My clients, and those who follow my blog, know that I often describe the real estate business as “hyper-local.” I didn’t invent that term, but it applies spectacularly in this industry.
Unlike cars and toasters, homes are products that can’t be moved (in most cases). The value of a car isn’t affected by the neighborhood where it is kept, assuming that it is maintained as well as a comparable vehicle in another neighborhood. If I can’t find the bicycle I want in my own town, I can probably find it nearby, or on Craigslist or eBay. None of that is true for real property. This is the first in a series of blog posts that will discuss this differentiating fact about real estate from different perspectives.
We know that there are huge variations in the behavior of local real estate markets around the country. Obviously, property in New York City or San Francisco is “worth” more than similar property in Omaha or Oklahoma City or Austin. As I wrote a few days ago (Case-Shiller Improvements In Context), while the value of real estate in Phoenix declined more than 50% during this housing crisis, values in Austin have generally continued to appreciate and, on average, are now about equal to the pre-recession “peak” in 2006.
On average, Austin now looks like a very healthy market (and it is), with about 6 months of housing inventory on the market, and with homes selling in less than 60 days. It is always worth remembering that averages hide details:
|1,501-2,000 SF||$ 131.00||4.5||44|
|2,001-2,500 SF||$ 131.40||4.7||55|
|Austin – All||$ 138.26||5.4||56|
|3,001-3,500 SF||$ 128.52||5.8||65|
|< 1,000 SF||$ 195.96||6.3||56|
|3,501-4,000 SF||$ 146.11||8.1||76|
|4,001-5,000 SF||$ 153.17||9.4||80|
|> 5,000 SF||$250.33||24.2||99|
That table shows a few key measures of market health for single family homes in the Austin metropolitan area at the end of June 2010 (MLS Data Only).
Note that 5.4 months’ supply of homes actually means anything from 4.4 months to 24.2 months, depending on the size range you’re concerned with. Most analysts consider 6 to 6.5 months’ inventory “balanced,” favoring neither buyers nor sllers, and without trong upward or downward pressure on prices. Less inventory generally avors sellers since buyers have fewer aternatives and therefore less egotiating power. More inventory favors buyers since only the ost unique or the lowest priced properties stand out and attract offers. Selling a home surrounded by a 2-year supply of competitors is a very different proposition than selling in a market with only 4 months of inventory, and you can see the effect in the Average Days On Market column above.
One other quick comment on this data: I frequently have clients — buyers and sellers — who want to discuss price per square foot. I honestly don’t think in those terms because it changes so much from one neighborhood to another and from one size or age range to another. Even using fairly narrow size ranges in the table above, you can see that the average sale price per square foot ranges from $128.29 to $250.33 — almost a 100% change from minimum to maximum! Moreover, while it us usually reasonable to expect larger homes to sell for less per square foot than smaller ones, you can see that pattern violated in a big way in size ranges above 3.500 square feet.
Unless I am extremely familiar and current with a specific market area, this is why I only discuss market values in the context of specific analysis of a narrow market segment (size, age, location, land area, view, frontage, etc.).
Even within the size ranges in this table, there are very significant market variations. More on that in Location, Location, Location ….