Fredericksburg Texas

Be on the lookout for a curious phenomenon to occur as 2009 progresses in Fredericksburg, TX.  As the economy stalls and leaders in Washington (and elsewhere) look for ways to stimulate both the housing markets and the overall economy, jobs will continue to be shed in the industries we’ve been hearing so much about.  What will become of the workers unfortunate enough to have been put out on the street as a result of these difficult times?

If history is any guide (and it usually is) a significant number of these folks will opt in try their hand at real estate.  The scandalously low barriers to entry in our profession make it all too easy for those scrambling to make ends meet (or those simply looking for a change) pick real estate as a target.  After all, how hard can it be?

Everyone knows a realtor (or 20) and most are easily seduced by the seemingly easy way we are all perceived to make the big bucks.  My hope is that those considering following this “easy money” will do a little homework before they get into a business that is a lot harder than it looks. They will be surprised and will perhaps have missed an opportunity to pursue something that may have been more to their liking.

The lure of being “self-employed” has its obvious temptations but it also carries the sobering reality of complete and total self-reliance. Not everyone’s personality and family/financial situation can bear the strains of no steady paycheck, no employer funded retirement, no paid vacations or sick days, etc.

For a myriad of reasons, folks seem to think that if all else fails, they’ll try real estate.  Again, how hard can it be?  I would ask any buyer or seller of property, however, if that is the attitude they want representing their (likely) most valuable asset.

Do you call the plumber fresh out of plumbers school out to diagnose and fix your pipes?  Do you want to be your surgeons very first quadruple bypass?  People look to experience in all things and should logically do so with real estate, but do they?  In many, many case the answer is (illogically) no.

The recent “boom” years in Fredericksburg, TX real estate saw the membership roles of our local board of realtors swell to a number that was roughly equal to having one realtor in membership for every one deal that was consummated.  With those numbers, who is getting rich?  Granted, as in most businesses, the top 20% of agents did 80% of the deals but how do you, the consumer, the buyer or the seller, identify the experienced and qualified agents?

Given that the growth in the heady times could have resulted from the lure of “easy money”, could my prediction of the growth in the number of rookie agents swarming to town in the “tough times” make any sense?  If you believe the media that economic recovery will have to begin with the housing markets and that any “stimulus packages” will be throwing vast amounts of money in that direction and for that result, then you can see why those looking for “change” may opt to find it in real estate. So, do you go with the rookie or with the pro?

Despite the plethora of bad economic news, 2008 saw real estate in Fredericksburg TX hold its own pretty well, proof that real estate markets are “local”.  This means that “national economic trends”  “U.S. Housing Statistics”, the “Case/Schiller Index”, etc. are composites of what may be happening in other parts of the country but they do not account for the specifics of actual activity in our little corner of the world.

That said, the following is a recap of the Fredericksburg Texas and Gillespie County Texas real estate market as evidenced by sales and listing data provided by the Gillespie County Board of Realtors Multiple Listing Service for the year ending December 31, 2008 as compared to the same period for 2007:

·      Residential-City - The total number of units sold in 2008 declined by 16.88% from 2007 and the total dollars sold declined by 18.72% ($37,211,150 in 2007 vs. $30,243,391 in 2008).  The average days on market increased from 146 in 2007 to 163 in 2008 (+11.64%) and the average sold price declined from $232,570 in 2007 to $227,394 in 2008 (-2.22%).  Hardest hit were sales in the range of $250-$500,000 where the number of units sold decreased by nearly 19%.

·      Residential-County- The total number of units sold in 2008 declined by 9.47% from 2007 and the total dollars sold declined by 4.32% ($35,583,104 in 2007 vs. $34,046,128 in 2008).  The average days on market increased from 181 in 2007 to 199 in 2008 (+9.94%) but the average sold price actually increased from $374,560 in 2007 to $395,885 in 2008 (+5.41%).  This increased average can be attributed to a small spike in sales in the $750,000 to $3,000,00 ranges.

