When I arrived, I learned unfortunately that the minimum dump fee for a pickup truck is now $35, and the “unsecured load” penalty is now $20. That means, if you toss a few things in your truck and take them to the dump, and you don’t have a tarp handy with tie-downs (even if the items are heavy items that could not blow out) to cover/secure your load, you’re looking at a minimum $55 disposal fee, even for just one broken kitchen sink (if it’s uncovered). Ouch. If memory serves me, it wasn’t that long ago that I paid about $9-$12 for a dump load. The unsecured load fee was previously $5, so $20 represents a 400% increase in that fee. What has the world come to when it costs this much to get rid of a few things?

Since I have a Commercial Account at the dump, I told the attendant I would just drive up on the scale (which use to be cheaper). She informed me that the minimum commercial load is now $35/ton with a 2 ton minimum, so minimum $70 on the scales plus the unsecured load fine = $90. This, to dispose of a piece of sheetrock, about 10 pieces of scrap lumber, and some misc household stuff. All totaled, about 1/4 of a pickup truck load. I elected to pay the civilian price.

Those of us who manage rental properties and who make regular repairs to properties are going to feel this price sting as our vendors, who regularly dispose of broken things and other stuff, are going to have to raise prices to us. In the move-out letter I send all tenants, I expressly warn against leaving junk piled at the street or left-over stuff in the garage, and inform them there will be a haul-off fee if they do that. Most tenants do in fact leave some stuff to haul off anyway, and then complain about the charge. Now that fee will be even higher and I need to edit my move-out letter to reflect that, and the tenants will be even madder when they see the charge, which increases my chances of getting sued over deposit refunds. Swell.

But, as our do-gooder government, which caused these fee hikes through new regulations and fee increases (the politically expedient way of raising taxes without calling it a tax increase), fails to understand, another result of these ridiculous fees will be a huge increase in illegal dumping and the further financial squeezing of the average middle class citizen.

I own some vacant lots and have had trash and junk dumped on them. Typically it’s a small pile of construction debris, brush or tires. Sometimes junk furniture or trash. People dump this stuff because they can’t afford to go to the dump, or they’re too lazy to properly dispose of the stuff. Tires have an expensive “$7 recycling fee” associated with them, so ever since that law was passed many years ago, the instance of old tires being dumped had already increased. Now the problem of illegal dumping will most certain increase, as will the resultant pollution. Way to go big brother.

This is exactly the sort of regressive tax that meddling government do-gooders claim to be against, but which they in fact impose in the name of environmental progress. From where do they think the stuff brought to the dump comes? It ain’t from our upper end folks driving out to the dump in an Escalade to dispose of broken china and worn out pool furniture. I haven’t seen any businessmen smudging their tie out there lately as they toss a broken Herman Miller out the back of a trailer.

No, this stuff comes from small contractors and middle class home owners and renters who just need to get rid of ordinary household junk and construction debris. Joe Sixpack can probably handle $12-$25 in dump fees for the annual spring cleaning load, but $55 is going to be sticker shock. And the fly-by-night contractors that the price-point-obsessed American consumer hires to redo the bathroom or rebuild a fence are now going to view dump fee avoidance as an easy cost-cutting measure when things are tight. Your remodel debris may end up on the back of someone’s vacant lot, dumped there illegally.

The HVAC industry has already created an additional One Million service calls a year (my unscientific estimate), plus additional landfill with all of the junk HVAC systems that crap out after 12 to 24 months and have to be replaced. Not to mention the equally disposable appliances and other stuff that breaks down due to engineered obsolescence and expensive computer chips. Oh, but those items are “environmentally friendly” or “green” because they have a higher SEER rating, or whatever.

What’s the SEER rating or Carbon Footprint of me replacing a A/C condenser unit 2 times in a 5 year span on a 5 year old property property because the original unit crapped out at 18 months and the replacement unit at two years? What’s the true economic benefit of that compared to the old, “environmentally unfriendly” units that use to last 15 or 20 years and remain serviceable even beyond that if well cared for? And this newer junk costs 3x what the old stuff did.

I’m dubious of any real environmental benefit being realized by all these extra fees and expenses in the name of “going green”. All I see from my perspective is massive waste as major components of our homes have become non-durable consumables instead of long-lasting major mechanical components. It’s putting a financial hurt on the the average American that this junk wears out regularly in less than 2 years. I just spent $300+ replacing a computer control card in a less than two year old range. That’s ridiculous. Absolutely stupid. I’m on the second 50 gal water heater in my two year old home because the original went out and was replaced under warranty. It was a fancy new age water heater that was cheaper to replace than to fix, even at just over a year old. These appliances can be designed and made to last longer, as they once did, and to be cheaper to repair, as they once were.

