What is a “Shifting” real estate market anyway?

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We’ve posted several articles and made comments over the past few months about our changing real estate market, so we thought we would spend a few minutes to discuss just what a real estate market “shift” really means.  First of all, it doesn’t mean that we suddenly go over a cliff with dramatic home price drops and all sales coming to a grinding halt.  As you can see from the 2 graphics below–both representing a real estate cycle–the advantage shifts from the seller to the buyer and visa versa over and over again over time based on the number of months of inventory (how long it would take to sell all homes currently for sale at the current sales rate). This is totally normal and much like our national economy that shifts from a booming economy to a recession and so forth.  And, a real estate market that has been hot for years may seem like it is “cooling” much like the feeling when slowing down from 100 mph to 70 mph…sure, you slowed down, but you are still going fast!

 

In Austin, our historical average is approximately 7-8 years to make the full cycle…both the up and the down as represented by the 1st graphic.  However, we’ve been in a seller’s market (less than 6 months of inventory) since Mar/2011 which is nearly 8 years ago…which is just with one side of the curve.  So, we are clearly overdue for the shift to one of equilibrium and then eventually to a buyer’s market (over 6 months).  

 

The other issue is how quickly real estate markets shift.  Generally, they are gradual and progressive like the curved line on the left graphic, but sometimes they can move more quickly like with the Great Recession.   But the GR event was triggered by extremely loose mortgage loan underwriting, some fraudulent appraisals, and the discovery that the underlying bonds holding mortgages were loaded with bad loans.  A very unusual set of circumstances for sure and unlike anything we’ve seen before.  Today, our loan underwriting is very sound, appraisals are held in check by management companies that provide a buffer between lender and appraiser, and changes in the law prevent the problems with the mortgage-backed securities.  Our main problem is simply a lack of inventory….you know, the old “supply and demand” issue.  If–and until–more homes go on the market for sale we will continue to see the “soft landing” transition from a seller to a buyer market.

 

Mark Boud, Chief Economist with Metrostudy predicts: 1) a stable market for 2019 and the risk of a price collapse is small due, primarily, to the low inventory of homes; 2) rising mortgage rates will continue for the next 24 months; 3) inflationary pressures are building; and 4) pricing won’t begin to shift until 2021-22.  He says we are in the “top of the 8th inning” of the cycle with a mild to moderate correction predicted beginning in years 2020-21.  Here is his full report:  Metrostudy Housing Report Q4 2018.

 

So, if you are looking to buy a home you can expect more homes to come on the market which will increase your choice of homes to buy, encounter fewer multiple-offer situations, see slower price increases, but you will be paying higher mortgage rates.  If you want/need to buy a home, do so sooner rather than later because you will be paying more in the future with higher interest rates and home prices.  If you want/need to sell your home, we recommend doing so sooner rather than later, too, because I personally believe we will see the inventory of homes increasing enough to make it somewhat harder to sell next summer and later than earlier in 2019.  And, it is impossible to predict whether the extremely low inventory market we’ve had for over 7 years will gradually go up, or more rapidly as home sellers see others listing their homes for sale in the next year or two.

 

And, remember the old adage “All real estate is local” which means that the market is different even between each Austin metro neighborhood as it is with the rest of Austin as it is with the rest of Texas and as it is with the rest of the nation.   Don’t let national real estate news influence how you behave–as a buyer or seller–contact our local team so we can give you the correct information about your particular neighborhood.

 

Contact the Thomas & Kauffman Team today if you would like to buy or sell a home in the Austin metro area – (512) 730-1252 or info@AustinTxHomeSales.com.