·      Residential-All- Combining the figures above to view the state of the residential market for all of Gillespie County (including figures for Fredericksburg) and the total number of units sold in 2008 declined by 14.83% from 2007 and the total dollars sold declined by 16.16% ($90,715,107 in 2007 vs. $76,052,419 in 2008).  The average days on market increased from 162 in 2007 to 183 in 2008 (+12.96%) and the average sold price declined from $263,707 in 2007 to $259,565 in 2008 (-1.57%).

·      Lots-City- Mirroring last years’ sales, 38 units were sold.  The average priced increased from $67,639 to $73,745 but the average days on market more than doubled from 164 in 2007 to 335 in 2008.  This is an accurate reflection of the fact that builders dramatically reduced their “spec” building efforts throughout 2008.

·      Land & Farm-All- Total unit volume decreased by 19.35% from 155 units sold in 2007 to 125 units sold in 2008 but the total dollars sold in this wide-ranging category only decreased by 3.40% (from $48,398,974 in 2007 to $46,754,249 in 2008).

All-in-all, not too bad!  My belief is that efforts made by the new administration in Washington combined with historically low interest rates will work to further insulate the Texas Hill Country (in general) and Fredericksburg Texas (in particular) from the woes being experienced in other troubled markets.

The perfect storm of buying opportunity is upon us here in Fredericksburg, TX.

Ignoring (for a moment) the fact that prices in our area have not fallen as might reasonably be expected, total sales volume for YE 2008 is off a whopping 18.7% from the same time last year (dollar volume of single family homes w/in the City of Fredericksburg), the spread between list price and sales price has widened and inventories are at their highest level in many, many years it is easy to make the case that “now” is the time to buy real estate in Fredericksburg and/or the Texas Hill Country.  Couple this trend with historically low interest rates and you have an attractive formula for successful investing.

Back briefly to prices not falling substantially.  Those conditioned by either experience or the media may reasonably expect that the real estate market disasters currently befalling most of the country are sure to happen here as well.  While I can attest that the local market is “correcting” it is doing so very slowly and fully reflective of the fact that local sellers simply do not “have to” sell.  Very few folks here are in trouble as evidenced by the near total lack of foreclosures and short sales.  As we are primarily a “discretionary market” buyers feel no pressure to buy in the Fredericksburg area.  Sellers who don’t have to sell and buyers who don’t have to buy equals the current market stalemate.

Though credit markets have reportedly seized up, that is not the case in Texas (in general) or the Hill Country (in particular).  Every lender I have dealt with states that they have plenty to lend.  Of course there are caveats such as tighter appraisal reviews and higher down-payment requirements…always a catch!  At present, a lot of the available funds are being sought by those choosing to re-finance that these ridiculous rates.

Buyers who chose to wait until prices come down more are (unwittingly) gambling that interest rates will hold steady (or drop further) as well.  While one never knows these days, it’s hard to imagine rates dropping any further.  What is not widely understood is the impact interest rates can have on the real monthly cost of homeownership.  Even 10% drop in home prices is immediately nullified by a mere one percentage point increase in interest rates on a 30-year note.

Fortunes have been made and lost by those attempting to “time” the peaks and valleys of real estate markets. Don’t let this historic combination of low rates, weak market demand and near record supply fool you in to thinking you should wait a little longer.  While I’ve predicted that prices may fall a wee bit more into the first half of 2009, interest rates are highly volatile and tend to rise a lot faster than they fall.  Don’t miss the boat!

When the stock market is zooming up and down like a theme-park ride, the solidity and tangibility of Fredericksbrug, TX real estate as an investment is increasingly appealing to many people.

If you are considering becoming the new owner of an investment property, some things about today’s economy are in your favor. More people are renting, because it’s harder to qualify for a mortgage and because some people are genuinely scared to buy a home they might believe is still overpriced. So there is a large pool of potential tenants. And there are many houses (and a scattering of duplexes) to choose from because so many properties are on the market.

