If you follow media reports about residential real estate in the Greater Austin area you know that we are still in a very “unusual” market environment. “Crazy,” some might say. 2019 was the seventh full year of significant imbalance between housing demand and housing supply. Home builders are making some progress in the suburbs but prices, especially the closer you get to Central Austin are still rising. (See Austin Area Home Prices – 4Q 2019.)
The unique nature of this situation is clear in comparison to thirty years of Ausin-area market history:
You can see several market cycles in that chart, best shown by the green dotted line — “Month’s Supply.” That shows how long listing inventory (orange line) would last if the pace of sales (blue line) continues. Six months’ supply is generally considered “balanced” — a market environment in which neither buyers nor sellers generally have a built-in advantage. For the past seven years inventory has been at or below half of that balanced level, meaning that prospective buyers are in competition for the too-few homes on the market.
Here is one result of that situation:
“Odds of Selling” is the percentage of active listings that sold each month over the past thirty years. Consider this contrast:
- There were a three months in 2000 when this metric reached 50% or more, and twelve months in 1999-2000 above 40%. Every year from 2013 to 2019 has behaved much like that brief boom.
- From 2013 through 2019 there have been nine months in which 50% or more of active listings sold, and fifty months in which the odds of selling were 40% or higher! The average odds of selling over the seven-year period was 41%!
And the ultimate result is pressure on sale prices:
Notice that our area was not broadly harmed by either of the last two market downturns, at least not as substantially as other parts of the country. After the dot-com bust and the steep sales decline in 2000-2001 home prices flattened but there was no market-wide loss of property values. Likewise following the collapse of the mortgage industry in 2007-2008. Notice also that the housing supply deficiency has pushed both average and median home prices above their long-term trends for five consecutive years.
In More on Austin-area home prices I discussed the migration over the past ten years toward higher priced homes. I also pointed out as I have before that the pace of aggregate price increases has slowed. But look at the spike in demand in December 2019 (Odds of Selling chart above). The total number of houses, condos, and townhouses sold was actually down compared to December 2018, but the average price was up 11% year over year due to that spike.
Ending where I began, I’ll point out that our “unusual” or “crazy” market conditions are also unpredictable. (Like demand spikes in December 2017 and 2019, but unusually weak market performance in the second half of 2018.) I am confident that 2020 will be fast-paced and in some ways unpredictable, but likely much like what we experienced in 2019. Moving toward balance between supply and demand will help, but this is a unique market environment and an extremely long market cycle. I’ll keep you informed ….