INHABIT AUSTIN: real estate

The March MLS data is out. Below is a compilation of indices I created to track and, dare I say–forecast–the direction of the local market. If you follow the blog regularly, you’ll recognize the Inhabit Index near the bottom. But before we delve in, please note the images below depict general trends in the market. Without exception, there are various neighborhoods and price points that out/under-perform the broader market.

Price and Inventory

Prices dropped 4% this March compared to March 2008. The year-to-date figure is less than 2% decrease for single-family homes. Notably, prices and inventory levels have seen dramatic fluctuations over the past 6 months. And the trend line for prices suggests a slight decrease in prices ahead. The question many are asking still remains; how low will they go? Some predict a few percentage points, other say perhaps more. One large determinant will be the level of inventory or supply through the remainder of the year. As with the prices, the absorption rate has been teetering between 6 and 10 months on a monthly basis. For now, 6 represents a very balanced market. The national average is closer to 10 months.

Supply and Demand

While the current level of inventory is historically high for Austin, the rate at which homes are coming on the market is slowing. This will change as we head in to the summer selling season. Yet, the silver lining with respect to supply is the drastic reduction in new home starts. As the market shifted, developers and builders slashed planned projects, some due to tighter financing restrictions, others due to solvency issues. But believe it or not, some economists posit Central Texas will experience a housing shortage a few years from now, assuming population projections hold true. We’ll have to revisit that point at a later date. For now, fewer homes are selling given the larger inventory. In fact, 20% fewer homes sold in March 2009 compared to 2008, which was another 20 to 30% down from 2007. Last month there were roughly 9,700 homes on the market while only 1,421sold.

Months of Inventory (MOI)

Will Austin remain in the single-digit MOI range? Again, I think it all depends on what seller’s decide to do over the summer. Based on what I’m experiencing in the market right now, I sincerely believe demand levels will pick up stop sliding over the next quarter. But if seller’s regain their confidence and flood the market, or if another wave of mortgage default transpires, then a likely surge in inventory will adversely affect prices. 

Inhabit Index

The Inhabit Index is just shy of 20% for March–a nice little climb out of the sluggish winter months. Austin is still, unequivocally a buyer’s market though. Will we reach 30% on the city-wide index this summer. Probably not. But, there are nearly 20 MLS areas that are now in or flirting with the seller’s zone. So, don’t expect soft prices and motivated sellers everywhere you’re looking to buy. Most of these areas have an average sales price under $300,000. And with interest rates below 5% for some buyers, I expect many of the $150-250,000 areas to perform well this summer. Homes over $300,000 are still selling, they just take longer and need to be priced competitively.

This year started off a lot like 2008. Slow. Not a big surprise though, since many expect the recession to run its course through most of this year. Moreover, January and February are seasonally slower months. In Austin, the impact has left us with fewer homes selling and softening prices throughout the city. Here’s a quick look at how each sector fared this January compared to last: 

By most accounts, Austin remains a buyer’s market. But there are pockets where reality is a little different. These areas have remained affordable and are seeing healthy activity as a result. For example, just this week, a client I represent missed a house with multiple offers in Crestview. It wasn’t a short-sale or foreclosure. The home was priced at market, in fantastic condition and happened to be precisely in the client’s desired area–the necessary elements for any successful sale.

Now, I wouldn’t say my anecdote is sufficient evidence that we’ve reached the bottom. More than likely, it’s one of a few isolated cases happening in our market. The fact remains, current inventory continues to give buyers the advantage. And although it’s slowly leveling off, many sellers rather than significantly adjusting their price, are either letting the listing expire or withdrawing altogether.

Reasoned prudence is in every one’s interest right now, especially if there is any uncertainty with job security. That being said, renters, who have been working diligently to eliminate their revolving debt and save for a down paymenet should be rewarded nicely when they choose to purchase this spring and summer. They’ll also get a nice tax credit if they haven’t owned for three years prior.

Buyers and sellers who are preparing to make difficult real estate decisions, now more than ever, need a thorough market analysis before pulling the trigger. It’s never enough to rely on the headlines. Which is why we’re breaking the numbers down by MLS area to give clients a more informed view of local market conditions.

Find your area below…

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The map below displays the median home price appreciation categorized by MLS area for 2008. Use the controls to zoom in and click the highlighted areas to view a specific neighborhood. Please note the area boundaries are approximations since I had to draw them by hand. Also, forgive me for any areas that overlap; I’ve always struggled with coloring within the lines. Some things never change.

