Over the last ten years, the Austin metropolitan area population has grown by 500,000 people. Over the last three years, 100,000 more people have moved to Austin than have left the city. In 2008 alone, the Austin population increased by more than 60,000 people.
In addition to explaining why it took 50 minutes for me to drive from Round Rock to downtown Austin this evening, this population explosion provides very important context for the downtown condo market. As Will Wynn, the former mayor of Austin, said about the portion of the metropolitan area population living within the city boundaries: “We have 88,000 more people here than we did 5 years ago. Experts predict at least another 75,000 in the next 5 years. And we’ve got only 400 new downtown condos remaining for sale for the next 5 years. That’s right, only 400.”
Over the last year, it has been common to hear the Austin condo market referred to as “overbuilt.” This is an easy claim to make: any new unit is an excess unit in a market like this. What is important to note, however, is that it takes three to five years to bring a new project to market. With capital markets frozen, it’s is unlikely that additional projects — besides those currently under construction — will hit the market for another five or six years.
This leaves us with the available inventory in projects currently under construction as the total supply for years to come. If you look at the buildings currently rising, projects like the Austonian, BartonPlace, the Four Seasons, the W Hotel & Residences, and the recently completed Spring, there are actually less than 1,000 units currently under construction in downtown Austin. The best estimates suggest that there are approximately 300-350 unsold new condo units in the pipeline for the Austin market. This is the total available inventory for the next half decade. These units will sell out and the market will be tight before new units are able to be funded, planned, and constructed.
It is important to remember that the fundamentals of downtown living remain strong: people are moving to Austin, downtown is being rapidly transformed into the center of the community, and people from across the region are looking at downtown Austin as a great place for a second home. As downtown Austin reaches a critical mass, the downtown migration is likely to accelerate.
While the downtown Austin market is doing better than almost any other market, there is no doubt that there are more units than buyers right now. Especially on the high end, for million dollar units, inventory absolutely exceeds current demand. But the market is turning — the bottom was likely reached in the early summer. Now, we’re seeing sales numbers begin to increase. While it is still a buyer’s market and deals can be found, this dynamic will not last forever.
The difficulty in adding future downtown condo supply makes it likely that the current condo slump will reverse sometime in the next 6-12 months. Given that many of the most prominent projects are not scheduled for completion until next year, people who want to live downtown will be limited to unsold units in the most recent projects and resale units in other recent projects until that time.
In summary, while it remains a buyer’s market — fundamentals suggest that the market may be nearing an inflection point. For units priced below $500,000, it’s probably a good time to take a deal. For units over $500K, and especially units over $1,000,000, idiosyncrasies in the jumbo loan market and reduced demand will create buying opportunities for a while to come. But sometime in the next 12-18 months, it likely that the downtown Austin condo market will sell out completely.