Here are the June/2017 MLS single-family statistics for Austin, TX:
OK, folks, the shift in our Austin home sales market continues to show itself in June with nearly identical negative changes in the 4 key categories that affect home sellers the most: Listings; Inventory; Days on Market and Activity Index (see my explanation for this new category below). This makes the 4th month in a row of these negative trends so there is no question in my mind that the Austin metro real estate market is beginning to make the shift from a seller’s market to a buyer’s market (as you can see from Gary Keller’s comments below, these changes happen rapidly). This can be clearly seen by comparing the 1st 6 month’s data averages from 2017 to 2016, below:
2017:
2016:
This slowdown was echoed in today’s press release by the Austin Board of Realtors: “The Central Texas housing market continued to show signs of normalization in the first half of the year, with positive but more moderate gains in sales activity,” said Brandy Guthrie, President of the Austin Board of REALTORS®. “Homes are spending more time on the market and housing inventory levels have slowly increased throughout the year. While it could take years for the region’s housing market to achieve balance between home buying and selling activity, these trends indicate that the Central Texas housing market could finally be moving in that direction.”
[Activity Index: You will notice that I’ve added a new category….the “Activity Index”. The AI is a future indicator of the direction our market is heading. It is the ratio of how many homes went under contract (ie-Pending) compared to the number of homes for sale (ie-Listings + Pendings). It has a maximum cap of 100%. There is no hard and fast rule about what makes a good AI number, but, generally, 25%+ represents a good market. For instance, if 2 homes are Pending and there are 6 homes for sale, the AI is 25% [2 / (6+2) = 25%]. An AI of 50% would represent a very hot seller’s market since the For Sale and Pendings would be the same [ie-6 / (6+6) = 50%]. As with the other categories, the most important thing I look for is what the trend is for a category when compared to the same month in the previous year. This really gives us an accurate reflection of the whether something is slowing down or speeding up.]
There are 3 types of real estate markets (some say less than 6 months is a seller’s market and over 6 months is a buyers’ market):
Here is a graphic of a typical real estate cycle:
Gary Keller, the co-founder of Keller Williams, wrote a book nearly 10 years ago during the financial meltdown & housing crisis that occurred nationally beginning in September, 2008. He begins the book with this, “Real estate is a cyclical business. What goes up must come down. And what is down won’t stay there. Shifts are never unexpected but rarely predictable. You know one is coming. You just don’t know when. They are, in fact, inevitable—shifts happen….The misleading aspect of an economic shift is that it seems relatively natural and gradual when looked at nationally. When experienced locally it is usually dramatic and fast. The national perspective rarely, if ever, matches the local experience. The hard truth is local market shifts are seldom slow and local landings are almost never soft. It’s a lot like a pendulum or a golf swing, beginning relatively slowly but accelerating very quickly through the middle. Some local shifts can actually take your breath away.”
Real estate market shifts happen fast as you can see below:
Gary Keller first reported signs of a shift at last year’s Keller Williams Mega Camp meeting in Austin attended by about 10,000 KW agents in August/2016: Gary Keller warns of shifting market. It took about 6 months for his prediction to show in our Austin market (I first reported negative trends in March/2017 home sales statistics newsletter). Zillow reported similarly in October, 2016: Change is Coming. Really. And, most recently by HomeLight: Why You Should Sell Your Home in 2017. Lastly, read the 2 articles below under my “Austin Real Estate Market” section.
I also mentioned in one of my recent newsletters about how the number of price reductions in Austin has risen sharply. Compare the two Market Watch snapshots below which look at the MLS listings in the Austin metro area (I didn’t keep a copy of July/2014, but I would imagine the decreases would be fewer and the sales would be higher since it is summer and this was in the midst of our seller market). It is interesting to note that we sold 122 homes in Feb/2014 (the 2nd slowest month of any year) but only 50 in July/2017 (one of the highest sales months typically):
So, what does all of this mean to you, especially if you are a home seller? I believe it means that while we are, in fact, moving from a seller’s market to a buyer’s market I doubt we will stay there long. Look at the Fred graph below which shows Austin home prices going back to 1977 (the gray bars are national recessions). Here are a few of my comments:
- Most recessions haven’t affected Austin home prices. We were relatively flat during the dotcom bust in 2001 and our home prices barely went down (I show about 1-2%) during the Great Recession year that affected Austin most: 2009-2010;
- Our biggest price drops occurred during the late 1980’s after the Tax Reform Act of 1986 was passed. That act repealed the accelerated depreciation (ACRS) method which pushed most depreciation for real estate, oil & gas, and other assets into the first few years of ownership. This made even marginal investments look good with the extra write offs. Losing ACRS doubly affected Texas because we were more oil & gas dependent before 1986 and, coupled with the loss to real estate investors, sunk Texas into a bad economic malaise. Home prices in Austin and other Texas cities plunged by their largest margins in the past 40 years;
- When the rest of the country took off beginning at the new millennium, Austin was flat because of the dotcom bust, but we began our rise during the middle of that 1st decade, flattened some during the Great Recession, and have been on a strong growth curve ever since;
Therefore, with the exception of the late 1980s, Austin’s home prices have mostly risen in the past 40 years. So, I believe we might well see a slight cooling off period the next year or so, but I don’t see any large home price drops given Austin’s past housing history and our strong local economy I’ve touted over the past 8-10 years. Maybe our prices flatten out more like the 2009-2010 period. Maybe they drop a percent or two. Our inventory will likely continue to rise and we will likely enter a market in equilibrium and maybe even move into a buyer’s market for a period. This would be a welcome situation for Austin home buyers since they have been working hard to find a suitable home and fighting other home buyers competing for a smaller inventory of homes since our market began turning into a seller’s market in spring of 2011.
For the foreseeable future, I strongly encourage all home sellers--on the market now and those listing in the next year or so--to have your home in great shape, professionally staged, with good curb appeal, and “priced to the future market”. By “priced to the future market”, I mean 1) price a little higher than the average sales price of comparable homes to yours in a rising/strengthening market (ie-seller’s market), and 2) price a little lower than the average sales price in a falling/softening market (ie-buyer’s market). Look at the illustration below:
You can see that a home seller is better off pricing at the lower, future price when a market is shifting from a seller’s market to a buyer’s market (and vice versa). To look at this another way, see the 2 graphs below which show the difference between the size of the target that are “In the market” in a market in equilibrium (1st graph) and a buyer’s market (2nd graph). Homes that are priced too high will simply sit on the market for a long time.