 
Overall, prices in Austin appreciated by 2% last year. Not as big of a number as many hoped it would be. But all things considered, a positive number looks pretty good. Here are a few other things to note…

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My deepest apologies for the long wait. I know you’re probably wondering what has been happening in the local real estate market. Well let’s get to it, shall we? December’s data will be available next month. I’ll refresh the index when the new numbers come out.

There is no denying Austin has been impacted by the ongoing recession and financial crises. Although we seem to be faring better than other cities, let’s not overlook the obvious. Many people are feeling pinched. Some realtors aren’t quite ready to swallow that pill and continue to sing a rosy tune, but we know it’s tough out there and we’re committed to seeing the shifting market through with you.

To get a better grasp of the full impact, it’s helpful to review the chart above against the backdrop of the volatility the US economy has experienced. Below is a timeline of key events that took place in 2008:

January 08: National Association of Realtors (NAR) announced that 2007 had the largest drop in existing home sales in 25 years, and the first price decline in many years. 

March 08: Dow Jones Industrial Average sinks to lowest level since 2006. Bears Stearns aquired by JP Morgan Chase with help of Fed.

June 08: Senate Banking Committee chair proposes housing bailout that would assist troubled subprime lending institutions

July 08: Major banks and financial institutions with exposure to high riskmortgage backed securities report losses of approx. $435 billion; President Bush signs Housing and Economic Recovery Act of 2008.

September 08: Federal take over of Fannie Mae and Freddie Mac; Lehman Brothers files for bankruptcy protection; Fed loans $85 billion to AIG.

October 08: Bush signs into law the Emergency Economic Stabilization Act creating $700 billion Troubled Assets Relief Program (TARP) to purchase failing bank assets; Dow caps its worst week ever with paper losses of $8.4 trillion from the market highs last year.

November 08: The Federal Reserve pledges $800 billion more to help revive the financial system; $600 billion will be used ot buy mortgage bonds issued or guaranteed by Fannie Mae, Freddie Mac, Ginnie Mae and Federal Home Loan Banks.

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Looking back at January, the index rose 5 percentage points to 15%. Current market conditions are still favoring buyers throughout the Austin metro area.  The inventory of homes on the market has grown to nearly 7 months; I expect a further increase as we approach the heat of the selling season. The good news is that new construction starts are down, which should help mitigate an oversupply.

So if my prediction for a growing inventory holds true, any future increase would give Austin buyers a larger pool of homes from which to choose. Advantage buyer. However, knowing that, many buyers and sellers are waiting it out in anticipation of such a development. I wouldn’t advise either side to continue with such a strategy.

Ok. I know what you’re thinking. But before you pass that last sentence off as biased-Realtor fodder, you might want to seriously consider it, lest you find yourself in this scenario put forth in a recent Time magazine article.

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This goes to show you, not all news is bad. But as John Stewart aptly stated [referring to mainstream reporting] last night in a humorous interview with Larry King, “at this point, unfortunately, you have to judge each piece of [news] material. There are very few [news] organizations left that have a credibility savings account that they can draw on anymore.”

So while this piece comes as a breath of fresh air in the long chain of doom and gloom national market reports, I caution readers from reading too much into the headlines [both positive and negative] simply because the national media says it’s so. If you are buying or selling in Austin, study the market and more importantly the neighborhood and street in which you are looking, then make your assertions about the market.

That being said, I did agree with much of what the article had to say, minus the characterization of Austin as a backcountry city. It has its quirks, no doubt. But for a city that doubles in population every 15 to 20 years and has the number 1 projected GMP growth for the entire US [32% over the next  5 years],backcountry it is not. The secret is out, Austin continues to be a destination. 

Here’s the NY Times article:

February 15, 2008

Some Cities are Spared the Slide in Housing 

By Clifford Kraus and Ron Nixon

Correction Appended

AUSTIN, Tex. — The real estate market these days is a tale of two Americas, and one of them is not doing too badly.

In the America of big-city housing markets, especially on the coasts and in the struggling industrial Midwest, the huge run-up in values in recent years has given way to big drops in prices and sales volume. Millions of people owe more than their houses are worth. 

But in the other America, specifically in cities like Austin; Grand Forks, N.D.; Yakima, Wash.; and Salem, Ore., the available evidence suggests the real estate market is holding up. Prices there never boomed as crazily as they did in the big cities, and now, even though volume is down almost everywhere, prices in many of these towns are firm or rising.

Consider the experience of one Austin resident, Dan Clark. Forced by a job change to put his house here on the market, he wondered whether he would get anything like the $385,000 he paid for it a year ago. He was floored when the second potential buyer to look at the place snapped it up for $429,000. “Manna from heaven,” he said.

