Last week, the Statesman wrote a very strongly worded article suggesting the impending collapse of the downtown condo market. The article was based on the following assertions:
– With mortgages tough to get and consumer confidence eroding, it is a tough time to sell real estate
– The capital markets are a mess, making it difficult for new projects to get the financing they need to get off the ground
– Sales absorption has slowed as the economy has weakened
These comments are all true and all derivatives of a single fact: the national economy is a mess. Over the last few months, the financial markets have plunged, the government has invested $8 billion in bailouts, and U.S. real estate is experiencing an unprecedented erosion of value.
It is true, it is a very difficult time to be raising money for a project or selling real estate — no matter who you are. The Austin economy and real estate market has eroded but still remains much stronger than similar markets in almost every other city in the country. And the problems here are the same whether you are selling a million dollar house in Barton Creek or a million dollar condo: fewer people think it is a good time to buy real estate.
What does this mean for the downtown condo market? Let me start by what it does not mean: it does not mean that the new buildings will never be filled, it does not mean additional buildings will never be built, and it does not mean condo values will plunge disproportionally. What it does mean is that the condo market is not isolated from the real estate problems facing the rest of the city, especially when it comes to million dollar units. In addition — because condo projects take a long time to be built — it means that the new units currently under construction will be all that is available for the next 2-3 years.
For buyers, the current market provides additional leverage. In this environment, buyers should be able to get price reductions or free upgrades in many of the projects. At this point, there is no fire sale: developers would prefer to wait out the market than give unbuilt units away.
As part of their survey of the market, the Statesman provided updated sales numbers for four of the largest projects:
360 – 96% under contract, 91% closed
Spring – 50% under contract
Four Seasons Residences – 50% under contract
W Hotel & Residences – 45% under contract
As usual, the Austonian did not provide any sales numbers. As we wrote in mid-2007, “It remains to be seen how many high end condo units can be absorbed by the Austin market. In the Austonian alone, there will likely be more than 100 units priced over $1 million — that is a lot of inventory in one building. The project’s construction budget alone is greater than $1 million per unit which should provide an indication of the average unit selling price.”
Here are key excerpts from the Statesman Article:
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