This is not an investment for the faint of heart. Being a landlord requires a good deal of time and money, possibly over many years. You need to be willing to make repairs or hire someone to do so. You have to be responsible for collecting rent, dealing with unruly tenants and finding new tenants when vacancies occur.

For Lloyd Lindsay, 25 years of owning investment properties has had more positives than negatives. “I bought this house for retirement income,” Lindsay said. “For 25 years it’s been a good investment.”

If you’re thinking of taking the plunge, here are some tips to consider:

1. Sell your house, buy a duplex, rent out one half of the duplex and live in the other half. This is a great way to start out as an investor/manager. Learn how to manage property, collect rent and take care of needed repairs in the first few years. Also, just by moving from your house to a duplex, you immediately have someone else paying a portion of the mortgage.  Fredericksburg is chronically short of duplexes for sale, so in this option will require some patience.

2. Buy a single-family home and rent it out.

Experiment with one nice single-family home that is close to where you live. You will have to be at the property frequently to collect rent or to make repairs, and it is easier and simpler if it is close by.  In a market like Fredericksburg, remember that location is key. Better-located properties rent for more and rent more quickly (they also typically cost more to buy).  The closer-in properties historically hold their value better and are less prone to the normal market cycles.

3. As a general rule in the Fredericksburg area, expect to pay $160,000 for a starter rental house and about $185,000 for a duplex. Duplexes in more expensive neighborhoods can cost $300,000 or more.

4. Do your homework. The most important part of the homework is figuring out what you can collect for rent and whether this will cover your expenses as a property owner.

You can only get for rent what the neighborhood will bear.  A good agent can help you figure out what a reasonable rent would be in your neighborhood. You can also drive around and call the numbers on signs advertising “duplex for rent” or “home for lease” to help you get a feel for what rents are like. Also, check the Fredericksburg Standard real estate section weekly.

5. Calculate your expenses as a property owner. These will be your mortgage payment, property taxes, insurance, any possible homeowners association fees, maintenance, repairs, any utilities you decide to cover as the landlord, and advertising costs when you have a vacancy. You might need to add property management fees to this amount if you are not planning to manage the property yourself. Figure out whether your rental income will cover all of this, as well as leave you some extra money each month that you can put in a savings account to cover future repairs. Again, a good investment property agent can help you calculate these figures. Don’t forget to factor in a reasonable appreciation figure as well as the usual tax advantages of owning real estate.

6. Consider a duplex over a single-family home because there will probably always be some rent coming in. If you own a single-family home and your tenants move out, it might take several months to find another tenant, and in the meantime you will have to cover all of your property expenses out of your own pocket.

7. Be aware that because credit is harder to find in today’s tight market, most lenders are requiring a 20 percent down payment for investment properties.

8. Be a realist. Be very conservative with your expectations of how your property will appreciate. And unless you are handy with repairs, buy a property that’s in above-average condition. Repairs can hurt your cash flow.

9. Finally, it’s always good to have an exit strategy. If it’s not working out, you can hire a professional to manage it or you can sell it.

As the City of Fredericksburg TX continues to explore solutions to the perceived lack of affordable housing, clear and convincing evidence exists that there is, indeed, a need for this type of product.  All one has to do is look at statistics provided by the U.S. Census Bureau, the Texas State Demographer, FISD, the Gillespie County MLS and the Bureau of Labor Statistics (among others) to see that prices continue to trend higher while poverty levels are increasing and wages are not keeping pace with inflation (not to mention home prices).

While some may argue that meeting this demand by granting tax-payer funded incentives to private developers is a bad idea, it has been proven time and again that it is the only idea that works. The “do nothing” alternative presents risks to the community in the form of exacerbating the chronic labor shortages faced by local employers and will (by default) encourage more low-income multi-family development.  If people need a roof over their heads, someone will provide it.  The question for our community is what kind of roofs do we want to see and live with.

