Chris Warren Realty, our in house property management company, specializes in leasing and managing property in Cedar Park, Leander, Round Rock, Pflugerville and Central/NW Austin areas. Surprisingly, we have a 100% occupancy rate despite the attractive $8,000 tax credits available to first time buyers who enter into a contract to purchase a home by April 30th. Today, I did a lease search and found surprising results. Leasing Inventory is near record lows.
I queried active single family resident properties in Cedar Park/Leander and Round Rock areas. The majority of the properties we manage are in these areas. We manage over 100 properties just in Cedar Park/Leander. This makes sense since our office is located in Cedar Park, and we have multiple leasing agents living in area. As of today (2/25/10), there were only 57 active homes available for lease in Cedar Park and Leander. Round Rock also only had 57 active homes for lease. This is very unusual. We have seen inventory
So, why are inventory levels so low? Shouldn't leasing inventory levels be much higher as first time buyers take advantage of the first time buyer's tax credits which expire in two months? That is what I thought. We had 15 leases come up for renewal next month (March 2010), and no tenants have yet sent written vacate notices. I have a few thoughts on why levels are so low.
The pool of qualified buyers is much lower today than a year ago. 100% financing is almost nonexistent except for USDA mortgages. FHA will be increasing MIP insurance from 1.75% to 2.25% and minimum Fico score requirements. The US government has purchased the majority of mortgage backed securities the past year and is scheduled to cancel this program in March. This artificially lowered mortgage rates to help stimulate the economy. These incentives and deadlines have created an incredible window of opportunity for first time buyers.
I think many of the qualified buyers who had the ability to purchase a home took advantage of the tax credit last year when program was initially scheduled to expire on November 30, 2009. Austin had a surge in home buying that month. Unfortunately, the Austin unemployment rate continued to increase most of last year. Higher unemployment rates and low consumer confidence levels have resulted in fewer qualified ready and willing buyers this year.
Austin still has record high foreclosure rates both in Travis and Williamson county. Real estate values have been fat and even depreciated a few percentage points in some areas. Higher priced homes have experienced larger deprecation rates than lower priced homes. Many investors purchased rental properties on speculation of high appreciation rates and were in a negative cash flow scenario. Some investors could no longer cover the maintenance costs, turnover costs, and negative cash flow. Most cannot qualify to refinance the property. Investors have little choice but to allow home to go into foreclosure. This is becoming more and more common. Our office has helped many tenants move into a new rental property, because the landlord kept the rent and did not pay the mortgage resulting in home being foreclosed.
Many homeowners put little money down when they purchased a home. Property values have been stagnant or depreciated. If homeowners lost their job or were transferred, many leased their homes because they could not sell and cover the closing costs. Many have returned to Austin to occupy the property and not renew their lease. Other investors who were negative cash flow have sold their rental properties.
Because of the mortgage crisis, it is much harder for investors to purchase and qualify for a non owner occupant mortgage. We are seeing very few investors purchase rental property, even with reasonable home prices and record low interest rates. There are far fewer qualified investors today than a few years ago. Hence, most foreclosures, short sales, and single family resident home sales are sold to owner occupied buyers, not investors. As investors sell their property or allow their home to go into foreclosure, the number of rental properties is permanently reduced resulting in lower leasing inventory levels. We have seen at least 10 homes we manage go into foreclosure, be sold by investor, or homeowner move back into the property.
So, what does this mean for future investors? There is no better time than now to purchase a rental property and take advantage of low prices and record low interest rates. This window of opportunity will not last forever. Interest rates will increase and homes will appreciate once the economy recovers. I am also optimistic that we will see some rental appreciation rates in the next few years, especially homes priced below $1,100 per month. For information regarding property management service, click here.
If you have any questions, please call us at 512-257-9836. Our office provides sales, leasing, property management, and mortgage services.
