Real Estate Reflections: Austin's real estate hangover. Care for an aspirin?

The Austin real estate market went on a wild rager in 2020 and 2021, and now it’s nursing a major headache.  I mean, you can’t party all day and night for years and not expect to have some sort of hangover, right?

And while the shift has been abrupt and for some it hurts like hell, the reality is that the market is normalizing.  Turns out that 2020 and 2021 were aberrant.  Surprise!  Now, we are returning to some sense of normal. 

Say what?

First, let’s review where the market stands as of the end of July 2022:

• Interest rates went up another .075%.  The good news is that it was the first time Chairman Powell hinted at the light at the end of the tunnel.  Fingers crossed.
• We have more homes on the market (finally!), which signals a shift in the dynamics of our market.  That means less competition for homes, fewer crazy offers, the return of negotiations, and even price decreases from sellers.
  

SUPPLY AND DEMAND DOES IT AGAIN... 

Despite what the headlines may imply, the sky is not falling on the real estate market.  It’s true that Austin home inventory is up: this time last year there were only 3,187 homes to choose from, and today we have 8,312 homes on the market.  Yes, that’s a whopping 161% increase.  But perspective is important here.  Way back when – ahem, as in 2012 to 2020 – Austin generally had anywhere from 6,000 to 11,000 homes for sale depending on the season.  At the time we thought that was a super tight market!   

Increasing inventory is a good thing because it means our market is more balanced. For the first time in a long time, buyers and sellers having more equal footing.  And in my opinion, that’s the way it should be.

OUR NEW REAL ESTATE REALITY ISN'T ANYTHING TO BE SCARED OF

The Austin real estate market is always changing.  It changes with the seasons.  It reacts to world events, like the war in Ukraine or the pandemic.  While these days we see more frequent and forceful shifts, it isn’t anything to fear. 

I am not in the predictions business, but taking my cues from other corrections from the past 40 years, I am not significantly worried. Austin home prices have only dropped twice:

• During the savings and loan crisis of the 1980s Austin home prices dropped around 3%, and

• During the great recession of 2008 - 2011, Austin home prices declined about 3%.

In both cases the price reductions were short lived. Of course, this is hardest on sellers who bought recently, but most long-term homeowners who have enjoyed substantial appreciation over the last decade will be okay.   

For those of us that have been in real estate for more than two years, it feels like we are returning to a semblance of normal. Thankfully, we have a lot of experience doing normal. You just have to know how to adjust to the changes and work them to your advantage.

THERE'S ROOM FOR OPTIMISM    

One thing about a hangover is that it doesn’t last.  I am optimistic about the future of Austin’s real estate market.  As the Fed works to get inflation under control, the Austin market will continue to nurse its hangover and will likely be less robust through the Fall.  Given some time, however, we should recover fully from the wild and crazy party days of 2020 and 2021. 

I continue to be bullish on Austin because more people will move to town (um, thanks Samsung) which will put more pressure on an already limited supply of housing.  Meanwhile, home builders nationwide are cutting back on the production of homes. Both of these things will be major influences on housing appreciation in future years.  Where does that leave you?

• If you are an Austin home buyer:  This is your window of opportunity, and I think it will be short lived. If you were one of the buyers that withdrew from the market in 2020 and 2021, I am specifically talking to you.    We haven’t seen buyer opportunities like this in a while.   You have choices.  Prices are improving.  There’s less competition. Sellers are negotiating.  This is your moment.  If you’re worried about the higher interest rates, remember that you can always refinance in the future when rates come back down.  I can’t tell you how to perfectly time the market, but there are few who regret buying Austin real estate after 5 or 10 years.
  
• If you are an Austin home seller:  If you’ve been following me for a while, you know that I always like for sellers to hold onto their homes for as long as they can.  Now is no different.  Indeed, with higher inventory and less demand for homes, my preference is for you to hold out for next year's spring market when the world will hopefully be calmer, buyers will have greater confidence, and our seasonal market will give you a price bump.  If you need to move forward now, then it’s important that we get real about your price, make your home move-in ready, and market your home to perfection.  We’ve worked through downturns before, and we know how to position you to win.