Austin Real Estate Blog

The December stats are out for the Austin Real Estate market. Last month we saw very few pendings, which we thought might foreshadow less sales this month. That turned out to be the case. The number of sales dropped 16 percent compared to December 2006. The number of actives increased by 21 percent. The months of inventory is at 5 months. Typically anything below 6 months means we are in a sellers’ market. Despite Austin being under that benchmark, the Austin market is definitely a buyers’ market. Below is a further breakdown of Austin real estate statistics for the last 3 years.

The average and median prices are both up, but I think this is a little misleading. When the subprime mess happened, it mostly affected homes under $200k. So basically, since less of those homes are selling, the average and median prices are being pushed up.

So when are we going to go back to being an up (aka sellers’) market? According to the National Association of Realtors (NAR), it will probably be soon. Maybe tomorrow, if not later today. But they are always saying that, so it would be best to ignore them. Recently I have been asked some of the same questions from people, so before we look at the statistics for different submarkets of Austin, I wanted to write down a few of the basic questions I have been receiving lately and my answers.

Q: Exactly how much is the Austin market going to appreciate over the next X months/years?
A: I have no idea. I can’t really see into the future. I am a realtor, not a godlike super-natural deity. I wish I was a super-natural deity because it would look better on my business card. I would also probably be cooler at block parties.

Q: When is the exact date when the Austin real estate market is going to go from an up market to a down market?
A: This is pretty much the same as the above answer. It could have been last week, it could be next week, it could be 5 months from now. I don’t know. I imagine when the national real estate market improves (which has been in a funk for awhile) the Austin market will improve. Basically the fundamentals of Austin are good we are just being dragged down by the national market.

Q: Is Austin going to experience a 30% to 50% dip?
A: Again I can’t see the future but this seems pretty unlikely. California saw huge appreciation rates (bubble) for several years. Austin on the other hand has had pretty mild appreciation for the last several years. see graphic

Q: Is this a good time to flip?
A: No. When you need to sell in 3 months, if you get lucky & the market improves, that is great. But if the market is moving slower, it could take a long time to sell. And if you get a low offer, you will be faced with the choice of accepting a lower offer or making more mortgage payments on your vacant house. Not really an appealing prospect.

Q: Is this a good time to buy and hold?
A: People always don’t want to buy in a bad market. But ideally you want to buy in down markets and sell in up markets. And right now we are in a down market. If you combine the fact that prices are lower, sellers are more willing to negotiate, and interest rates are low, the market is starting to look pretty interesting. For instance if we look at houses that are South of Ben White about 10 minutes to downtown, we see a few properties for sale around $125k. If you use our real estate calculator (plug in 2.5% for the tax rate and a 10% down payment), you end up with a mortgage payment of $950.

Q: Can I offer 100k for a 200k house?
A: Yes. You can offer whatever you want. But the chance you will get the house is around 0%. The sold to list price in November was the lowest in the last 3 years since sellers are becoming more flexible. But the list to sold in November was 95.8% not 50%. We are seeing some deals coming in higher and lower than 95.8% but not 50% unless there is something wrong (ie a list price that is totally unreasonable).

Q: I want to buy a house in Leander/ Round Rock/ middle of nowhere. I see a lot of building out there. Does that mean I can expect values to increase?
A: No. If you think about the laws of supply and demand, the supply increasing is not good for market value. Buying real estate far out is bad. The fact that they are building more just makes it worse. Even if demand were to increase, the fact that builders would just build more houses to satisfy that demand basically sucks the wind out of your home increasing in value. The benefit of buying central is that the supply is fixed.

Q: I heard the market is down but rents seem to be up. Am I missing something?
A: Nope. Rents are up. Basically in down markets more people rent. And right now a lot of people are forced to rent because they can't get home loans due to the mortgage issues. Rents will probably not go down unless people start to leave Austin, which is not happening.

Q: I saw a house and they said the market value is 200k but they are going to sell it to me for 160k. How excited should I be? Super excited or super-super excited. I can’t decide.
A: I have been seeing the words ‘below market value’ thrown around by sellers a little bit recently. You should basically ignore this unless you are setting down with someone other than the seller looking at a CMA based on recent solds. Recently I saw a house where the seller was selling for $140k and the market value was stated as $175k. Great. The problem is that the house was listed on the MLS at $150k for 3 months and no one bought it. Basically if no one was willing to buy it for $150k after 3 months, that means it’s not worth $150k and certainly not worth $175k. We are seeing some good deals out there but obviously don't take the sellers statements at face value.

Q: What is the meaning to life?
A: Umm… Something about eating an apple a day. Kids are the future? I don’t know. Boggle? Okay, maybe no one really asks me that.

Ok enough questions. Let’s look at the break downs for some of the different submarkets of the Austin real estate market. Before we get into it, I want to define months of inventory (MOI) on the market. Basically it means the number of months it would take to sell off all the homes on the market based on the current actives and the amount of sales. The lower the number, the strong the market.

Overall, the market months of inventory increased from 4.79 in November to 5 in December. The suburbs are still doing worse (5.24) than the overall market. I expect this to continue.

As we have been saying for the last few months east Austin still has a lot of properties on the market. This was caused by California investors pulling out of the Austin market, and they were more heavily concentrated in east Austin. And while the market in east Austin is still oversaturated, it’s actually starting to show signs of improvement. The months of inventory increased but it increased less than the overall market. Not a huge improvement but still a positive sign.

Central Austin had the lowest number for months of inventory on the market in November (4.03 months). And in December it was the only submarket to actually see a decrease in months of inventory, going down to 3.9 months. Overall, central is being affected by the slow down (last year the MOI was 2.2), but it seems to be holding up better than the suburbs or east Austin. And part of the reason is that the supply is fixed. They can’t build any more houses in central Austin unlike east Austin (which has a lot of tracts of vacant land) and the suburbs.

Ok its 3am in the morning. I am going to bed. Hopefully I won’t dream of real estate. I have been doing that recently, which I think is a sign that I am way too obsessed with my job.

As always, if you have any specific questions about the market or a particular house, feel free to ask. Also if you are interested in looking at homes currently on the market you can use our Austin homes search.