I recently had the ominous realization that even though the daily high is already measured in the 90's, humidity hangs sticky and heavy in the air, and swarms of flying insects seem to appear out of nowhere - it's going to get worse. A lot worse.

And though another blazing Texas summer isn't necessarily worth celebrating, the end of another down cycle in the local real estate market certainly is.

During the first quarter of 2010, residential real estate sales volume increased 33% over the same period last year. More importantly, pending sales are up 47% from last year (signaling a reduction in supply and near-future price appreciation).

Without question, the home buyer tax credit that expired in April stimulated a certain amount of this demand. But there's something else going on here. Consumer confidence is returning. For example, 90% of our duplex sales in 2008 and 2009 were to owner-occupant buyers taking advantage of 3.5% downpayments via FHA loans. Investors largely shied away from the market. However so far in 2010, 20% of the buyers of our listings are again investors. Owner-occupants buy because they have to have a roof over their heads. Investors buy because they believe values are going to appreciate. 

Of course warm fuzzy concepts like government incentives and consumer confidence are nice enough. But what really moves real estate values is economic growth, new jobs, and "in-migration" of the employees required to fill those jobs.

We can't seem to go a day without another company announcing they're moving headquarters here, or hiring hundreds of people for a new Austin outpost. And we're not talking about just no-name companies - Facebook announced they're hiring 200, and Samsung just announced a $3.6B microchip plant investment). Oh, and how about "#1 Best City for the Next Decade" (from Kiplinger's)?

Austinites collectively freaked out last week when, of all things, Formula One announced Austin as their new US site for a $250M track. WTF? But hey, we'll take it, even if there's a little greenie irritation about the 3 MPG those cars get.

My prognosis for the remainder of 2010 is best summarized as "steady as she goes". The painful recession left a bad taste in many people's mouths about real estate, and it will be several years before we are again buying anything with a roof and foundation. Lenders are still for the most part a royal pain in the ass, and firstborns are often still being required as additional collateral. But deals are closing, and buyers with good credit, jobs, and a strong stomach are buying properties at a steady clip. If we finished this year with neutral appreciation (no gains but no losses), I would be delighted.

2011 looks like it will be better than 2010, if the government manages to finally get serious about reducing the budget deficit. Failure to do so, will likely cause ballooning interest rates, which will in turn make real estate less affordable. As Europe has shown us recently, the days of the welfare state are numbered, and Asian investors again find safety in US Treasuries, which should provide a moderating influence on rates. Investors need to watch the budget deficit debate closely after November elections, because capital gains rates are likely to increase. I expect a flood of sellers when this happens, because the impact of a 10% increase in the capital gains tax could trim $20,000 off the profit of selling a $200,000 duplex. Ouch.

Another factor that will temper real estate values over the next two years is a growing pent up supply of inventory that sellers plan to sell in the near future. I have at least 300 clients that are waiting for conclusive proof that prices are going up before they list their properties. When the inevitable increase in values becomes apparent, this supply of inventory coming on the market will temper price increases for a while - at least until the pent up supply has been sold off, and we again have a shortage. My guess is this happens again in 2012. 

Do I get to talk about me now?... 

So far in 2010, we've sold 61 duplexes worth almost $10 million. The next runner up in duplex sales has sold 10 duplexes worth about $1.5M. Put another way, we sold six times the volume as the next runner up. And we did it in an average of 13 days (compared to our competition's 86 days) with final sales prices of 99% of list price (compared to our competition's 97% average). Duplex owners: who would you choose to list your property?

We've recently facilitated over 30 short sales of duplexes and fourplexes in the Central Texas area. From the seller side, a short sale literally saves your credit from a nasty foreclosure, and ends what is for some the huge headache of absentee rental property ownership. For buyers, there are some exceptional deals to be had.  I recently saw a client spend $140,000 for a 2003 construction duplex generating $2000/mo in gross rents that sold for over $200,000 three years ago, and another client spend $150,000 for a fourplex generating $2200/mo that sold in 2007 for $230,000. If you're a duplex or fourplex owner ready to throw in the towel on your property - DON'T! Let me short sell it for you and save your credit from ruin. 

In addition to our market leading duplex/fourplex brokerage and short sale services, we've also been offering a unique accelerated sales model for owners of single family rental properties that are ready to sell. By pre-inspecting the properties, requiring all offers to be submitted over a short period of time, and creating an auction-like atmosphere for the properties, we're often able to attract multiple offers, and achieve sale prices significantly higher than owners thought possible. This year, we sold a Judge's Hill triplex for over $540,000, a Clarksville teardown for over $320,000, and five South Austin single family homes for $10,000 over what other agents said they were worth. If you own a rental property and are ready to move, email me at robert@castlehillinvestments.com.  

Our buyer agent network has years of investment property experience and hundreds of transactions under their belt. I interview all potential buyer leads first, determine their needs, and pair them with an agent who will best fit their investment profile. If you've considered getting into the market, or want to owner-occupy a duplex, please email me at robert@castlehillinvestments.com, or call 512-444-2299.

Thanks for reading and stay cool this Summer! - Robert Grunnah Jr., 6/10/10