Multi-family developments are certainly not bad things.  We’ve all lived in an apartment or two (or eight) in our time.  Recognize however that the “business of apartments” has changed dramatically since most of us most likely made that housing choice.  Large-scale apartment communities (50+ units) fall into two categories these days; “subsidized” and “securitized”.  Subsidized units typically involve some kind of government funding and come with “income qualifying” strings attached. Securitized units are “free market” in the sense that they will charge the highest rates possible (and spend the least in maintenance practicable) to achieve the highest returns for their publicly traded REIT’s.

While each type of unit serves its targeted demographic well, they effectively bookend the low and high end of any given market.  What about the “middle”?  Who serves that? Who has the ability to serve that? The answer to that is a whole other post, so I’ll stick to my point.

As in the debate on affordable, single-family housing, apartment developers clearly consider land cost and income demographics in their development equations.  High land prices and the lower the area incomes virtually assure more projects aimed at the lower end of the apartment spectrum (subsidized).  Again, there is nothing wrong with someone meeting an identifiable demand; the question for the community is “how do we want that demand to be met?”

Coming full-circle, the alternative to more taxpayer subsidized multi-family development (yes, local incentives are given to these projects too) is properly incentivized single-family residential development.

“Affordability” can be defined by assessing local income levels, current underwriting criteria and the availability to downpayment assistance programs.  Once defined, affordable mortgage amounts can be deduced resulting in target home prices.  The cost to construct certain types and configuration of dwellings can be assessed and subtracted to identify the resulting market lot price targets.  None of this can be accurately calculated, however, unless and until a clear message is delivered from city officials as to incentive packages that will be granted to projects meeting established criteria.

Is it in the best interest of the community to incentivized development in return for stabilizing the local labor market and/or slowing the spread of taxpayer supported multi-family development? In the special place that is Fredericksburg, TX, I would answer with a resounding YES!

What about those who say “well Jeff, not everyone can afford a house”, or “hey, I had to live in many apartments and save my money for years before I could afford a home”? These are certainly valid statements and are (by the way) very reflective of my own experiences.

These arguments; however, ignore the fact that times have changed.  Home prices and inflation are far outpacing the real growth in wages.  I suspect that many of us who make these arguments couldn’t achieve what we managed to do then, today.

With the recent state of the national economy, the question of foreclosures in the Hill Country, Fredericksburg, Mason, Llano, etc. often comes up.  Is it a “problem” in our area?  Are there opportunities for investors to pick up “bargains” at foreclosure sales?

While the Fredericksbrurg, TX and Hill Country markets are not immune to the foreclosure phenomenon, we have to a very large degree not been subject to the rash of forced sales more common on the east and west coasts. Have there been foreclosures?  Sure.  Very many?  Not really.

Lenders in our area have tended heavily towards the conservative.  Additionally, Texas home equity lending laws have been a tremendous help in preventing the kind of ridiculous, sub-prime lending you hear so much about in the media today.

If you believe, however, that our economy will continue to suffer through a quarter (or several quarters) of recession, it could benefit you to know the basic of foreclosure law should you (as a property owner) find yourself faced with financial hardship.  Conversely, fortunes have been made by savvy investors who follow foreclosure trends and are able to acquire real property at “discounted” prices.

The nationwide foreclosure boom has focused more attention on a transaction referred to as a “short sale”.  In an attempt to avoid the time-consuming (and often times expensive) foreclosure process, lenders are increasingly agreeing to “short sell” a mortgaged property.

By agreeing to sell the property for less than the current balance owed on the note, a lender “comes up short” on recovering the full amount.  The “short” part of the term also applies to the timeline generally associated with the process as these attempts are often limited to an amount of days roughly equivalent to the time it take to process a “regular” foreclosure. A “short sale” can be a win-win for the property owner and the lender. ‘Short sale” properties are often listed with realtors and heavily promoted.

Are “short sales” common in Fredericksburg and/or the Hill Country?  Not as common as in the major metropolitan areas, but they do occur.  It is my opinion that this process will become increasingly more frequent as our market corrects and lenders and borrowers opt to try an avoid foreclosures.

