Current Austin Market

Overall the Austin real estate market is doing very well. The national news paints a pretty rough housing picture, but Austin and Texas as a whole seem to be exempt. We didn't see the huge appreciation that other areas of the country did over the last few years. Our growth was much steadier which is why we're still seeing good appreciation today.

In August the average price went up but sales volume was down. Two forces are pushing both of these indicators. First, the tightening of the lending market on out-of-the-box financing has removed some potential buyers from the market, mainly buyers that could only qualify under subprime guidelines and investors relying on low downpayment loans. Both types of buyers typically purchase at the low end of the market.

Second, as homes appreciate there are fewer numbers of homes for sale at the price range at the bottom of the market. But when sales are tallied for that low price range they are lower than the previous year.

The mid market sales volume saw an increase of 3% over August 2006, and sales over $400,000 saw an increase of almost 10%. Buyers in these ranges aren't typically reliant upon out-of-the-box financing and are usually buying their primary residence so aren't affected by the credit tightening.

So fewer lower priced homes are selling, while the mid range and higher are still selling, bringing the average price up, even though overall volume is down. These mid range buyers, with their secure financing options, are driving the Austin market and will continue to steadily push appreciation.

Mortgage Mess

So where does all this mortgage mess put us? For a lot of people it's not a good situation. Many people are losing money, jobs and even their homes. I personally know of 12 people here in Austin that lost their jobs through no fault of their own just in the past two weeks.

The people losing the money are the ones that put money towards buying the commercial paper on all these subprime mortgages. And of course the people losing their homes are the ones with these mortgages. Many times the rates rise after the fixed period and the payment becomes too much to bear. But we are at the beginning of a rate adjustment cycle, so why are their so many deliquencies and foreclosures now? Wouldn't it be too early for those few loans to cause all the defaults we are seeing?

The default rate is up because borrowers maxed themselves out on what they could buy and overspent. So if a few small bad things happen to them financially, it can really hurt their ability to pay their mortgage. This is why we see so many of the defaults, the borrowers shouldn't have been put into those loans in the first place.

For all the new borrowers that can get approved for conventional financing, it's actually a really good time to borrow money. Rates are down further than they have been in 8 months for conforming loans under $417,000. Check out www.bankrate.com.

I think we should start seeing everything get better in the next six months. Investors still have money to invest and people are still buying houses. So while the guidelines will tighten, it'll be a much more stable industry and buyers will still be able to get loans.