One month does not make a trend, but it looks like we actually added listings in April for the first time in a year. With rare exceptions listing inventory has declined month-to-month from a peak of 8,727 in August 2018 to a ten-year low of 1,098 in March 2021. That means that the number of homes sold surpassed the number of new listings each month. In the 12-months from April 2020 to April 2021 the number of homes sold increased 37%. At the same time, listing inventory shrank by 70%! Some of that is undoubtedly due to the coronavirus pandemic, but our supply-demand imbalance has been a signficant factor in our market for much longer than the last twelve or fifteen months.
“Months’ supply” is a metric that we frequently use to discuss the relationship between the supply of homes on the market and the demand for those homes. In our extreme environment, low supply is even more clearly indicated by the number of days listings are on the market, from Active to Under Contract. Using that metric, the charts below show our situation over the past sixteen months. I’ll discuss them more in a bit.
We have been in a very fast-paced market since the Austin area emerged from the Great Recession in 2013. Residential listing inventory fell below the “balanced” level of 6 months’ supply in August 2011. 2012 was our recovery year, with strong demand and months’ supply below 3 months by December 2012. The months’ supply metric remained between 2 and 3 months from 2013 through most of 2019, and multiple offers, bidding wars, and rising prices became routine. Months’ supply fell below 2 months in December 2019 and hasn’t been above that level since.
We saw an important change for the first time in September 2020: the number of homes sold was higher than the total number of listings available. That has remained true every month since then.
I have told clients and colleagues in recent months that even as crazy as the market felt over the last 8 years, it seemed like a flag was dropped on January 1, 2021 that truly eliminated all restraints. In January, February, and March, residential inventory was 0.4 months’ supply, and bidding wars became more extreme than we had ever seen, along with appraisal waivers and even waivers of inspection periods. Inventory inched up to 0.5 months in April, but it will take time to know whether that represents a real change in market dynamics. My guess is that it doesn’t … not yet.
With that background, refer back to the charts above. In January 2020 the average residential listing was on the market for 61 days. By January 2021 it was down to 30 days, and in April it was 15 days. Also notice that for all of 2020, on average, listings sold for 98% to 100% of their original list prices. In January 2021, the market imbalance became more noticeable than just a few months earlier, and the average sale was 101% of original list price. Conditions continued to tighten and by April the average sale price-to-original list price ratio was 109%!
With such competitive bidding wars, the first four months of 2021 also saw the four highest year-over-year price growth in at least 40 years — maybe ever — with the median price in April 2021 an astounding 41.7% higher than April 2020!
More (and more varied) housing supply is important as we work toward a solution, whether that’s new construction or resale listings. As I have written before, though, home builders are intentionally constraining their own production because of fast-rising costs and the declining availability of approved and permitted buildable lots. [See An important new market dynamic and Part of the Supply solution?] At the same time, homeowners who would like to sell must deal immediately with a vital question: “Where will you live next?” If selling a home means they must also become home buyers in the current market environment, many decide to wait.
There are hints that some buyers have stopped their searches due to frustration, but there are new buyers entering the market every day. Higher interest rates could discourage some, but buyers with cash are the most successful in this environment anyway. Absent an unforeseen shift in demand, we may be a year or more from seeing significant growth in new home construction, so what we see today may be our “normal” for a while yet.
Price elasticity may be the limiting factor in the coming months. Stated as a question: Is there a point at which buyers stop bidding prices up, or at which many simply withdraw from buying at all? Recent reports say that housing in the Austin area remains relatively affordable, and that demand to live and work here is strong. “Time will tell” is all we can really say about this issue for now, but economics tells us that growing supply and constraining demand is the path back toward market equilibrium. I’m watching this closely and will keep reporting.