The national media has recently been reporting that the real estate market has “stalled.” As an example, here is an Associated Press article from last weekend:
Compare that to the latest market statistics from the Austin Board of REALTORS®:
For several months, I have suggested that a market shift may be in process. Resistance to rapidly increasing home prices became more apparent in recent months, but “Days to Sell” (the average time sold homes were on the market) have been trending upward for five years and year-over-year increases in average prices have been trending downward at the same time. (See Thoughts on this Market Cycle – Trends to Watch.) To clarify that last comment, average sale prices in the Austin metro area are still increasing, but they’re increasing more slowly than they did earlier in this market boom.
As the Austin-area residential real estate market climbed out of the last recession in 2012 and 2013, growth in both unit sales (houses, condos, and townhouses) and in aggregate dollar volume of home sales skyrocketed. Growth in unit sales have been much more moderated since 2014, but sale prices continued to increase so rapidly that the total dollar volume continued to escalate quickly:
In each of the past five years, growth in sales volume was consistently twice or more the pace of unit sales — even in 2018. The decline in both metrics over the past couple of years is noticeable, but the most striking change isn’t visible in those annualized numbers: December of 2018 was VERY different. We don’t have “final” figures for December, but based on raw MLS data, both dollar volume and unit sales increased (year over year) every December from 2011 through 2017, but in December of 2018 both were DOWN more than 17% from the previous year!
By way of explanation the AP report above notes, interest rates have been rising during the past year, but that effect was not especially noticeable in the monthly data for the Austin metropolitan area. Those who watch the stock market watched significant reaction to domestic and international economic uncertainties, but the vast majority of buyers who contracted for those December closings didn’t know that was coming when they made their purchase decisions in November. The comparison between rising incomes and rising housing costs is real and it is certainly a factor in the Austin area, but the continuous addition of high-paying jobs here moderates that effect compared to some other locales.
The report from the Austin Board of REALTORS® is more narrowly focused on Central Texas, but it covers activity only through November. It is true, however, that sales volume in the Austin metro area totaled about $12.5 billion, a new record — driven more by increasing sale prices than by unit sales. In that article, you can see that housing costs in the city of Austin continue to drive many buyers to the suburbs, and that is likely to continue. Unfortunately, as busy as home builders have been demand continues to outpace supply, with permits and new starts in 2017 and 2018 still lower than our regional peak in 2006.
If job creation and population growth continue this year at or near their recent pace, the market will be challenged to provide enough housing for new Austinites, and the supply-demand imbalance we’ve experienced in recent years will continue. If resistance to higher home prices and/or longer commutes cause growth to slow, then supply could make some gains. Absent disruptions in the larger economy, our regional market should find move toward equilibrium over time, leading us to a continuing healthy market environment and a gradual return to balance that we haven’t experienced in recent years.
I will update you with my market dashboard for all of 2018 when refined December data is available in a couple of weeks, but for now I’ll note that even though sales were down in December so was new listing activity. Inventory appears to have been at a six-month low at the end of the year. I continue to expect some flattening of the Austin-area market in 2019, but January and the first quarter will tell us whether December’s drop was just exaggerated holiday seasonality or a sign of more to come.