Is it helping the environment that Granny Johnson must now shell out $1,800 for a condensing unit that could have been replaced for $650 eight years ago? She’ll probably leave it broke and buy a fan and die of heat stroke before she forks out 3 month’s worth of Social Security checks to fix her A/C system.

Or is Joe Sixpack, humping it at his state government job, better off now that his broken water heater will cost $900-$1,200 to replace and bring up to “code”, when I could have swapped it out turnkey for $350 six years ago, or repaired the simple older unit for $75?

And is the small handyman going to be able to perform your honey do list of repairs for $250 now that his dump fees have increased 400%? Where do you think your old sinks and countertops will end up if you take the cheaper bid that doesn’t factor in full disposal costs? Next thing you know, the government will be taxing his handyman work truck because it only gets 12 mpg, and that cost will be passed on to Granny Johnson as well.

With all of the increased living and repair expenses, fees and expensive “green” stuff we’re being sold nowadays, what we’re really being sold is a crap sandwich disguised as “earth friendly” policy. Don’t be fooled. You’re being ripped off, sold out, overtaxed and provided with worthless junk that’s supposed to be “greener”.

As Neil Young put it, “you pay for this and they give you that”.

And so now I no longer enjoy my trips to the dump as much as I once did, mainly because I don’t like being ripped off. I talked to one of my contractors about this and he says he started driving out to the dump in Hutto unless he has a full 2 ton load to dump, in which case he’ll still go down south. I haven’t been to the dump in Hutto, but if there is good BBQ somewhere nearby out there, and they’re not going to rip me off on a small load, it might be worth a drive out next time.

But, sadly, that blue collar refuse of the everyman, the trip to the dump, has now too been infected and polluted by the big hand of government, squeezing the small guy and calling it “green” initiative, but really truley just raising taxes in a back door sort of way on regular people.

This unfortunate reality is one of the first big differences between owning small commercial investment property versus single family homes in Austin. It would never take 6 to 12 months to rent a house (well, if you have a lousy Austin property manager it could I guess). But extended vacancy is not unusual with a commercial property, especially in this economic climate. Meanwhile I am absent the $1,700/mo. rental income that the former tenant, a tow truck company, provided. Ouch.

Ironically, I could have leased this property immediately, which would have been a streak of incredible luck, but I decided I didn’t want the type of business that the business owner wanted to set up. This is the second big difference in owning commercial investment in Austin versus residential rental property, making sure the tenant is a good fit for the property and the community.

The tenant prospect wanted to open up a “gaming room”. I wasn’t even sure what that was until I looked into it a bit more. It’s legal, apparently, but I just don’t want 40 or 50 of these gaming machines, which are a cross between bingo and slot machines, in my building, with gambling addicts sitting in front of them till midnight smoking, guzzling coffee and blowing their money trying to win Visa gift cards. It just doesn’t seem like an activity that adds value to the community of Manchaca, or society in general, so I don’t want to be involved by providing the venue. And I worry that even if the business is technically legal at present, our friends down at the Texas State Capital, who have a fondness for trying to legislate morality, might change the laws and cause me a vacancy. So I passed on the quick lease-up for personal reasons.

With residential property, you can’t do that. Applicants either qualify or they don’t, and even if the applicant owned a business I don’t like, it would be improper for me to decline rental on that basis.

Plus, that’s too many gamblers flushing my commodes in a property serviced by a 30+ year old septic system. On the other hand, the $15K in lost rent between then and now would have paid for a brand new septic system.

So, in a nutshell, this small commercial investment property is a cash cow when it’s leased. I paid $58K cash for it in 1998, and immediately invested another $17K remodeling it, so I’m in $75K for a property that was paying $1,700/mo. rent until it went vacant. Not a bad return. I can’t buy anything today that even comes close to that kind of ratio. Plus, it’s appreciated nicely to a value of about $250K today, and it’s located in the fastest growing zipcode in Austin, 78748. Had I invested that $75K in the S&P 500 10 years ago, I’d still have about $75K. Today, rent proceeds plus equity buildup make this a good investment.

