About three months ago I began seeing hints that our super-heated market envIronment was behaving a little differently than it did in the first few months of 2021. Not a downturn by any means, but indications that at least some buyers were tiring of unconstrained bidding wars, and that some of those whose offers won were getting more serious than before in negotiating repairs. In Market Pause? (July 2021) I shared some articles that supported that trend across more of the U.S. real estate business than just our area.
Now that I have final July data from the Texas Real Estate Research Center, it is clear that the Austin metropolitan area did indeed see different conditions in July than earlier in the year, best shown by the lowest Sales-to-Listings ratio in seven months:
Sales still exceeded listings last month and our housing supply in July was still less than 1 month, but it was back up to the level of November 2020:
In the chart above you can see that the number of homes sold in July 2021 was down from July 2020 and from July 2021, and that allowed the pace of price escalation to abate somewhat:
Note that annual price growth was almost uninterrupted since July 2019, and since July 2020 we saw unprecedented escalation. The July 2021 increase of only 37% was a welcome relief after three months over 41%, but we are not in a downturn. We are very far from catching up in terms of supply, but for now some buyers are tiring and are resisting the pressure they feel in multiple offer situations.
For perspective, market economists still consider 6 to 6 1/2 months’ inventory “normal” or “balanced,” the environment in which neither buyers nor sellers have built-in advantages across the board. Of course, even in balanced markets, some neighborhoods and some properties see different hyper-local conditions, but generally the farther below 6 months’ supply a market is, the more conditions favor sellers.
With that in mind, consider: The last time the Austin metropolitan area had 6 months’ supply was in July 2011 — 10 years ago! One year later, our inventory stood at 4.3 months, and a year after that, in July 2013, it was 2.8 months. We haven’t had more than 3 months’ supply in any month since then. From December 2019 through July 2021 we had housing supply of 2 months or less! And since November 2020, our inventory has been less than 1 month!!!
Last month I wrote Housing bubble? I still think not …, and I still believe that demand to live in the Austin area continues, several major employers and planning to bring thousands of employees and their families here, and home builders are making gains in their capacity to add housing. Prices will remain high compared to our area’s history but lower than other high tech centers in the country. Mortgage interest rates will remain low for the foreseeable future, but lenders’ standards remain stringent, avoiding a principal source of the 2007-2008 mortgage crash and the ensuing Great Recession. Land use policies and local zoning decisions can make room for the addition of a variety of housing types in price ranges that are difficult or impossible to achieve in single family homes, and there are signs that political pressure may move us in that direction.
We’re not out of challenges yet and won’t be for some time to come, but the ingredients for strong market conditions remain, and I’m confident we will forge on in the coming years.