Fredericksburg Texas

Peering into my crystal ball fortrends affecting (for better or worse) the Fredericksburg Texas real estatemarket I see:

1.    1.  Mortgageinterest rates will rise.  Bumpingalong near historic lows for the last several quarters, these rates are undertremendous pressure to increase as they are the single largest factor affectingthe current weakness in the value of the U.S. dollar.  The weak dollar is reflected most prominently in the recordprice we are now paying for oil (and hence, gasoline), food and other consumerstaples.

2.     2.  Itis only a renewed strength in the U.S. dollar (created, in part by risinginterest rates) that will ease our pain at the pump (in the sort term) but lookfor the price of oil to remain well over $100/bbl and gas to remain above $3.00/gal.for the foreseeable future.  Theever-increasing global demand will not be abating.  The silver-lining in this is that folks will travel but staycloser to home which has traditionally benefitted the community ofFredericksburg TX with our proximity to Austin, San Antonio, Dallas andHouston.

3.     3.  Painat the pump will continue to translate into decreased US demand for oil/gas,increasing pressure on politicians to produce more “supply” and more downwardpressure on consumer spending.

4.     4.  The“credit markets” will recover from the sub-prime fiasco but lenders will beever-more cautious about extending credit to all but the most well-qualifiedborrowers.  This, in turn, willcontribute to a continued “softening” overall of real estate markets whereprices in most areas will not return to their pre-2007 levels for some time.

5.    5.   Thevalue of and demand for rural real estate will recover quickly be the lead thesector in sales volume and appreciation (especially land with surface waterand/or capable of producing a consumer crop).  Provided existing tax rules (valuation methods, exemptions,capital gains, etc.) remain relatively constant, there is no place else toinvest sizeable funds with very little risk, very low carrying costs andhistorically favorable returns.

6.    6.   Evermore savvy real estate buyers/investors/sellers will rely more and more on theinternet to research purchases/comparable sales, etc. and appreciate thatmarket knowledge, experience and outside-the-box thinking will increasingly befound outside the doors of the more traditional “branded” models of brokerageservice providers.

7.    7.   Asthe internet continues to be the “great equalizer” in the real estate industry,consumers will realize that bigger is not necessarily better and that industryknowledge and market experience will trump “branded name recognition” everytime.

8.    8.   Fractionalreal estate offerings and purchases will emerge as the single most importantinnovation in property ownership in the last 25 years.  Popular in high-end resort-orientedcommunities for years, this “new” form of ownership will open a door to luxuryownership that simply has not been available before now.  The ability to own a deeded,mortgage-able, depreciable and inheritable share of high-end property (one thatwill likely appreciate and can be bought or sold as easily as a single familyresidence) will unlock billions in baby-boomer wealth that has heretofore beenunable (or unwilling) to pursue the second home of their dreams at a fractionof the traditional price.

Remember, you heard it here first!

Disclaimer:  This analysis applies only to “singlefamily residences” sold within the city limits of Fredericksburg, Texas fromthe period of Jan. 1, 2007 through June 30, 2007 vs. Jan. 1, 2008 through June30, 2008 utilizing figures reported through the Gillespie County Board ofRealtors multiple listing service.

If you had maintained any hopethat the national trends concerning the strengths/weaknesses of the real estateindustry have somehow bypassed the Fredericksburg, Texas real estate market,you may be interested in the following:

Overall (per the disclaimerabove), the total number of listings available through June of 2008 has increased by 82%, the average time onmarket for any particular property has increasedby approximately 9%, total sales volume ($$) has increased by 1.7%, the average sold price has also increased by 1.7% and the median soldprice has increased by 10.2%.

A similar phenomenon (more on themarket, longer to sell, but higher average prices) has recently been reportedby Austin area realtors.  Thesimple explanation to these seemingly incongruent statistics lies in thenebulous, but all-important, “market timing”.

Simply put, while the problemsaffecting much of the country have not yet slammed Fredericksburg TX realestate, we are beginning to feel the effects of damage created by the sub-primebanking fiasco and the impact this has had on broader credit markets.