But when it’s vacant, it stays vacant for a long time. Much longer than a typical house. As an investor, if you’re thinking about small commercial, you have to ask yourself if that’s ok. Can you handle extended vacancy or will it drive you crazy? I’m in it for the long haul and the vacancy, though unwanted, is just part of the business of investing in small commercial real estate, so it’s not upsetting or distressing to me given the return the property has already produced. But I don’t think the average small investor wants to own a property that is this difficult to rent. It’s high return, high risk and I think most small investors would prefer a more predictable real estate investment.

The other good thing about small commercial is that there are no repair hassles. The tenant who just left was there for over 5 years and I didn’t spend any money at all on repairs because, in the commercial lease, the tenant is 100% responsible for all repairs and maintenance. On the other hand, my eventual new tenant might want to negotiate thousands of dollars in finish-out or remodeling of the property, and I have to be ready to negotiate that. That could amount to a number much greater than 5 years of residential rental repairs, so, again, it’s great when the property is occupied, and it’s financially uncertain when it’s not.

In the end, I think most of the better cash flow of the small commercial rental property is eaten up in vacancy loss and potential build-out allowances, but I still like having a mix of residential investment properties and commercial.

I also have an office condo that I purchased brand new in 2007. That one took 6 months to lease and I had to give a $2,400 rent concession the first year on a $1,600/mo. lease. That’s the equivilent of a $12K hickey right out of the starting gate. But, when rented, this property also performs much better than any residential rental home I could purchase. I paid $150K and it rents for $1,600/mo. A $150K residential investment property in Austin would rent for $1,200/mo. +/-, so the question is whether or not the additional $4,800/yr in rent offsets the greater vacancy loss. If I keep this first tenant for 2.5+ years, it will, and then some, and it looks like that will happen. If I have a turnover before then, it won’t.

But remember, I have no repairs or maintenance costs with this commercial condo. No tenant hassles either. It’s on auto-pilot, which is really nice compared to a rental home. And my property insurance is only $500/yr. (though I do have an HOA fee) But, like the other property, this condo could go vacant and blow a big financial hole in the overall return if it stays empty for an extended period.

In Summary, I think if you’re only going to own one or two real estate investment properties in Austin, stick to residential houses or a duplex. If you’ve built up a small portfolio of residential and wish to diversify, small commercial rentals are a good addition to a real estate investment portfolio, but you have to make sure you have at least a year of reserves or that your residential properties provide enough cash flow to carry the commercial properties through the vacancy periods. Commercial ups and downs are not for the feint of heart.

Also, residential is much easier to dispose of quickly if you needed to sell. Financing is very difficult, especially now, for small commercial, which makes it harder to sell. On the other hand, if you are a solid buyer and able to obtain a commercial loan, you have good leverage in this market as you might be the only qualified buyer your seller will encounter for the next 12 months. Austin Telco Credit Union has good commercial loans with low closing costs and rates in the 6% range.

Finally, why didn’t I just put all this in a spreadsheet and create a side-by-side comparison of a Rental House vs. a Small Commercial investment property? Mainly, because I don’t evaluate my purchase decisions with spreadsheets. I think spreadsheets cause more bad real estate purchase decisions than good ones for real estate investors. Maybe I’ll cover that topic in another blog soon. But put away the spreadsheet and use your common sense, math you can do in your head, and gut intuition and you’ll outperform your spreadsheet-worshiping real estate investor counterparts over time, I promise.

If you follow these quarterly Austin MLS breakdowns, you know that there is always variation among different MLS areas and price ranges, for better or worse. This Year-to-Date report through Sept 2009 is a head scratcher for me though, mainly because the number of Austin MLS areas that normally outperform the overall market has dwindled substantially. Based on what Sylvia and I are experiencing in the field, I would have guessed the opposite to be true. And the market overall is holding up.

But here’s what I’m talking about …

Of the 44 Austin Metro MLS areas tracked below…
5 Austin MLS areas had an increase in average sold prices (3 months ago it was 11)
7 Austin MLS areas had an increase in median sold prices (3 months ago it was 11)
1 Austin MLS area had an increase in average sold price per square foot (3 months ago it was 7).
4 of the Austin MLS areas saw a decrease in average days on market (same as 3 months ago)
7 of the Austin MLS areas saw a decrease in median days on market (3 months ago it was 6).
1 (only 1) Austin MLS area saw an increase in the three main pricing metrics – avg and median sold, and price per square foot. Three areas were in this clug at mid-year.