The debate on affordable housing in Fredericksburg, TX took two steps forward and a half steps back at last weeks Planning & Zoning hearing.  On the agenda were proposed changes to several existing zoning ordinance classifications, the creation of a new one and the re-zoning of a neighbor to allow for small lots and more density.

Having apparently received enough critical feedback from neighbors duly notified of the impending discussions, P&Z wisely opted to separate the discussion on the zoning classification changes/creation and the re-zoning of the neighborhood for fear that, if considered as a package, the issue would go down in total defeat.

Their plan worked in that some significant changes to existing rules were amended and a new classification (R-1A) was approved by P&Z.  These proposed changes/additions now move to the 12/1 City Council agenda for review, discussion and a vote.

The proposed re-zoning of the Walch Terrace neighborhood was roundly criticized by those potentially affected.  Clearly seeing the writing on the wall, P&Z requested that city staff withdraw this proposal which, of course, they did.  Score one for the neighborhood!

This agenda was devised by city staff, P&Z and (to some degree) City Council at the behest of the Affordable Housing Task Force as a means of taking a critical first step towards removing various regulations from the path of affordable development.  The goal of these changes was to encourage “infill” housing into existing neighborhoods by encouraging lot division and increased building coverage.

While it is my personal opinion that these measures will make little difference in “available dirt” becoming more “affordable”, they do stand to increase density in the city core and perhaps minimally affect “suburbanization”. 

These steps are progress in the long road to achieving the stated aim of these various committees, task forces, council’s, etc. (to allow for more “affordable housing”).  Each public official and task force member should be congratulated on the partial success of this effort.  More has been accomplished in the last several months than has in the last dozen years.

More steps are needed, however, and it is my hope that collective wisdom involved in the process are not disheartened by the one “defeat” resultant from this meeting.  It was a bad idea, poorly executed.  You did the right thing by pulling it.  Take your licks and keep on movin’.

Unless and until we define what “affordable” means to our community and realistically assess the true demand for this product, I don’t see how we can craft future incentive packages to encourage real progress.  Unless and until we are ready to recognize that the  “waiver” of a fee not currently being collected cannot logically be termed as a “giveaway” and unless and until we realize that the potential expansion of the tax base far outweighs any incentives granted, unless and until we acknowledge that “affordability” does not end with the purchase price (but rather includes maintenance, sustainability, efficiency, utilities, taxes, etc.) how can we make further progress?

Hold on to your wallets people.  The election, taxes, “the bailout”, interest rates, “the credit crisis”, blah, blah, blah.  It all adds to the disturbing trend in real estate towards higher prices (resulting from higher costs).  Just as prices should be falling,  circumstances seem to be conspiring to prevent just that. This is interestingly opposite of that whole supply and demand thing we’ve all learned about.

The increased cost to borrow and the (rightfully) more stringent underwriting standards have reduced the pool of potential buyers yet sellers have not keyed in on this fact.  Ever optimistic, sellers continue to hold out for last years prices offered to fewer buyers using more expensive money and get upset with their agents because their properties don’t sell.

Seller’s of non-homestead assets are almost certainly facing a higher capital gains rate in the next administration.  What are they waiting for?

This resistance to what should be a natural downward movement on prices (costs) is being further exacerbated by whoever it is that send down the International Residential (Building) Code from on high. Did you know that homes built after 1/1/11 will be required to have fire sprinkler systems?  This new government mandate (largely un-reported I might add) will add an estimated average of $1.61/s.f. of cost to a new home.

Believe me, my years of commercial property management experience (sprinklers are common, and necessary, in commercial structures) shows me that pressurized water pipes installed in ceilings will eventually leak.  Note too that commercial ceilings most often consist of lay-in tiles that provide easy access to MEP systems.  Conventional homes, of course, use sheetrock ceilings that are as inaccessible as they are expensive and time-consuming to repair.

