Fredericksburg Texas

What does all the recent financial turmoil mean to Fredericksburg Texas real estate?  The short answer is, I can only guess but it’s not likely to be pretty.

Federal bailouts, AIG, Lehman Brothers, Merrill Lynch, WAMU, etc., etc.  They stalwarts of our financial industry seem to be dropping like flies.  With this trouble (perhaps, in part, because of it) comes a serious lack of credit available to finance the purchase of real estate.  While it was the abundance of “easy credit” that got us in to this mess, it will likely be the nearly complete lack of credit that makes it all worse.

Buyers with good credit and lots of cash for a down-payment will be fine.  But then, that was never the issue was it? We thought that Congress/the feds were all making our lives better by loosening the purse strings and letting the mortgages flow.  No doc loans, no money down, no income verification and all that. Who thought it was a good idea to lend billions of dollars to folks who could never pay it back?

We as real estate agents played along, only too happy for that quick and easy sale. To borrow, paraphrase and de-politicize a favorite recent line, “the chickens have come home to roost.”  Now what?

My crystal ball tells me prices will continue to drop.  Great news for buyers, not so much for sellers.  Financing for us regular folks will cease to exist for the next several months.  The rich will get richer as the Feds begin to auction off the bad loans of the various institutions to hedge funds who will happily pay for 30%-50% on the dollar.  The Feds will then sell off foreclosed assets for less than that.  See, I remember the late 80’s.  I worked for the FDIC and was a part of disposing of hundreds of millions of dollars worth of real estate for tens of millions of dollars.  This is very “déjà-vu”.

If you happen to be liquid right now, the coming months will be a bonanza of opportunities to load up on “distressed” assets and bank them for the inevitable turn-around. Things will get better, they always do.  New fortunes will be made.

You are witnessing perhaps the greatest “cycle” our industry will see for another generation.  This mess will make the 80’s look like a day in the park in many areas of the county.

Will this decimate the Hill Country and Fredericksburg the way it will (has), say California, Michigan, Flordia, etc.?  No, it won’t.  I take some solace in that we Texans may have learned a little from the 80’s.  While we enjoyed some nice appreciation, we didn’t go nuts.   That will be our saving grace.  Relatively speaking, we didn’t climb too high so we won’t have far to fall.

Are we in the Hill Country/Fredericksburg at the bottom yet?  I don’t think so but it will all depend on how the availability of credit is restored as a part of the latest bailout scheme.  As I’ve said before, we’ll be fine.  It may be slow for a bit but I have seen few sign of “forced selling” and that bodes well for all of us.

Two pieces of contradictory advice (and remember, it’s worth what you’re paying for it):  Seller’s, lower your prices a bit but don’t panic, hold on a little longer.  Liquid buyers, look to more distressed markets for your long-term wealth building plays (yes, I can help you with that) and buy in Fredericksburg with the knowledge that your money will be pretty safe in the long run.  The rest of us, watch and learn.  My boldest prediction is that we will see this all happen again within the next 15-20 years….

As the third quarter for home sales comes to a close in Fredericksburg, TX it is readily apparent that the “national housing crisis” has had a measurable effect on the local market.  Whether through lack of available financing, overpricing or just plain old psychology buyers are buying fewer and less costly homes in Fredericksburg.

The analysis that follows is based on MLS data for the period 1/1/07 through 8/31/07 vs. 1/1/08 through 8/31/08 and only represents homes sold within the city limits of Fredericksburg, TX:

·      The Median Sold Home Price is down 2.55% ($215,500 vs. $210,000);

·      The Average Sold Price is also down by 0.9% ($233,222 vs. $231,100);

·      The average number of days on market has increased by 3.4% (148 days vs. 153 days);

·      The total dollar volume closed YTD has decreased by 7.10%;

·      While 2007 evidenced shows that nearly 70% of properties purchased involved financing (other than cash), only 60% YTD for 2008 involved financing.  This could be interpreted as evidence of the increasingly difficult financing environment.

Clearly the market has cooled somewhat but we have yet to face the problems so commonly reported on the nightly newscasts. The good news is that Fredericksburg’s economy remains among the healthiest in the State of Texas. 

Anecdotal evidence supports the theory that high gas prices over the recent summer months kept folks closer to home.  Our convenience to San Antonio, Austin, Houston, Dallas, etc. played well into the new economics of summer “stay-cations”.  Only time will tell if tax receipts bear this out.

Our economic fundamentals remain strong and the draw of the Hill Country has not lessened.  We stand poised for a sustainable recovery.  The $64,000 question is when will that happen?

I will never be mistaken for an economist but my crystal ball tells me that real estate sales will continue to lag behind the “boom” years of 2003-2006.  The continuing shake-out on Wall Street and our lending institutions will continue to make funds scarce for all but the most highly qualified buyers. 

Buyers that do have cash, sizable down-payments and or pre-arranged financing will continue to see asking prices soften a bit and will see the spread between list prices and sales prices continue to grow.

Sellers should heed the trends noted above and expect longer times on market and lower actual sales prices (prices further restricted by appraisals required by lenders).  Jumping ahead of these documented trends will serve you well.