So does this mean the Austin real estate market is getting worse? As usual, it depends. From a statistical standpoint, more areas are trending down than up. But if you ask Sylvia and I if we’re busy, yes we are. We had 4 closings in October and three on the board already for November, which is unusual for the slow season. On the other hand, if you ask an agent who specializes in luxury homes in Lakeway, they will probably say things are dismal. And I do in fact have a listing on 10 acres in Dripping Springs that isn’t getting any showings even though we think it’s underpriced.

Add in the government interference/intervention in normal real estate market activity with the tax credit incentives, the nervous jitters of the stock market, artificially low interest rates, appraisal issues, and what we have is a number of variables pulling and tugging with and against one another. Bottom line, overall, at 3% down for the year on average sold price and about even on medial sold price, Austin’s market is doing about what we think it should, as a whole. It’s just interesting to see all the underlying cross currents.

That said, below is the breakdown summary, then you can study the chart yourself and see how your areas of interest are doing. As usual, questions and comments are welcome.

The article states:

“Gabardine is a unique community in the sought-after Shady Hollow neighborhood”.

Uh, no it’s not.

Gabardine, I’ve sold homes in Shady Hollow. I know Shady Hollow. Shady Hollow is a friend of mine. Gabardine, you’re no Shady Hollow.

Shady Hollow is a long established “move up” neighborhood of homes on big lots with mature trees. Gabardine is a small enclave built on what was a 20 or 30 acre treeless meadow on Frate Barker Rd. It bears absolutely no resemblance whatsoever to Shady Hollow in appearance or otherwise. It shares a zipcode and set of schools. That’s it. Yet, the Gabardine developers have made the decision that it needs to be presented as a part of Shady Hollow.

Gabardine is one of those “new age” subdivisions which is a blend of condo/home, with higher HOA fees but no yard maintenance for your freestanding condo home. The roads are private and owned/maintained by the home owners. There is no pedestrian connectivity between Shady Hollow and Gabardine. The two neighborhoods are completely unconnected in location, design and spirit. An owner at Gabardine will pay no Shady Hollow HOA fees nor have access to any of the Shady Hollow amenities. Gabardine will have its own pool and community amenities which will not be available to Shady Hollow residents.

Yet, in the article, Gabardine lays claim to being part of Shady Hollow. On the Gabardine website, it’s presented at the top of the home page as “a tailored little pocket of Shady Hollow”. And elsewhere on the home page is stated: “At last. You’ve reached the tailored little pocket of Shady Hollow” … “Shady Hollow is one of the most sought after areas of town for many home buyers” … “Gabardine is a different kind of community for the Shady Hollow area” …

So why the vigorous co-opting of the name “Shady Hollow”?

One can only assume it’s a marketing decision to ride the coat tails of an established, well known “brand name” and location. This is common. DR Horton did the same thing with its section of Bauerle Ranch at Shady Hollow, though residents of that neighborhood do in fact have to drive through Shady Hollow.

Often we’ll see a subdivision use this “at” connector, such as Alta Vista at Circle C. Sometimes the neighborhood is in fact placed under the same HOA umbrella as the parent subdivision, yet remains somewhat disconnected geographically. I’ve long thought the Wildflower at Circle C was not really part of Circle C proper, because it’s on the other side of Mopac and the homes were built on smaller lots and, to me, it just doesn’t “feel” like Circle C. But it can at least claim biological/genetic proof that it is. It passes the paternity test, whereas pretenders such as Gabardine do not even come close.

Why does this bug me? Because it confuses the consumer. A home buyer coming from out of state who may have heard of Shady Hollow and be interested in looking at the type of homes and lots offered by Shady Hollow is not at all the type of buyer who would be interested in the product at Gabardine. Gabardine should establish its own identity and market niche. It has a Unique Living Proposition completely unrelated to that which draws a Shady Hollow buyer, so I just don’t get the lame attempt to buddy up with Shady Hollow.

Gabardine, get real. Decide who/what you want to be and sell yourself on your own merits. But don’t insult buyers and Realtors by peppering your home page with the keywords “Shady Hollow” and trying to pretend that a connection exists. We’re not dumb, you know.

This all came to a head when one neighbor decided to install a mobile home on their newly purchased 2 acre property. They did install the MH and they moved in. The plan was to live in the mobile home temporarily, for a year or two, while they built a new custom home, then remove the MH. The neighbors were outraged at the mobile home, which was a clear violation of deed restrictions. Tempers flew, rude signs were placed at the property, the email list caught fire with discussions, and a neighborhood meeting was called.