While not mandated for existing homes or remodeling projects, the “safety” argument holds little sway with me.  I suppose a small saving grace could be slightly reduced insurance premiums.  This is clearly another instance of big brother knowing what’s best and shoving it down our throats.  When will we say “enough is enough”?

Fredericksburg, TX real estate is expensive enough as it is yet I still hold out hope that sanity will rule the day and the market will do what markets are supposed to do…adjust and correct. The unabashed capitalist, free-market guy that I am can only pray that big brother (in all its shapes and forms) decides to just stay out of our way.

I’ve been repeatedly asked what it is that real estate agents do when the market is “in the toilet” as it appears to have been/is/will be.  My first response is that things are not as bad here in Fredericksburg as they may first appear.  I tell people not to listen too much to the media and the talk about the “nation real estate market” as there is no such beast.  All real estate markets are local.

While the “credit crisis” may have placed a damper on those buyers with “credit problems” there is no lack of credit for appropriately qualified buyers (e.g. buyers that have a demonstrable ability to pay back the loan).  Those buyers prescient enough to maintain good credit and a store of cash for higher down-payments are also wise enough to wait until the sellers that have to seller (vs. sellers who merely would like to sell) drop their prices to a point that these buyers will interpret to be “the bottom”.  If and when that happens, activity will increase.

My message in this to sellers is that if your truly want to sell (or need to sell) there are plenty of buyers out there…at the right price.  The sooner you get to that price the better off you’ll likely be.

Back to the original question of what we do with our time.  Many agents will opt for vacations or completing that home “honey-do” list or simply sit around and wait for the phone to ring.  Others will cold call and prospect for business and still others may quit the business altogether.

I won’ tell you what I do because then all my competition will do it too.  Suffice to say that I’m not sitting on my hands.  My overall goal is to position myself and the services I provide to stand further and further ahead of what others may be doing.  I’ll be creating opportunities rather than waiting from them to present themselves.

There will be no whining or complaining about the Dow, Lehmann Brothers, the strength of the dollar or the “bailout”, none of that is within my ability to control (though it should be!).  No standing around complaining about the inevitable tax increases and no standing around with my hand out asking Uncle Sam for help.

Improving myself and the services I provide my clients is what will carry me out of the “slump” and afford some nice, juicy returns for savvy buyers looking at opportunities in Fredericksburg TX Real Estate.

As September ends and we begin what all signs point to will be a dismal 4^th quarter, some interesting YTD multiple listing service market indicators (Gillepsie County properties only):

·      There are 852 active listings for sale.  In 2008 we have averaged 33 sales per month which leads to the revelation that we currently have nearly a 26-month supply of inventory on hand.  Recall that previous posts opine that a market “in equilibrium” typically has a 6-month supply of inventory.

·      New listings are up almost 40% from the same time last year.

·      The shear number of price reductions YTD is up a telling 230%! While this may indicate that sellers are finally reading the writing on the wall, it could also mean, given the still anemic sales YTD, that prices are still too high as these decreases have not substantially lured buyers from the sidelines.  A deep look shows that most homes that have sold reveal one or more price reductions in the listing history before a sale was consummated.

·      The number of sold properties has hit a 5 year low.

·      The total dollar volume of sold properties has hit a 4 year low.  Interestingly, the average prices of sold properties have not dropped as much as these figures may indicate (see previous post on 3^rd Qtr. Sales).

Despite the media doom and gloom, election-year uncertainty (yes, taxes are going to increase….you head it here first!) and Wall Street “rescues” all is not lost for the Texas Hill Country.  The Fredericksburg area has long been a desirable option for retirees, second-homers, investors, etc. and the fundamentals of this attraction (location, climate, scenery, etc.) have not changed.

While we all may have enjoyed, profited from and been taxed on our decisions to invest in Fredericksburg TX Real Estate, our run-up in prices was no where near what it had been in other parts of the country.  Prices will level-off, credit will again flow, the sun will rise, etc., etc. Hang in there!