In September 2018 I discussed a change was taking shape in the Austin-area real estate market — time to sell or “days on market” getting longer (see the last chart in Market Growth Continues). I said then and I want to say at the beginning of this post that I am not pessimistic about our market or expecting anything dire in the coming year or two. Listing inventory remains extremely low and population growth continues, and I continue to believe that much of what may look like a slow-down is really just too many buyers looking at too few homes and not finding what they want. You can see our market environment well in this chart:
In 2017 and 2018 listing inventory (the total number of active listings) reached the highest level since 2012, and buyer demand largely kept pace. We are now in our seventh year with “months’ supply” at or below three months — less than half of the “balanced” 6 1/2 month level. The Austin market remains HOT, and there is every reason to believe that it will for quite a while yet.
With that in mind, I’ll comment again on Days on Market, and a companion metric — the ratio of final Sales Price to Original List Price (SP/OLP %, for short). In recent weeks I have been receiving messages from other agents that were almost non-existent over the past few years: announcements of price reductions. This chart shows how both of these market indicators have changed since the downturn at the end of the last market cycle:
As the mortgage crisis materialized in 2007-2008 the time it took for listings to sell, on average, increased dramatically (orange line). The market response caused the Sale Price/Original List Price % (blue line) to decline steeply.
Both metrics fluctuated in the following years, and in 2012 it was clear that our regional market had moved past the recession. Then, in mid-2014 days on market (Days to Sell) reached a minimum and the SP/OLP % peaked. Since then Days to Sell has been trending upward and SP/OLP % has been trending less markedly downward. Days to Sell is still lower and SP/OLP % higher than at the end of the last cycle, but the trends are apparent.
Is a change of 0.5% to 0.6% in SP/OLP % especially worrisome? On average, probably not. But the averages hide the fact that in some areas and market segments listings are still selling quickly with multiple offers at or above list price, while other parts of the market are taking much longer to sell at significant discounts.
Like most market-watching, we won’t know how these metrics will change one month at a time. We may well see some reversal during this summer selling season, but both trends have been evolving toward more “normal” for several years now and it seems unlikely that we’ll return to the environment we saw five years ago.