11/13/09

City may stiffen tree-cutting rules

“The Real Estate Council of Austin is concerned that the city’s proposed Heritage Tree Ordinance is becoming an increasingly polarizing issue between developers and environmentalists.”  More:  http://austin.bizjournals.com/austin/stories/2009/11/16/story6.html?b=1258347600^2432871

 We have been through decades of debate and litigation about watershed protection, impervious cover restrictions, other development density issues, mass transit vs. road construction, etc.  “Keep Austin Weird” began as a campaign advocating local merchants.  It has evolved into a panoply of open arguments about conservation vs. growth and development — usually resolved in a way that allows responsible development  while preserving “the Austin lifestyle.”

How may cities have official birthday parties for Eeyore every year?  Austin does!  Austin is not your average “metro area.”  We are ”The Live Music Capital of the World®,” the State Capital, home of The University of Texas and other colleges and universities with combined student populations exceeding 100,000, and a place where most new graduates try to stay.  Austin City Limits, South By Southwest, ACL Music Festival, downtown Segway and Duckboat tours, rowing centers, yacht clubs, the Texas Hill Country, the Highland Lakes, Austin Pets Alive, even a local Surfrider Foundation chapter,and much, much more.  All of these make Austin Austin!!!

More on Austin foreclosures

I just added an article from the Austin Business Journal to my Market News page (www.AustinMarketNews.com).  It is the same information that I saw in the print version of the Austin American-Statesman yesterday, but could not find online.  The same questions I had about the Statesman article (http://wp.me/pDa5E-3i) still apply.

Austin Area Foreclosures Up?

Yesterday (Saturday, 11/14/09) the lead article in the Austin American-Statesman’s Business section carried the headline:  “Region’s foreclosures jump 57% in 2009.”  I intended to include that feature on my Market News page (www.AustinMarketInfo.com) but mysteriously the article, as far as I can determine, was not posted on Statesman.com.  The substance of the print piece was that year-to-date foreclosure postings in the Austin area (including the 12/1/09 auction) are up substantially compared to the same time last year – with a total of 14,138 this year.  It was noted that “the numbers are inflated somewhat by repeat postings ….”

I am busy in the marketplace every day and I have represented buyers and sellers over the past couple of years from Walburg to Kyle and from Liberty Hill and Lago Vista to Taylor, Elgin, and Creedmoor.  I study the market constantly and I was genuinely surprised by the magnitude of the reported surge in foreclosures.  Until the “repeat postings” data is available, I decided to review actual closed sales of foreclosed properties using MLS data.

What I found was a total of 1762 transactions through October.  That compares to 1,068 at the same time last year, so the year over year percentage difference is plausible when extended to include November and December, but the total number does not make sense.

Granted, tax foreclosures were not sold through MLS listings (130 in Travis County through October according to the county’s website, more in the other four counties in the metro area), but those might get the count up around  2,000 so far this year – compared to more than 14,000 according to yesterday’s article??!!!

Thoroughly confused by comparing these two years, I decided to dig deeper.  Here is what I found over the past 5 years:  http://billmorrisrealtor.files.wordpress.com/2009/11/foreclosure-sales-2005-2009.pdf

You can see the surge in 2009, and the month-to-month dip I wrote about a couple of days ago.  What was not mentioned in yesterday’s article was that the numbers were actually about the same in 2006!  (1,709 through October, 2,033 for the year.)  Certainly, as a percentage of sales the magnitude of the problem is more significant in 2009, but in the two worst years in recent history we had nothing even remotely like 14,000 foreclosure sales.

I suppose it’s possible that the December auction will include 12,000 properties.  Not!

Perhaps 1,000 of the foreclosed properties that will ultimately sell this year were each posted 12 times each.  I doubt it.

Maybe there have been thousands of tax seizures in Williamson, Bastrop, Hays, and Caldwell counties, but probably not.

What I know for certain today is that the data reported as fact in yesterday’s newspaper, makes no sense at all.  I look forward to the revised data from the Foreclosure Listing Service, and I will discuss it here when it’s available.

