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AUSTIN-Whether the compass is pointed north or south, Texas metros have hit a stumbling block in the recovery of their multifamily markets. The culprit for the setback appears to be single-family housing, with deliveries and buying incentives both on the rise.

“Single-family deliveries are up tremendously in the state of Texas,” Greg Willett, vice president of research and analysis for the Carrollton, TX-based M/PF YieldStar, tells GlobeSt.com. “We really thought Texas was going to make huge strides this year, except in San Antonio. We’re not backtracking, but it’s disappointing that we aren’t realizing the expected big gains.” And, he adds, the metros’ multifamily market indicators really don’t appear to be a one-quarter fluke.

Austin leads the Big Four for occupancy, average rent and rent growth. The 153,900-unit inventory is 95.1% leased, with 4,000 more apartments under construction. The average rent is $751 per month, up 3.4% in a year-to-year comparison.

San Antonio’s 127,200-unit inventory is 94.1% occupied and 6,000 apartments pushing toward delivery. Its average rent is $663 per month, reflecting a 0.4% rent growth since last year.

Houston’s 480,300-unit inventory fell into the third-place ranking, with 6,500 under-construction apartments, and 93.9% occupancy. Its average rent is $701 per month, up 3.3% in the past year.

Dallas/Fort Worth, with 552,200 units and 10,100 more under construction, is sitting at 92.7% occupancy. Its average rent is $700 per month, up just 0.7% since June 2005.

“Austin and Houston have the potential to get it together more quickly than Dallas/Fort Worth or San Antonio,” Willett says. Increased rents, though more aggressive in Houston, might have driven some renters into buying, but Willett says the main drivers are housing prices and giveaways like free maid service for a year and upgraded finish-outs at basic prices.

Austin’s premium to buy–the differential between rent and mortgage–is higher so the multifamily market has a leading edge. It also has fewer units under construction and more job gains than elsewhere in the state. “That’s the one, we’re most optimistic about,” Willett says.

David Brown, director of the Dallas/Fort Worth region for Houston-based Metrostudy Inc., says job growth and “favorable interest rates” are only part of the reason for the changing dynamics in the multifamily sector. Relocations, particularly from California, are fueling the buying frenzy. In many cases, inbound residents are bringing enough cash from sales in other states to pay cash when they move to Texas, with or without a job, he says. “It’s not just executives. We’re seeing it at the mid-level too,” he says. “It’s all just coming together to fuel significant demand.”

Metrostudy is just now finalizing second-quarter stats, but its first-quarter numbers on a 12-month trailing basis showed Austin had the greatest percentage spike in housing starts yet the lowest in terms of construction–a 29% increase and 16,986 houses. San Antonio’s 17,322 housing starts reflected a 25% increase. Houston’s 50,623 starts resulted in a 21% spike and Dallas/Fort Worth’s 50,609 starts factored out to an 11% hike.

“We’re going to see some increases throughout the second quarter,” Brown says, “but I expect it will flatten out in this quarter.” Dallas, he points out, has had record-setting starts for seven consecutive years. “I expect it will slow down a bit in the second quarter,” he says.

The increased number of buyers has caused multifamily market demand “to come to an abrupt halt in recent months,” Willett says. The second quarter historically is a robust period for the industry, but Dallas/Fort Worth absorbed just 440 units. Houston and San Antonio each absorbed about 800 units and Austin edged up just 300. “We had evidence last year that single-family buying was tapering off,” he says, “but it’s back.”

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