“Good!”, I thought. Under the umbrella of addressing the mobile home being placed on the property, we could also discuss the fact that nearly every other home in the neighborhood was also in violation of the deed restrictions, though in smaller ways.

In my neighborhood of 2+ acre homes, fences were in disrepair and/or too high, or made of wood, mailboxes broken and never fixed, driveways crumbling, yards never mowed, out-buildings that didn’t match the main home in appearance, remodel and construction projects that were started, abandoned and left as eye-sores, and several large commercial metal buildings had been built in back of properties.

The neighborhood was going down hill and becoming shoddy. Remember, without an HOA, and outside city limits, there is nobody to whom these violations can be “reported”. The County does not enforce deed restrictions. You have to actually hire an attorney and sue your neighbor in order to address violations. My home, which we had built in 2003, was the newest home in the neighborhood and I felt its value was threatened by the lack of upkeep in the neighborhood. This neighborhood meeting would therefore be a perfect opportunity to see if that could be turned around.

At the meeting, a succession of neighbors got up and railed against the mobile home. When I got up to speak, I spoke not against the mobile home or its owners (who attended the meeting and took all the heat), but instead asked the simple question “do we want to enforce deed restrictions or not? We can’t say that we want to ignore all deed restrictions except this particular one restricting mobile homes”.

And then I rattled off the aforementioned list of actual, current deed restriction violations on various neighborhood properties and wanted to know if anyone cared about those. To me, we needed to have this discussion of the underlying issue and then discuss the mobile home and other violations in the context of a shared understanding of whether or not the deed restrictions should be observed equally by all home owners.

I nearly got booed out of the meeting. “That’s different”, someone said. “This isn’t Circle C”, another blurted, to which I responded, “yes, that’s obvious to anyone who drives through and sees how shoddy the neighborhood looks”. Another neighbor shouted at me “we all moved out to a neighborhood like this because we want to be left the f**k alone and not be hassled by Yard Nazis”. To that I responded, “but you’re not leaving this family alone, now are you? You’re hassling them. You’re all saying that you don’t care about following the rules, but you want this one family alone to follow the deed rules – the same deed restriction rules that most of you are breaking yourselves – because you think their particular deed violation is a whopper, but that your own lesser violations are ok. You can’t have it both ways”. This perfectly logical and fair reasoning fell on deaf ears.

Finally someone said if I didn’t like it I could move. I already knew that. I went home that night and told Sylvia we were moving. I didn’t want to live around these rednecks and their declining neighborhood anymore.
We bought some acreage lots nearby in the new Granada Oaks subdivision (which would have a mandatory HOA) and built a new custom home. We sold our old home at the end of 2007 for just under $500K and have watched the old neighborhood fall into deeper disrepair since then, as it seems now to attract buyers with lower aesthetic standards. The house I sold probably wouldn’t sell for much more than $400K today, if that, so our timing was pretty good and my worries about the decline of the neighborhood were valid. In our new home, which I built turnkey for less than the sales price of the old home, we have a $300 per year HOA fee, which I am more than happy to pay because of the enforcement mechanism (and thus, property value protection) it provides.

And then comes today an article in the Austin American Statesman outlining this very same issue.

From the article:

The folks on Brenda Lane near Old Settlers Park in Williamson County — some of them have lived there 30 years — have enjoyed the rural lifestyle. Roosters crow. Cows roam. Horses graze. It’s always been peaceful, residents say, until recently.

On weekends, wedding receptions, quinceañeras and private parties are held at El Rancho on Brenda Lane, smack in the middle of the dead-end street with about 20 homes. “It’s basically a honky tonk,” said Barbara Penso, who lives a few houses away from El Rancho…

…She said thumping music keeps people up until 2 a.m. some nights, and the neighbors have to deal with heavy traffic, rows of cars parked up and down the road and beer cans thrown about by guests…

…Penso and other residents of Jackie Thomison subdivision say deed restrictions forbid a business to operate in their little enclave. But because the area has no homeowner’s association to enforce the restrictions, they’ve gone to Williamson County Attorney Jana Duty’s office to shut it down — with no success…

…The county attorney doesn’t want to get involved. “Our official policy is to not enforce deed restrictions,” said Hank Prejean, assistant county attorney…Those residents can hire their own attorney and take it to court.”

And the residents have in fact hired their own attorney. But the family in violation of the deed restrictions has a valid defense. They say that the deed restrictions have been violated for so long, by so many different properties, that the deed restrictions are no longer in force and therefore they are in violation of nothing. And if I had to bet on the outcome of this, I think the neighborhood is going to lose.