The above statistics can be usedboth to report what has happened (ytd vs. same period last year) but they canalso be used to forecast likely trends for the remainder of the year.  The fact that we have (on average) 82%more in inventory is simply staggering. Couple that with lingering creditissues, projections of increases to mortgage rates, stagnant wage growth, theincreasing cost of consumer staples, the weak dollar, record oil prices and apresidential election and all signs seem to point to a market that willcontinue to “soften” via increasing times-on-market and a significantlydeclining list price to sales price ratio.

Great news for buyers, not somuch for sellers. This is a rather classic and routine cycle we are in themidst of and one that (hopefully) will pass in rather short order. A review ofpast economic “downturns” and real estate cycles show them to be happening withmore frequency but with less severity and for shorter periods.

Some free advice:  if you don’t have to sell right now…don’t.  If you’re in the market to buy, “now”is as opportune a time as you’re likely to find in Fredericksburg, TX.  Remember, Experience Matters!

What do the “greater fool theory”and SUV’s have to do with real estate in Fredericksburg, TX?  These day (unfortunately), plenty!

The greater fool theory holdsthat paying too much for something is o.k. as there will always be a greaterfool willing to pay more. The theory manifests itself in our current marketwhen a seller refuses to lower their price to “market” in the hope that a“greater fool” out there won’t mind overpaying for their particular home.   Of course, that seller (ifsuccessful) becomes a buyer and their logic is immediately reversed when (tothem) everything they see as a new purchase is “overpriced”.

Many of the properties currentlyon the market in Fredericksburg were purchased in the last 5-6 years when themarket could be relied on to appreciate. In many ways, these folks bought at the peak.  The facts and figures of current market conditionsirrefutably tell us we have reached a plateau in sales, pricing, volume,inventory, etc. and some indicators are beginning to decline.  As inventory builds (currently as muchas a 24 month supply in some sectors of the market, equilibrium is generallyagreed to be around 6 month of supply) time on market increases, list price tosales price ratios decrease and downward pressure on pricing builds.

As Fredericksburg tends to be a“discretionary market” (e.g. buyers don’t HAVE to buyer here and (most) sellersdon’t HAVE to sell), we have an impasse. If history is any indication (as we all know it is), a new rule willkick in to break the stalemate…the golden rule.  No, not that one, the more callous one that says “he who hasthe gold makes the rules”.  Inother words,  buyers (who shouldalready have the upper hand, but don’t) who have cash in hand and/orpre-approved financing will soon see more and more sellers willing to “blink”and accept prices more in line with market realities.

SUV’s?  Soaring gas prices has a lot of folks trying to sell SUV’sto replace them with more fuel-efficient alternatives.  The market for SUV’s has been floodedwith inventory that very few folks are willing to buy.  The “value” of SUV’s has plummeted andsales of new units are the worst they’ve been in a decade.  The simple, beautiful and pureprincipals of supply and demand cannot be more clearly evidenced.

My advice (and it’s worth whatyou’re paying for it) to buyers is to be aggressive or wait it out.  Things are definitely going yourway.  You do, however, have toactually ask (make a written offer) for what you want.  All a seller can say is “no”.  To seller’s I advise you to listen toyour agents, read the reams of data they provide you and adjust your expectationsaccordingly. If you elect not to listen, don’t blame the agent for not sellingyour property, the problem lies much closer at hand.

It has been said by some verysavvy folks that “water is the new oil”. If businessmen like T. Boone Pickens are to be believed (he’s beenbuying up hundreds of thousands of acre feet of water rights in west Texas foryears now) the increasing scarcity of water in our state, combined with therapid population growth will ultimately combine to make water as precious asoil is today.

As San Antonio drains the Edwardsaquifer dry and DFW pipes water in from Oklahoma and Arkansas pressure willincrease of municipalities to secure the future of their water resources lestthey face the prospects of becoming like Atlanta .  Of all the major Texas cities, only Austin (that I know of)has taken concrete steps to assure adequate water to feed its projected growth.