Texas Foreclosures Down

Posted earlier today on www.AustinMarketInfo.com: 

“California, Florida, Illinois and Michigan accounted for 52 percent of the nation’s total foreclosure activity during the month.”  More:  http://austin.bizjournals.com/austin/stories/2009/11/09/daily25.html

Almost everywhere, including Austin/Central Texas, foreclosure postings are up compared to same time last year, but month-to-month numbers are heading the right direction.  Mortgage loan restructuring is still moving much slower than the bailout process anticipated, but many lenders are more reluctant to foreclose.  Even if it means a little more patience with slow-pay borrowers, delaying foreclosure avoids substantial legal costs, slow moving listings and accompanying carrying costs, etc.

If you’re in trouble with your mortage obligations, don’t just wait for the “final notice.”  Talk to your lender, explain your genuine hardship, try to work it out.  You just might be surprised, especially if you’re in one of the most distressed markets.  Austin is not on that list, but it’s always better to try than to just hunker down and let foreclosure happen.

 

Challenges for apartment owners next year

Earlier today I posted an update on www.AustinMarketInfo.com about the interaction between home prices and availability and the rental market:

“The increasing affordability of homes will likely entice some renters to buy homes in the coming months ….”  More:  http://austin.bizjournals.com/austin/stories/2009/11/09/daily1.html

As I have commented previously, home values in the Austin area have generally not taken much of a hit during the downturn that has affected other parts of the country very dramatically.  (See www.AustinMarketDashboard.com.)  Nonetheless, housing affordability here is attractive relative to other cities (Housing Affordability Index of 1.56 in Austin vs. 1.33 U.S. average).

Austin remains a target for in-migration from other states.  Our great location and climate, the Austin lifestyle, one of the healthiest local economies in the United States, and continuing employment growth are attracting new residents, many of whom will buy homes.  Couple those natural growth factors with government incentives for homebuyers, and it will put pressure on apartment investor-owners over the next 12 to 18 months.

Austin-Round Rock MSA — Growing Economy

From the Real Estate Center At Texas A&M University, this is an excellent (and detailed) look at the Austin-Round Rock MSA:

http://recenter.tamu.edu/mreports/AustinRRock.pdf

If you are a news and statistics junkie like me, you’ll enjoy taking the time to review the presentation page by page.  If you don’t have the time, or just want the distilled version, here are what I consider to be the highlights.

• Not surprisingly, population growth has been on the periphery of Austin in recent years – Williamson, Hays, and Bastrop Counties. (page 5)
• The fastest growing towns in our area from 1990 to 2000? 

Cedar Park	405%
Pflugerville	268%
Round Rock	98%
Georgetown	91%

• The Austin-Round Rock Metropolitan Statistical Area is projected to be the third fastest growing MSA in Texas from 2000 to 2020, behind the Laredo and McAllen-Edinburg-Mission areas. (page 6)
• On a percentage-growth basis, Austin was the fastest growing metro in Texas from 1998 to 2008 – with a 43% increase in population. (page 8)
• From 1998 to 2008, Austin had the third highest growth in non-farm employment at 29.4% (page 14).
• Note the changes in non-farm employment in the Austin area shown on page 15, and compare to the changes in home sales activity during the same 1998 to 2008 period as shown at www.AustinMarketDashboard.com.  The effects of the dot-com bubble bursting, 9/11, and the subsequent Enron/corporate scandal era are quite visible in both sets of data.
• In 2009, Austin is the second highest paying employment market in the state (page 16).
• Pages 18 to 22 of the presentation contain a wealth of information about major employers in the area which I will not attempt to summarize here.
• On page 27, note that home value appreciation remained positive throughout the 1998 to 2008 period, with the exception of a few months in the second half of 2003.  (Also apparent at www.AustinMarketDashboard.com.)
• Housing affordability in Austin, while not the best in Texas, is almost 20% better than the U.S. average (page 28).
• For those who need a little historical perspective on mortgage interest rates, see page 33.  [Also refer to my earlier post on this subject:  http://wp.me/pDa5E-2J.]
• The local challenge in the real estate sector (as in the rest of the country) is commercial property.  Note office occupancy/vacancy rates shown on pages 37 to 40.

