Real estate reflections: the pandemic has put a premium on Austin homes
As the days of the coronavirus pandemic drag on and on, we are seeing some interesting new market trends in Austin real estate. I never expected the pandemic to put a premium on Austin homes, but it certainly has. To really understand how different things are today, it’s useful to consider where we’ve been.
Looking back at the last five years of Austin real estate activity, I analyzed how many homes are traditionally available for sale compared to the number of closed home sales. Austin home inventory (meaning the number of homes for sale) was already on the decline before COVID-19, but since March the situation has been exacerbated by sellers taking their homes off the market or holding off on putting their homes up for sale. As the green line in the chart below shows, the decline in active listings has increased since COVID-19. The gap between inventory and home sales (the blue line in the chart) continues to narrow.
What happens if the lines on this chart were to collide? Well, that would mean there are no homes available for sale on the MLS. I can’t imagine we will get to that point, but the trend is troubling. Indeed, in my 25+ years of selling real estate here in Austin, I’ve never seen such a shortage of available homes and this is why we are seeing multiple offers with greater frequency and some very frustrated buyers.
THE DECLINING AUSTIN HOME INVENTORY DROVE PRICES UP SIGNIFICANTLY
The low inventory has led to a pandemic premium on Austin homes, with the median home price up 10% year over year for May 2020. Remember though, that because most real estate transactions take around 30 days to close, those May numbers are really showing us what was going on in the market in April. It will be interesting to see how the next month's stats shape up.
Would we have seen some appreciation in home prices in the absence of COVID-19? Of course. But would it have been at these levels? Absent the pandemic, I doubt the increase would have been so sharp.
BUYER PREFERENCES ARE SHIFTING
Not only has the pandemic created a premium for Austin homes, it is also shaping buyer tastes and preferences. No doubt, our homes have become everything to us. It's where we cook, teach, work, and exercise. All of this time at home has reshaped what we desire and what we need from our home. Since coronavirus took hold in Austin, we’ve seen a definite change in our client’s home searches. Here are four new realities for Austin real estate.
New Reality #1: People want to be in a home, not an apartment or condo
The average sales price for a Central Austin home is up 20% year to date, and home sales outside of the Central Austin loop are also up 11%. We've got a great newer construction home in Allandale that has plenty of space to stretch out. While single-family homes are going up in price, the sales price for condominiums has seen no real change.
While condo prices are holding steady, the number of condo sales dropped significantly by 46% year over year. I suspect over the next 6 months condo prices will start to come down unless we get a promising treatment or vaccine for the coronavirus. This may present an opportunity for those people who would otherwise be priced out of a home purchase.
The bottom line is that people don’t want to be living so close together right now, which leads to new reality #2.
New Reality #2: People want more space
After living on top of each other in cramped quarters since March, it’s no surprise that buyers want more space within their homes. Before COVID-19 folks seemed interested in more compact floorplans, but larger homes are back in vogue in recent months. If you have a home that’s over 3,000 square feet and is relatively affordable, your average sales price is up 27%.
Along those same lines, homes with guest houses have appreciated 23%. We have two awesome properties with guest houses available; you can see if they fit your needs here and here. If you would like to explore adding a second structure to serve as an office or studio, we would be excited to connect you with a friend developing a business to meet this need.
The desire for space has also led to increased searches for homes with acreage. We have personally seen a marked increase in the number of clients asking about second homes with acreage or in interesting locations like the Texas coast. And we’re not alone.
From our analysis of homes on the MLS, the sales price for 1-5 acres home sites are up 31%. (Note: not all ranch properties are available through the MLS, so those numbers may look different if we had access to all the data.) We will be putting a home with 5 acres up for sale in July, so reach out if you’d like to learn more. If you are interested in homes with more acreage outside of Austin, be sure to visit https://landsoftexas.com/. Just looking through the properties can bring your blood pressure down!
Surprisingly, there was really no difference in homes with pools. They are mildly up 3.54%.
New Reality #3: Home sales over $1M are down
The price of homes over $1M are holding steady, which is notable since so many other homes are seeing a price increase. Also worth noting is that $1M sales are down 50%. Now that’s a drop. This isn’t uncommon in times of uncertainty, so we aren’t too alarmed.
New Reality #4: The competitive nature of Austin’s real estate market is alive and kicking
Multiple offers on homes sold in 4 days or less are back to pre-COVID numbers. If more sellers don’t enter the market, you can look for the number of multiple offers to increase.
Now, that doesn’t mean that every home is getting multiple offers. Generally speaking, the highest demand is for homes priced under $850,000. The less expensive the home, the more it is in demand. Also, the price, condition, and location are playing their usual role in driving activity. Homes that are in desirable locations, priced attractively, with a nice interior are moving fast. Buyers want homes that they can move into ASAP without having to do any fix up.
SO WHERE DOES THIS LEAVE YOU IF YOU ARE THINKING OF BUYING OR SELLING A HOME IN AUSTIN?
If you are a buyer -- Unfortunately, I don’t see the supply-demand curve in the chart above changing much over the next few years. In fact, I think we will see more people from California and New York accelerate their plans to move to Austin. That will only drive competition and prices up even higher. If you see a home that fits your needs, this is the time to jump on it. Plus, low interest rates are on your side. Just know that sellers are not going to be as negotiable as you might think, especially for homes priced under $1M.
If you are a seller -- As always, we suggest hanging on to your properties if you can and cashing in on the appreciation that time will likely provide you. That said, this is a pretty good time to sell. Rates are low and demand for homes is high. And as the coronavirus becomes more “normal” (ugh), we think the Fall market will get even hotter as more people from out of state migrate to Austin.
If you are an investor -- Now is a good time to step in. Right now the multi-family units that pay for themselves are not moving as fast as they were pre-COVID, but I think the lag will be short lived. This is a good time to build your portfolio. Let us know if you want in on our weekly email about investment opportunities.
WHEN YOU'RE READY, WE ARE HERE
When you’re ready for your next move, we are here. Reach out to dream about what’s possible, run numbers, or share what’s going on with you. We hope to connect either way.
Stay safe out there.
June 24, 2020
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