This is one in a series of posts about the Austin-area residential real estate market and home prices. You can see more at Sitting down? More on Austin home prices and Market price distribution — more of this is 2021?. For a more “big picture” look at the outlook for 2021, you should also see Market outlook – Austin area 2021, from early December 2020.
One chart sets the stage for this discussion:
The ratio of residential sales to listings over the past thirty years was 26%. The Austin residential real estate market transitioned from the last market bottom in 2012 into the current market cycle, and the ratio of sales to listings from 2013 through 2019 was 41%. That average in 2020 was 82%!!!! (And note that unit sales exceeded average listing inventory for the last four months of the year — i.e., there were more sales than new listings every month.)
The obvious result has been a collapse of inventory levels in our 5-county metropolitan area:
The orange line in that chart shows the number of listings (houses, condominiums, and townhomes) each month as reported by the Real Estate Center at Texas A&M University. Listing inventory in 2020 peaked in April and declined steadily from that point — ending the year down almost 70%!
The dotted green line in that chart is very important. It shows how long the supply of homes each month will last at the current level of demand. Historically, market economists have considered 6 to 6 1/2 months’ supply to be “balanced” — i.e., a market environment in which neither buyers nor sellers have a built-in advantage market-wide. For most of this market cycle, our metro area has carried between 2 and 3 months’ supply, dipping below 2 only once, in 2016. Then, Months’ Supply fell below 2 months in December 2019 through March 2020, recovering briefly at the beginning of the coronavirus pandemic, and then tumbling for the rest of the year, ending at 0.9 and 0.6 month’s supply in November and December, respectively. [Put that into perspective: 0.6 x 30 days = 18 days … the expected life of a new listing across our metro area.]
The result was upward pressure on prices in virtually all areas and market segments:
In January 2021, there is every indication that the trend will continue, with builders still struggling to meet demand and most rationing new starts due to rising costs and challenges keeping adequate labor on the job, and needing more lots than they can get permitted and prepared for construction. You’ll see more about that in Sitting down? More on Austin home prices.
This challenge is not new, but it has been significantly exacerbated over the past year. Nonetheless, housing demand in the Austin region is still driven by real growth in jobs and population, not by speculative investment or too-loose mortgage lending activity. As alarming as trends look, this is not a bubble built on a speculative foundation like we saw burst in 2007-2008.
An old saying in real estate — “Drive ’til you qualify” — has taken on whole new meaning in recent years, making obvious the need for expansive land use policies and regional transportation infrastructure. Those are long-term changes than deserve a lot of attention. In the meantime, the market environment is exhausting for home sellers and buyers and their real estate agents, but it looks like 2021 will be at least as strong as 2020, and maybe even more fast-paced.