All in all, this report bears out the optimism reported here and elsewhere for the coming years in Central Texas.  We certainly have some challenges, not the least of which is employment growth, although even in that arena we fare significantly better than much of the country.  Nonetheless, job growth is what will drive absorption of office space and continue to attract in-migration to Texas and to the Austin area.

 As always, Austin must grapple with managing the positives of that growth while preserving the culture and the environment that are the basis for the “Austin Lifestyle”  that attracts and keeps so many people here.  We have done it in the past and I am confident we will continue to do so in the future.

HELOC Anyone?

Just a couple of years ago, even in a very conservative banking state like Texas, you could get a very attractive home equity loan or line of credit for almost any purpose.  I have recently learned just how much that has changed.

I have a client here in the Austin area looking for an investment property who wishes to use a home equity line of credit to supplement a significant cash investment to make the purchase.  This couple is debt-free, including 100% equity in their primary residence.  So far it seems that the kind of financing that would make sense for them is no longer available.

This is not the kind of financing that I am involved with every day, but I have a great loan officer at a major national bank working on it.  In the process of researching this for my client I found this article scheduled for tomorrow’s Austin American-Statesman:

Home equity loans harder to find

“Traditional 30-year mortgages are unusually affordable by historical standards, but if you’re looking for a home equity line of credit, don’t expect any deals.”  More:  http://www.statesman.com/business/content/business/stories/personalfinance/2009/11/08/1108equity.html

Texas was late, and reluctant, to allow home equity borrowing of any kind.  State law still allows a homeowner to borrow a maximum of 80% of appraised home value, less outstanding liens.  Moreover, the process requires a “cooling off period” of at least 12 days after “loan application and notice of borrowers rights” before the home equity loan or line can close, and even then the borrower has a 3-day right of rescission after closing.  This is NOT what anyone would call “loose” credit.

The client that brings this subject to my mind wishes to borrow only about 20% to 25% of home equity, in a market where the value of that home has actually gained value during the past year.  This should be a lender’s dream customer.  Instead, what we have is a testament to just how cautious lenders have gotten.  If you needed any more evidence that the times have changed, this is it.

Unemployment and Productivity

Reported today by Bloomberg News:  “Worker productivity surged at the fastest pace in six years, labor costs fell and unemployment claims were lower than forecast, signaling companies might be preparing to start hiring again after cutting costs to the bone.”  (See story at www.AustinMarketInfo.com.) 

This is the way the business cycle is supposed to work:  Employers reduce costs during the downturn, then restrict hiring until revenue growth and production requirements justify expanding payroll costs.  During the 3rd quarter of 2009 U.S. GDP grew 3.5%, while 768,000 jobs were cut.  Simple arithmetic:  more output by fewer workers = greater productivity.

Typically, as the business cycle enters a new growth phase, capital investment can help to hold some of those production gains.  That may well be the case this time.  The key question now is:  Are we really seeing economic growth?  GDP consists of Consumption (consumer spending), Investment (capital investment in plant and equipment), and Government Spending.  Virtually all of the GDP growth in 3Q ‘09 was Government Spending.  Most businesses have not committed significant capital to new investments, and consumer spending is very soft, and expected to remain low at least through the end of the year.

This is not to debate whether government spending during a recession is good or bad.  Without any value judgement or political bias, the fact is that employment growth in the private sector will raise personal income, which will lead to increased consumer spending, which will in turn give businesses the confidence to make long-term investments in growing capacity.

The economic indicators discussed in this Bloomberg article and others are indeed encouraging.  I wrote about this just a couple of days ago, and I believe that this downturn probably has bottomed.  On the other hand, the official U.S. unemployment rate was reported today at 10.2% — the highest since 1983.  That is not a good sign for consumer spending or the capital investment that would follow.    But things will get better!

Warren Buffett advises (to paraphrase) — invest in what you know.  He is confident enough to be buying companies over the past several months.  He knows that opportunities exist in down markets for people who recognize and act on them.  Don’t just hunker down and hope this gets better.  Find something you know and can manage and make your own opportunities.  That is what will bring this recession to an end.