Water and energy production areinexorably tied together as you need tremendous amounts of water to create“energy” and that “energy” is needed to transport the water.  As we move more and more towards “greensolutions”, water will play an even more pivotal role in that type ofproduction.

How does this affectFredericksburg TX Real Estate? Simple, land with existing water (or, like oil, “proven reserves”) islikely to appreciate at a more rapid clip than will land without this valuableresource.

If you have been searching forproperty to purchase, you (hopefully) have been fully informed of our water“situation” and the need to assure yourself that the property in question hasadequate water for your intended use(s). If you are selling a property you have (hopefully) been told of thevalue that “proven water” can add to your parcel.  If not, please call me to discuss this in more detail. (Bythe way, do you know who “owns” the water in all Texas creeks, streams, riversand lakes? Hint: it’s not the adjacent land owner.)

The Hill Country Underground Water ConservationDistrict has actively been studying and monitoring our ground waterresources for some time. Surrounding counties have their own districts that are (in most cases)not nearly as proactive as the HCUWCD. What does this mean to you? It means that very smart, very forward-thinking people (and politicians)are watching and waiting for the need to REGULATE what we so often take forgranted. It’s coming folks.

There are ways to plan for theinevitable regulation of this resource and this is a tremendously complicatedissue that can’t be covered completely in a simple blog posting.  Be forewarned, however, that “waterrights” (they are separate and distinct from mineral rights) will play anincreasingly noticeable and important role in land valuation and buyerpreferences into the foreseeable future. Remember, ExperienceMaters

Hey buyers, listen up.  If you don’t know this already, you’re in a great position to buy Fredericksburg Texas area real estate.  If you are “pre-approved” for a loan, can pay cash (or a very hefty down payment) you have negotiating leverage that simple did not exist in this market a year ago.

Old news you say.  Perhaps, perhaps not.  The perception being painted by the media has been (and continues to be) that the sky is falling, bankruptcies are rampant and sellers will do just about anything to dump their property.  Buyer’s have been quick to take the hype to heart; however, the reality in Fredericksburg (and the Hill Country, in general) has been somewhat different than what the media would have us believe.

The Fredericksburg area has been “hot” for the last several years.  Buyer were “encouraged” to make quick decisions as properties were moving fast and there weren’t a plethora or alternatives from which to choose.  The roles have reversed in that there is plenty of inventory, sales volume has slowed to a trickle and the time on market for most property classes has increased dramatically. As more properties are listed, competition builds, time on market lengthens and sellers become much more reasonable in their expectations. Factor in the shortage of financing and any qualified buyer has the upper hand.

More properties to choose from, sitting longer on the market waiting for buyers with actual money equals deals that couldn’t be had until very recently.  Don’t get me wrong, buyers are not “stealing” property but they are pushing that spread between “asking price” and “sales price” to new territory. 

Most sellers aren’t that desperate in our fine community. There is; however, ample opportunity for a savvy buyer (with his savvy agent, of course) to make a solid investment in a stable market with healthy fundamentals and very positive prospects for continued growth.  Did I mention that the population of Texas is projected to grow by 13,000,000 within the next 20 years…?  Fredericksburg TX Real Estate

In discussing the evermore pressing need to jump ahead of Fredericksburg’s growing affordable housing “crisis” and the ripple effect it is creating for our local economy, I came across a gentleman from a similar community that had faced similar (though much more pronounced) issues.

Telluride, CO is not terribly dissimilar to Fredericksburg, TX.  Each community has a rich and colorful heritage, each have experienced tremendous growth and each are (to large degree) “tourist supported” communities.

 As have many resort communities, Telluride faced the disconnect between the cost of housing and the ability of average wage earners to afford this housing.  Shop owners, clerks, police officers, firemen, etc. could not afford to live in the community they were so deeply involved in.  Among the solutions was the implementation of a real estate transfer tax.  The revenue generated from this levy was designated to supply affordable housing to those so important to the lifeblood of the community.  Guess what, it works.