Says their attorney:

“Our position is that the deed restrictions have been waived because there are already other businesses operating, including a plumber, in the neighborhood. Our second point is that El Rancho has been operating since December of 2006. It hasn’t been a secret from the neighbors. In that time, there have been improvements. They’ve worked hard to become successful. The neighbors should have complained from the get-go, not now in 2009.”

This is exactly one of the arguments I made when pleading to my old neighbors that we can’t simply pick and choose which deed restrictions to enforce. When a neighborhood turns a blind eye to violations for so long, the restrictions effectively cease to exist and can become unenforceable.

So, in 2007, as I looked across the street from my old home at a 2 acre lot for sale, I knew that if a general contractor wanted to buy that property and build something 100% out of compliance with deed restrictions, including a 5,000+ sqft commercial metal building out of which a business might be run, I would have no reliable recourse. No leg to stand on. And the value of my home would take a big hit. And with neighbors not sharing my worries or willing to abide by deed restrictions, I wasn’t willing to roll the dice on my home value.

I’ve heard the horror stories of HOAs over-enforcing rules and making home owners feel like they are subject to harsh scrutiny, but I personally find that more tolerable than what I experienced. And certainly more tolerable than what is being described in the above quoted news article.

Plus, if a buyer wants to limit their Austin home search to non-HOA neighborhoods, that is going to rule out an unacceptable number of candidate properties, in my opinion.

At present, there are 8,936 homes for sale in in Austin MLS. Of those, 4,973 have a mandatory HOA. Of those without a mandatory HOA, there are only 709 priced below $250K that have at least 1600 sqft with 3+ bedrooms, 2+ baths and a 2+ car garage. Of those, only 104 are less than 10 miles from downtown. If I lift the non-HOA restriction from the 104, the search result grows to 307.

Thus, a buyer seeking the typical Austin home, as described above, would eliminate two thirds of candidate properties from their search pool if they maintain a refusal to consider homes with an HOA.

Still, we occasionally have buyers who, perhaps because of previous bad experiences with HOAs, say they don’t want to have an HOA. That’s fine. Just make sure you know the other side of that coin.

Median sold prices are up almost 2%. The sold to list price gap is 95.66%, which is slightly less than the 96.28% a year ago. The “Not Solds” (expired and withdrawn) remain high at 45%, but are down significantly from Sept 2008 when more than half (51%) of all listings departing the Austin MLS were failed sales efforts.

Overall, nothing surprising or unexpected with the Austin market for September. Let’s take a look at the Year to Date stats for Austin.

Austin is still running at just about 3% below the average sales price for the same period the year before. Median sold prices are also down, but by less than 1%. The average price per square foot is down almost 5%, most likley due to the softness with the sales of our larger, more expensive homes. The higher priced homes in Austin, as well as homes located further out, continue to have a harder time than the lower priced homes closer in.

Next, let’s see how home sales were split between price ranges in Austin for September.

Six month’s inventory is considered a “balanced market”. A Balanced market is one in which supply and demand are in balance such that neither buyers or sellers have an advantage. Homes priced under $200K are experiencing a strong seller’s market, though the stat is somewhat misleading because there are in fact Austin MLS areas in which homes below $200K are not selling. So just know that this is a macro view and that Austin remains a “market of markets” with different areas and price ranges performing differently.  Read my previous blog on the South Austin market for more detail.

You can also see here that the market for homes price $550K and up is pretty rough. Way more inventory than will be absorbed by current market demand.

Below is a graph of Austin’s real estate market by month for the past 19 months. This is a running chart I’ve been updating for most of the year. It’s valuable because it shows how fluctuations occur month to month but also it shows a general trend.

Finally, Austin’s historic sales market by year going back to 1999.

Looking at the graph above is probably best sums up how to view our real estate market in Austin. We had a small peak in 2007 but overall, over time, nothing out of the ordinary is happening in the Austin real estate market when viewed over the past 10 years. Sometimes we become consumed with micro stats and small incremental changes in the market as outlined by the media and others. Real estate should be viewed as a long term investment and I think Austin is still looking really good long term.

Since we’ve completed another quarter, I’ll be adding my YTD stats broken down by MLS area soon. If you want to see what those will look like, check the 2009 mid-year stats. The next set will run through September. Also, if you’d like to stay updated on Austin real estate stats and other Crossland Blog happenings, please subscribe to our blog feed to you’ll know when new stats are posted.

