In my previous post (Austin — What a great place to be!) the last chart (“Market Price Movement”) showed a very steep rise in average and median prices this year in the Austin metro area. It is a statistical fact that the average sale price in July 2012 was 24% higher than in January 2012, and the median sale price increased by 21% over the same several months. Those numbers need some clarification, though, lest my readers think we have entered a California-style housing bubble.
First, notice that those increases came from 2-year lows in January 2012. From July 2011 to July 2012, the average price increased only 7%, and the median price rose 10%. Still, even those more modest calculated price levels exaggerate reality. Have homes sold in the past year that actually increased in value by 7%? Of course! Did all homes increase that much? Absolutely not!
What’s really driving the growth in prices shown in that earlier post is fewer sales of inexpensive homes and more sales of more expensive homes:
Ignoring specific numbers for the moment, just notice the steep downward slope in the price ranges from $100,000 to $160,000 over the ten-year period shown, and the steep upward slope in the price ranges from $200,000 up. The percentage of homes sold between $160,000 and $200,000 is basically flat from 2002 to 2012, although it did grow during the middle of the period. Some of the change in the higher price ranges is genuine price appreciation, but the market-wide figures are also driven by a stronger new construction market and by renewed demand for larger homes with more upgrades. (And yes, that is different from much of the rest of the U.S.)
Now, for those who like the details, here is the percentage of annual sales for each of the past ten years in each of the price ranges shown in the graph above:
The yellow highlights in that chart identify percentages of annual sales that were 10% or higher. Homes priced $100,000 to $120,000 accounted for more than 10% of sales only until 2005, and homes priced $120,000 to $160,000 fell below 10% of sales after 2010. On the other hand, homes priced from $200,000 to $400,000 represented a much larger portion of total sales in 2011 and 2012 than in earlier years.
For another view of the same data, I accumulated sales percentages in each year:
The green line underscores the price range you would need to shop in each of the past ten years if you wanted to see at least half of all homes. That allows a rough at-a-glance view of median prices, and shows the same result as this graph of annualized average and median sale prices over the same period:
Annualized calculations smooth some of the jagged changes shown in the monthly chart in my previous post but the increase in median prices is still pronounced, and median prices climbed above $200,000 for the first time this year. I will update this in a few months to show the effect of Fall and Winter sales on the 2012 figures.
So, Austin and Central Texas are indeed among the strongest real estate markets in the United States. Moreover, as I said a few days ago, inventory is low and demand is high. At the same time, sales of new homes has accelerated over the past year, and demand for larger homes has grown compared to the past couple of years. All of those factors impact market-wide average and median prices.
The supply-and-demand situation is certainly exerting upward pressure on prices, but if you examine a specific location-size-age market segment you won’t find price appreciation that comes anywhere near the aggregated average and median prices might indicate. At some point, though, prices will be driven up faster than they have been so far, so if you’re planning to move up or to buy a first home over the next few years you should consider doing it sooner rather than later.