While certainly not a proponent of tax increases (I already think we all pay way too much), this is a targeted solution to a very real problem and one that places the burden of a solution onto the very economic factors that are creating the underlying problem.

 Many states and local communities have a real estate transfer tax of one kind or another, all of which are designed and implemented to address very specific problems.  A state-wide real estate transfer tax was discussed in the 2005/2006 Texas legislative session as a way to fix the “school funding crisis” and was quickly shot down by the predictable lobbies (and, I might add, for very good reason).

As a state-wide solution to whatever problem, this tax structure has some serious problems and has created many unintended consequences.  As recently proposed for Texas, it deserved to die.  It is my opinion that such a targeted levy be reserved at the community level to address very specific issues. 

There are ample cases of town and cities throughout the country that have made such a tax work to the benefit of the entire community. Real estate markets didn’t crash, values did not plummet and the sky did not fall.  Do a Google search on “real estate transfer tax” and see what comes up.  After digging through the predictable, negative, knee-jerk reactions, spend some time looking at cases where is has been successful.

Another solution to our affordability dilemma is local government incentives to developers/buyers, etc. of “affordable” housing.  As governments are loath to reduce taxes, the idea of a new one might be easier for them to swallow.

In short, government intervention of some kind will be needed to allow for the creation of housing that is within the reach of more members of our community.  “Market forces” cannot be relied upon to supply that which is (under current conditions) not profitable.  The only way to make it profitable (and therefore attractive) is with tax payer assistance of some kind.  The programs that exist on the state level take way too long to fund and inhibit a developers realistic chances of tying up a property while waiting (gambling) to be approved for subsidies.  A local solution is needed for a local problem.

Real estate prices in Fredericksburg, TX are being challenged.  Increasingly confident buyers are now asking for (and in most cases receiving) price reductions (and other concessions) in amounts not seen in this market for quite some time.  As we continue to slide into a recession (subprime fiasco, Wall Street woes, weak dollar, record oil prices, etc.) sellers of real estate face the hard question of how to price their property to sell in a (generally) downward trending market.

Past posts have touched on this subject yet it warrants a fresh look.  What are the risks of overpricing your property in market where 1) qualified buyers are scarce, 2) financing is difficult, 3) prices have stabilized and 4) the spread between the asking price and the sales price is increasing?

The most common scenarios agents face in listing presentations with sellers are:

1.        “Another agent said they’d listed for more.”  A sellers’ mission should be to select the best agent, not the best price.  A real estate agent has no control over the market, only the marketing plan.  Never select an agent based on price. 

2.       “We can always come down.”  This is true, but the reality is that a series of prolonged price reductions merely add to the important “days on market” factor.  What question does a buyer ask me at the front door of every home I show?  “How long has it been on the market?”  They ask that because if it's been on a long time the common perception is that they can buy it for under market or that something is wrong with it.  Either way, you’re losing time and (probably) money with this mind-set.

3.       “Couldn’t we try my price for a few weeks?”  It is well-known to agents that the majority of market activity occurs in the first two to three weeks on the market.  This is absolutely the worst time to overprice since this is when the best customers will see the property.

4.       “But we have made so many Improvements to it.”  Most improvements are made for enjoyment, not resale.  Another important point is that structures and improvements to it do not appreciate in value. It is the real estate—the ground beneath it that appreciates. Where is it said that you can buy an item, install it in your home, decorate it to your taste, use it for a few years then ask a new buyer to pay you for it? The question that determines the value of an improvement is; if the item were not there right now, how many buyers would add the same improvement and pay what you want to charge?

5.       “But we paid $xxx for it.”  I’ve addressed this in previous posts, but another way to look at this is that there is no relationship between cost and value. What you paid for something has nothing to do with what it's worth today. It’s all about the current market.  You may not have “overpaid” at the time but as conditions have changed, you may be surprised to learn that (by today’s standards) you did, in fact, “overpay”.  The converse is also true based on past market gains.  If you “paid right” and have enjoyed the recent price appreciation, a “relative re-adjustment” will still likely net you a nice gain.