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The December numbers are in and the Inhabit Index should be back on schedule with the upcoming review of January. Looking back at 2007 we cleary saw a Seller’s market from January towards the end of July.  By October and November, the overall market creeped into the buyer’s territory.

Hindsight is particularly revealing when it comes to trends; because if you notice on the index, the market began its shift in early spring of 2007. This points to the degree of difficulty—and in my view the impossibilty—of timing the real estate market since most analysts rely on historical data. That is not to say, you can’t forecast and make predictions about what’s ahead, but the exact timing of it all is purely speculative and can drive you crazy if you let it.

During the spring and even late into last summer multiple offers were quite common throughout the city. Some homes were selling for more than list price, and in certain neighborhoods, they were sold within a week on the market—my personal best came in August with a listing under contract within 16 hours of putting it on the market. So, even in August the market was shifting, but not many took notice—and even still, they may not have believed the numbers if the were paying attention to the index. Homes were selling, and very quickly.

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The November 2007 stats have finally arrived—a year later. The stats were delayed for nearly a month due to a recent overhaul of the MLS software by the Austin Board of Realtors. The transition to the new MLS has been anything but smooth, so hopefully the December stats will arrive on time and I can share my December index early next week.

The index for the greater Austin market decreased by 5 percentage points from October to November. Remember, this graph is a high level view of the broader market. Below you’ll find a more local view and be able to discern if particular MLS areas are in a buyer’s or seller’s market.  November’s shift to 16% suggests market conditions have become more and more favorable to many Austin buyers. This is due to a large supply of active listings on the market and mortgage interest rates below 6%—though today’s report on core inflation will likely cause mortgage rates to increase in the days ahead.

Here’s the break down by MLS areas.

Related Post :: The INHABIT INDEX: How to Know When It’s a Buyer’s or Seller’s Market.

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The October stats are in for the Austin real estate market. My market report contains over 50 pages of data compiled from the Austin MLS. I am happy to share the full report with anyone that loves to analyze the numbers at length, just send me a quick email. But for brevity, here is the latest look at the INHABIT INDEX for single-family homes.

As I mentioned in an earlier post, the INHABIT INDEX is a tool I developed to easily gauge if overall market conditions are favoring the buyer or seller in the Austin area. If you want to know how the index is calculated check out The INHABIT INDEX: How to Know When It’s a Buyer’s or Seller’s Market. 

Up 4% from the previous month, the index increased as a result of more pending sales and a reduction in active listings. More pending sales translates into more homes going under contract, but the reduction in active listings can also be attributed to listings expiring or being withdrawn from the market.

Sellers should remain aware, we are still in the buyer’s zone (< 30%). Although the rate of sales increased in October, there are still a record number of available properties on the market from which buyers may choose. In fact, the current inventory is at a three year high. Bottom line, homes are still selling in Austin (some very quickly), but buyers now have a large inventory of homes to choose from and are not wasting any time by looking at homes that are in questionable condition or even slightly overpriced.

Want to know where your area or neighborhood ranks on the INHABIT INDEX? Here’s a list (and map) of how the Austin MLS areas are performing.

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First it’s important to know the definition of both market conditions. In a sincere attempt to avoid insulting anyone’s intelligence, a buyer’s market is characterized by supply outpacing demand. In other words, there are too many homes on the market for the number of buyers. Typically, we see the following in a buyer’s market: 

1. Flexibility in negotiating price.
2. Added seller concessions (closing costs, repairs, etc.)

Conversely, a seller’s market is characterized by an insufficient level of supply for the ready, willing and able buyers. In a seller’s market, it’s common to see this happening: 

1. Multiple offers.
2. Shortened time on the market.

Regardless of when or where you want to move, generally the market is trending in one of two directions defined above. Yet, it is possible for the market to be stagnating in transition, which is all the more reason buyers and sellers need to anticipate which way the market will move. More specifically, you should have a clear understanding for which direction the particular neighborhood that you’re searching or selling in is trending. The real estate market is not monolithic. Some neighborhoods outperform others (see below).

Markets constantly fluctuate. Unfortunately, by the time we read about it in the paper, it’s already history. So apart from negotiating transactions on a regular basis how can you remain informed and know if Austin is presently a buyer’s or seller’s market? How can you know which way things are headed? (faint drum roll) ….Behold, the INHABIT INDEX. I developed and routinely update this index for my clients to easily gauge how supply and demand is faring in the Austin, Texas real estate market. Here’s how it works.

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