There are currently 158 homes for sale in the 78745 zip code of South Austin (MLS area 10N for the most part). Of those 70 are pending. Normally, in a balanced market, we’ll see 1 Pending listing for every 3 to 5 Active listings. South Austin 78745 currently has a huge Pending/Active ratio of 70/88, or almost 1 Pending for every active listing. If we limit the search to homes with list prices below $200K, the ratio is 55 Pending to 41 Active, or 1.34 Pending sales for ever Active listing. That’s what I call an “inverted ratio” (greater than 1.0), meaning the market is absorbing homes faster than they are being provided by Austin sellers.

If we limit to the search to homes priced below $150K, the ratio is a monster 17 Pending/6 Active. That’s almost 3 Pending listings for every Active listing. Wow!

This means buyers in these high demand areas and price ranges have no negotiating power, and at least some of their $8,000 tax rebate is being given to the seller in the form of a higher price than would otherwise be obtained without this government interference in the marketplace.

So, as I stood outside a less than spectacular home this afternoon next to a flooded driveway with obvious drainage problems (which I recommended the buyer not pursue), with a buyer trying to stay below $150K and seeking the $8,000 tax rebate, I had to wonder out loud if I might be able to find a better deal for them in the the December-February time frame following this government induced off-season market surge. But that’s all I can do is wonder. I can’t advise with any level certainty other than to say that many of these homes are absolutely selling for more than market value, and a buyer should properly factor that into their purchase and tax rebate equation, and therefore not think of the rebate as an $8,000 rebate, but instead something less, perhaps even zero.

When the dust clears from all of this in December, the stats will reveal how many of these homes are selling at or above list price, and in the following months we’ll be able to graph the List/Sold price ratio and see just what sort of price bubble the buyer tax rebate is causing. I think we have a good chance of seeing the exact sort of let up that happened with car sales immediately following the “cash for clunkers” program. The rebate will be over, remaining inventory will be met with normal holiday season challenges, plus all the buyers will have been used up in the three months prior.

Conventional wisdom, and everything you read currently, says buyers better hurry up and get under contract before the end of October so they can close by the Nov 30, 2009 deadline. I’m not so sure. And it’s possible that a second round of this rebate will be put into play soon after this one ends. Chances are that that one could be an even bigger rebate, such as $15K, and any buyer, investors included, will be eligible. Which means we may be in the unfortunate position in January of telling an October $8K rebate buyer “Congratulations, you paid $8K over market value in order to get a $8K rebate on a home that you could have waited three months to purchase for $8K less with a $15K rebate.

Don’t we love government meddling in our economy?

Instead, you want a Realtor who will ask a lot of questions and provide more information. One who will, in a sense, make you justify why this purchase is the one that best accomplishes the outcome you seek.

Purchasing real estate is an emotional decision, but one which must be supported and justified by non-emotional considerations, namely the financial side of the equation. In helping the number of buyers we have, Sylvia and I observe, as one would expect, that different buyers operate from each end of the spectrum, from emotional to financial, and at all points in between. But no decision made entirely based on emotion or numbers can be the best decision. A balanced blend of the emotional and financial considerations will result in the “smartest” decision.

Some buyers are so fixated on the “numbers” that they are blind to other realities, such as the fact that the cheap crackerbox starter home being contemplated is way too far from everything and comes with serious risks due to it’s stage in the neighborhood life cycle, poor schools and unpredictable and undefined development of the surrounding areas.  But it’s “cheap”, and that seems to override the thought process if left unchallenged.

Others fall so in love with a property that they engage in a willing suspension of scrutiny on other important considerations, and operate instead from a place a happy denial. The home doesn’t fit with the stated criteria or needs, it’s over priced and it has misfit attributes such as a super steep driveway or backs up to a very busy street, yet the buyer fixates on something mundane such as, “it has a magnolia tree … we had a magnolia tree growing up and I’ve always wanted a home with one. My mother loved Magnolia trees”.

This is the point of recking for the Realtor. As a buyer, do you want to “hear what you want to hear” or do you want to “know what you need to know”?

Should the Realtor say, “oh, I love magnolia trees too, and if your heart is saying this house is the one, then let’s do it!”

Or should the Realtor say, “you can purchase and plant a 10ft tall magnolia tree at any home for about $200-$300, so let’s not allow that to be a deciding factor”.

