Last December, I predicted higher unemployment levels, lower sales activity, a further deterioration of the economy, and slightly lower rents for 2009. Well, we finished 2009 with similar results.
Austin's unemployment increased from 5 percent to 7 percent the past 12 months. Two years ago, Austin's unemployment rate was 3.5 percent. Our unemployment rate has doubled the past two years. Consumer confidence has remained low, and we are seeing many clients and tenants lose jobs.
Unlike the 2001-2003 high tech bust which mostly affected white collar professionals, this recession has affected all workers. It is taking much longer for workers to find jobs, and many are being turned down because they are over qualified. Many homeowners are upside down, have no equity in their home, have lost employment or have ARM mortgages and cannot refinance and get a fixed rate. These circumstances have resulted in record high foreclosures.
According to the Austin American Statesman, over 1,400 central Texas properties have been posted for the January 5th 2010 auction. The foreclosure postings are up 78 percent for Travis County and 93 percent for Williamson County. Unless the unemployment rate drops significantly in the next 12 months, I expect foreclosure rates to remain high in 2010. I am hoping they peaked this year, and we will see a slight drop next year. If unemployment rate increases, we could see another record year of foreclosures.
Lenders continued to increase mortgage qualifications in 2009. Gone are stated income mortgage products, and most lenders will only originate loans that can be sold in secondary market such as Freddie Mac and Fannie Mae. Investors must put 20% or 25% down to purchase investment property and must fully document income. To get the best conventional interest rate today, a borrower must have a minimum 740 fico score. The pool of qualified buyers has shrunk, total debt ratios can no longer exceed 45%, and I expect 2010 will bring more restrictions for borrowers. For example, minimum fico score requirements for FHA mortgages will increase from 620 to 660 early next year.
At best, homes in central Texas appreciate at the rate of inflation, or 3-5 percent per year. Austin and the state of Texas did not experience high home appreciation rates like California, Florida, Arizona and other states. Hence, home prices were more resilient and only depreciated a few percentage points while other areas of the country experienced huge deprecation rates up to 30%-40%. Austin has weathered the storm better than most cities.
The $8,000 Obama tax credit did increase real estate sales the past two months as first time buyers took advantage of lower sales prices, foreclosures and low mortgage rates. However, 2009 sales volume dropped about 15%-20% and the median home price dropped a few percentage points. I don't anticipate any significant appreciation in the Austin real estate market until new jobs are created and our unemployment rate improves. Expect 2010 real estate prices to be stable or drop slightly. 2010 may mirror 2009. However, I think Austin will continue to have one of the best economies and real estate markets in the country and will be on the top list of cities to recover from the recession.
Surprisingly, rents remained stable in the Austin area. Average rents in the Cedar Park/Leander leased for $.64 per sqft and $.61 per sqft in Round Rock. The average home size in Cedar Park/Leander was 2,032 sqft and leased for $1,300. The average home size in Round Rock was 2,187 and leased for $1,336. More expensive homes leased in 2009 and kept the average rent prices stable. In reality, we did see price pressures on homes priced above $1,200 per month.
Leasing activity increased 4% in Cedar Park/Leander area and 13% in Round Rock. I think the increase is due to many homeowners being forced to lease their home because they could not cover their selling costs or have little equity in their home (forced landlords). Also, many tenants did not renew their leases and took advantage of the $8,000 tax credit for qualified first time buyers. This increased the lease inventory levels.
Thre is good news. There is no better time than now for investors to invest in real estate, current homeowners to consider a move-up purchase, or first time buyers to purchase a home. The $8,000 Obama tax credit has been extended to April 30, 2010, and a second tax credit of $6,500 is available to repeat buyers who have owned their home five of the last eight years. Mortgage rates for owner occupant buyers are in the high 4% range and low 5% range for investment properties.
Our office provides sales, leasing, property management, and mortgage services. Please contact us at 512-257-9836 or visit our home page (Cedar Park Property Manager) if we can be of any assistance.