6.       “They can always make an offer.”  While it is increasingly true that buyers are emboldened by their new-found negotiating power, the only way a qualified buyer can make an offer on your real estate is if they actually see it. The problem is, most buyers look up to their price range, peek a bit over, then focus only in their price range. By overpricing, you put your property into a price bracket where they won't look.

The buyers of Fredericksburg real estate are out there.  They are being smarter, more patient and more demanding.  As a seller (in a challenging market) you must be smarter, more patient and more demanding of your agent.  Remember, Experience Matters

If you’ve owned real estate n Fredericksburg, TX for some time and are considering selling, you’ll probably do well.  If you have purchased recently and are considering selling, you may want to wait a bit.

In addition to the old adage about location, location, location, real estate is about numbers.  If you bought a property 10 years ago for $1 and the recent run-up in prices has you thinking it’s now worth $15, are you “losing money” if you sell it for $12?  Would you rather sell it quickly for $12 or hold out for $15?  Can you even sell it for $15 if everyone else with a similar property is trying to sell for $15?

Sure, you have to consider the cost of the sale (typically between 6%-8% of the selling price) when calculating your return and there’s always that pesky tax thingy to deal with.  The question remains, however, do you want to sell or not?  If so (and “price” is always the biggest issue with your buyers) doesn’t it make sense to become more “aggressive”.

You can always find an agent to list your property for whatever figure you give them (there are, frankly, way too many of us) but will it sell?  Who then do you blame? (Hint: the inevitable, though incorrect, answer is your Realtor).

 Please listen to your chosen market expert when pricing your property for sale.  I promise you, the buyer’s agent on the other side has a very different opinion of what you’re property is worth! Who do you think they’re listening to?  Remember Experience Matters

What’s the real estate market doing?  How are things in Fredericksburg? Is it as bad there as “everywhere else”?  These are the top questions on the minds of buyers and sellers interested in Fredericksburg TX real estate.

As I’ve pointed out in the past, when it comes to real estate, “everywhere else” usually has strikingly little to do with wherever you are.  All real estate markets are “local”; meaning each market has it owns trends, peculiarities, strengths, weaknesses, etc.  Sure, macro economic trends have an effect (e.g. the “credit crisis”, foreclosure rates, etc.) on the local economy but not to the extent the media would have us believe.

It’s too easy to believe what you see on CNN, The Today Show or Good Morning America as a reflection of the condition of our real estate market.  As a result, a lot of buyers believe this is not a good time to buy and seller may not think this is a good time to sell.  The reality is that the Fredericksburg market is slowly returning to something that can be considered “normal”.  After years of double digit appreciation, short time-on-market and very healthy sale price to list price ratios we are experiencing more traditional (and “in balance”) market indicators…a “calming” of the recent “good times”.

Does the passing of the “good times” translate to “bad times”?  Hardly.  Nothing has fundamentally changed in Fredericksburg, TX.  We are still a top tourist destination; we’re still are close (but not too close) to the booming cities of Austin and San Antonio, we’re still “affordable” (by most state and national standards), we still offer a lifestyle that people yearn for and we’re still the Heart of the Texas Hill Country!

Do we face challenges, sure we do.  Top of the “challenges” list (in my humble opinion) is the lack of (and demand for) “affordable house”.  I’ve put this term in quotes due to the simple fact that “affordable” is a singularly relative term.  We face an increasingly acute problem of a very shallow labor pool.  A town that has (in large part) saddled its economic success upon the backs of a (relatively) low wage, tourist-based economy has done shockingly little to assure that this labor pool can actually afford to live in Fredericksburg.  Existing planning and zoning do little in the way of steering development into areas where affordable land can be bought to result in reasonably priced housing.   Solving this challenge is the next great step in the evolution of our community and is vital to our continued “success”.

We are not the first community to face this particular challenge, nor will we be the last.  I have faith that the leaders of our community will step up and create innovative ways to assure the continued vitality of what has made Fredericksburg such an attractive place to live.  Visit Fredericksburg, TX