The latter is the correct answer, in my opinion. Despite the availability of massive amounts of data and information online and tons of home decorating shows and 1,000s of opinions and notions about what makes a home a good home, how to buy a home, etc., smart buyers still remain focused on the same three things that have always mattered – Price, Location and Condition (including age, style, floorplan, etc).

Buyers get into trouble when they drift away from these three core considerations and start allowing other factors to govern their thinking process. It’s the job of a good Realtor to ask the questions that help buyers remain focused on what really matters, including all the benefits and risks of a particular home, instead of simply going along with and agreeing with whatever seems like the shortest, easiest path to a written contract.

Although I could go into a long bullet point list of things that I see buyers drift toward when straying from the three core considerations, one of the most overlooked is the concept of “total cost of ownership”. The TCO concept is one widely applied to car ownership (check Edmunds.com), but not to housing. I’ve posted on this blog in the past an analysis of why a $200K home in South Austin is cheaper for a downtown worker than the same $150K home in Hutto, once commuting and other costs costs are factored in.

Yet I find it interesting that the same over-analytical, spreadsheet driven real estate investor who performed detailed analysis that resulted in purchasing a brand new Honda Accord, due in large part to quality and resale value considerations, fails to apply the same logic to a real estate purchase and is thusly draw to the Yugo of houses because of price per square foot and nothing else! It is truly is a fascinating phenomenon!

It explains why so many investors in Austin from 2005-2007 purchased cheap, newer starter homes in outskirt areas of Austin that are now worth, on average, $20K less than what they paid. They focused on their spreadsheets alone, ignoring resale potential and other factors. Those buyers didn’t have a Realtor advising them properly of the risks of investing in those areas. None of mine and Sylvia’s buyers purchased these types of starter homes because we strongly advise against it. And none of our investor buyers are $20K under water on homes 20 miles from downtown.

It’s our job as Realtors to say to buyers, “look, I’m going to help you get the house you want, no matter what, but I’m also going to be truthful about the things I think your future buyers will find important when resale time comes, and help you stay focused on the things that I know from experience to be the key considerations of a smart purchase decision”.

In other words, when I ask, “what do you like about this house with no game room upstairs at the end of a “T” in the road that shines headlights into the downstairs master bedroom at night and has a small steep back yard that slopes toward the back patio door where water will pool?”, you have to come up with more than the pretty Mangolia tree.  I’m going to run you through a set of questions to help you understand the risks involved with accepting the misfit attributes present in the home.

If you convince me that other factors outweigh everything else, such as your aging mother lives next door, or you’ll be able to walk your kids to the private school 2 blocks away for the next 12 years, and the location trumps everything else, then I’ll think you’re making a sensible choice and we’ll do it. Otherwise, I’ll try to talk you out of it, or help you talk yourself out of it because I know there are better homes to be found, all things being equal.

If you are working with a buyer’s agent who is constantly leading you through a series of scripted closing questions, in an effort to just get you to write up an offer on any house that seems good enough, then you’re working with an agent who might be a good salesperson but possibly not the best real estate advisor. If you, on purpose, just to see what happens, express interest in writing an offer on an over-priced dog of a home, and your agent tries to move straight to the write-up process without first asking a lot of question to ascertain why you think that home is the best one for you, then you’re working with someone who is simply telling you what you want to hear instead of telling you what you need to know. You’re working with an agent who isn’t taking care of and protecting you from a bad decision.

He explains the Texas Economy and real estate market in a funny yet informative way. The video is about 24 minutes long and well worth watching.

<http://recenter.tamu.edu/video/videoPlayer.asp?vid=71>

If we draw a straight line from 1999 to now, and you own the average rental home, and in 1999 you assumed a 3% per year increase in rents over time, that increase didn’t happen, but your property taxes, insurance and maintenance expenses sure did go up a lot. What we see above isn’t good from a landlord standpoint, but if you’re a renter, you’ve had a nice 10 year run of good rental values in Austin. At present, our rental values are still below where they were in the dotcom boom era of 2000 and 2001.

And if it’s any consolation, had you invested your real estate money in the stock market in 1999, you’d be a whole lot worse off than a decade of flat rents. At least real estate values have come up. We’ll look at that in a minute.

Currently in Austin, average rents for single family homes are about $1,500 per month and the median rents are $1295/mo. See the chart below.

For the most part, we’re not having any trouble getting our homes rented. Occasionally, just as it is in the sales market, we’ll have a slow mover, but not too often.