First Quarter 09

Here is a precursor to Residential Stratigies' review of the first quarter 09 numbers for Austin. It is actually pretty good... compared to the rest of the world. Austin added jobs, reduced inventory and is below or at equilibrium (6 month supply) even with lower demand due to the disasters in the economy. Pretty amazing really!

New home starts continued their decline in the Austin area for 1Q09 according to the latest

market census prepared by Residential Strategies, Inc. Builders started 1,215 homes for the

quarter, a decrease of 280 units from 4Q08, and down 47% (-1,082 units) from 1Q08. The annual

start rate has now fallen to 7,938 units. At the market peak in 3Q06, Austin produced 17,128

annual starts.

Closings also fell for the quarter to 2,145 units. In 4Q08 builders closed 2,305 houses, and in

1Q08 3,120 units were closed. The annual closing rate now stands at 9,984 units (2,046 units

higher than the annual start rate). "While many may see the lower start rate as a negative

situation in Austin, it should be pointed out that builders entered 2009 with more finished

inventory than they wanted" says Austin partner, Mark Sprague. "The consumer was pounded

with negative news in 4Q08-a declining stock market, credit crisis and revelation of the depth of

the current recession-and because of this, confidence was eroded. As a result, most builders had

higher cancellation rates on previous orders than was normal at the end of 2008. The good news

is that builders have cut back on starts and focused on selling this inventory in the First Quarter,

2009."

Total housing inventory declined by 930 units in 1Q09, dropping from 5,375 units to just 4,445

units (a decline of 17%). In aggregate, this inventory represents just a 5.3 month supply of

inventory, where a 6.0 month supply is considered equilibrium. "The number of finished vacant

homes has declined from a peak of 2,947 in 1Q08 to just 2,133 today. Builders and lenders are

reluctant to start speculative homes and are focused on managing their housing inventory" notes

Sprague.

Another noticeable trend is that builders have abandoned unprofitable locations. In 2Q08 there

were 605 model homes in the Austin area. At the end of 1Q09, there were 536 homes, a

reduction of 11%.

The vacant lot supply was reduced by 307 lots for the quarter to 30,984. However, with the

decline in the start rate, this lot inventory now represents a 46.8 month supply, where a 24 month

supply is considered equilibrium. "The over-supply of lots is deceiving" says Sprague. "There

are parts of the Austin market, especially in closer-in areas, that will face a shortage of lots in the

not too distant future. Conversely, some of the outer-ring areas, and areas that catered to the

subprime markets may take longer to recover."

Despite the continued challenging housing market, mortgage rates have recently dropped to a 52-

year low. According to Bankrate.com, the 30-year fixed rate mortgage at 5.19% is the lowest rate

since 1956.

Press Release

© 2009 Residential Strategies, Inc.

16660 Dallas Parkway, Suite 1200 Dallas, Texas 75248 tel 972.381.1400 fax 972.381.1410 www.residentialstrategies.com

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Job growth has weakened for the Austin area, but unlike most of the rest of the nation, it remains

in positive territory. According to the TWC CES estimate for the 12 months ended Feb., 2009,

Austin produced 1,300 net new jobs.

Finally, according to the Austin MLS and The Texas A&M Real Estate Center, Austin produced

21,371 resales for the 12-month period ended Feb., 2009. The 10,929 listings at the end of

February, 2009 represent a 6.1 month supply of inventory (A 6 month supply is considered

equilibrium).

"The balance in our new and existing home supply has prevented the downward pressure on

housing prices that is evident in other parts of the nation" says Sprague. The median price for a

new home start in Austin dipped from $220,111 at YE 2008 to $216,448 in 1Q09, but is up

versus a year ago ($212,897 in 1Q08).