Market price distribution — more growth in 2021?

In What a market! 2020 Recap and Sitting down? More on Austin home prices I discussed the market environment for residential real estate in the 5-county Austin metropolitan area. For years I have been writing about the imbalance between the supply of homes for sale and the demand for those homes. Even through 2020 and the coronavirus pandemic, job growth in and around Austin continued, and employees and their families all needed someplace to live.

For prospective home sellers who wanted to stay in the area, all preliminary discussions in recent years had to include, “Where will you live next?” because that decision would likely face most sellers in just a couple of months. The urgency of that conversation was even more crucial in 2020 because the time a listing would last on the market became shorter than ever. Moreover, for many that next home would cost more, maybe much more, than the one they were planning to sell, and that created a sort of gridlock in creating new listing inventory.

At the same time, builders of new homes that had been gaining on demand found themselves limited by the supply of labor for new construction, by the cost of materials, and by the availability of buildable, permitted residential lots. Now, virtually all production home builders are making lists of want-to-be buyers and rationing the number of homes they will contract each month, even as they apply frequent price increases for future buyers.

With that background, the distribution of home sales has migrated toward higher price ranges. The table shows the percentage of sales over the past 10 years by price, with price ranges that represented at least 10% of total sales highlighted each year:

As recently as 2016, sales above $500,000 accounted for 1 out of 7 of all Austin-area sales. In 2020, they accounted to almost 1 out of 4 sales. In that same same, the $1,000,000+ price range has more than doubled as a percentage of all home sales. The combined contribution of sales between $200,000 and $400,000 is largely unchanged over the past five years, but you can see the upward migration in those price ranges as well.

The median price is the point that separates the top half and the bottom half of all sales, so this table shows the cumulative percentages from $0 to $1,000,000+ and highlights the price range each year where the median price lies:

The median price in each of the past 3 years was in the $300,000 to $399,000 price range, but the rows above the larger table show that in 2020 the median price was up 9% from the previous year and almost to the middle of the price range. If we see two more years at that pace of price growth, the median will be above $400,000 for the first time, and the average price could certainly move past $500,000 during that time. Of course, two years is a long time, but what we know now about major employers moving here and expected growth of existing employers, it seems entirely conceivable that we could see that happen.

For a broader look and the Texas and Austin-area economies, see Market outlook – Austin area 2021. Stay tuned …. 2021 will be an exciting year for everyone involved.