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Bill Morris
RE/MAX Capital City
13018 Research Blvd
Austin, TX 78750

Direct or Text: 512-785-3345
Email:              bmorris@remax.net

Texas Broker License # 505218

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My Thoughts on Central Texas Real Estate

Market Dashboard – 1Q 2018 in review

I wrote recently about a question that seems to come up lately in conversations about real estate — Are we experiencing a Market Shift?  Are we approaching one?  In that post I explored some different metrics than I typically monitor in my market dashboard, but now it’s time for my more usual review.

The market for residential real estate in the Austin metropolitan remained under-inventoried and fast-paced through the first half of 2018.  The end of the last market cycle remains on my dashboard for comparison.  Notice that “Months’ Supply” was below 4 for nineteen months in 2005-2007, but never dipped below 3.  June of 2018 marked the 62nd time in the past 66 months that we had LESS THAN 3 MONTHS of listing inventory:

Inventory did rise to 3.0-3.1 for four months in 2017, but this unprecedented market environment continues this summer.  Unit sales in June 2018 dipped slightly lower than June 2017.  That has happened a number of times during the past five years, but this was the first year-over-year drop in sales since late 2016.

Nonetheless, the “odds of selling” for active listings remained very high at 45%:

Notice the off-season spike above 50% in December 2017.  For now let’s just consider that an anomaly, but it is interesting.

Given our extreme “seller’s market” conditions, home prices are responding as you would expect:

Monthly prices have been consistently exceeding (and lifting) the long-term trend for all of 2 1/2 years now.  If there is risk in our market that may be it, but if buyers begin to resist then sellers will adjust.  Our very long market boom has been and remains driven by job creation and resulting population growth, but a functioning market will balance itself over time.

As I noted in my earlier post, Days On Market have generally trended upward over the past several years.  Market velocity remains high, however, so calling a market slowdown now would be premature.  We still have intermittent threats of rising mortgage interest rates, some international economic uncertainties, and a domestic election season to get through, so much could happen between now and next year.  For now “steady as she goes” is my call.

Confirmation?

Timely information from the Austin American-Statesman, following my earlier post about a possible market shift.  Despite a year-over-year dip in sales in June, the chief economist at the Texas A&M Real Estate Center projects strong sales through 2018 and into next year.

At midyear, Austin-area home sales remain on record pace

By Shonda Novak – American-Statesman Staff

Austin-area home sales rose 3.7 percent in the first half of the year, according to the Austin Board of Realtors.

Posted: 11:48 a.m. Tuesday, July 17, 2018


Highlights

Sales rose 3.7 percent through June, and median home-sales price was $313,000, up 4.3%

Sales for the month of June slid 2.7 percent year-over-year, while the median price rose 4.9%, to $326,250.

Board: Home prices continued to climb and supply slowly declined in first half of 2018 amid strong demand.

Despite dipping in June, Central Texas home sales were up in the first half of the year over the first six months of 2017, likely putting the region’s housing market on track for another record year, the Austin Board of Realtors said Tuesday.

A total of 15,364 sold in the first half of the year, up 3.7 percent from the first half of 2017, the board said.

Half of the homes that changed hands went for less than $313,000 and half for more, a 4.3 percent rise in the median sales price compared to the first half of 2017, the board said.

In June, sales declined 2.7 percent compared with June 2017, marking the first monthly dip in year-over-year sales in 2018, the board said.

Of June’s 3,299 sales, half went for $326,250 and half for less, for a 4.9 percent increase in the median price compared with June 2017, the board said.

“Despite a decline in home sales volume across Central Texas in June, 2018 is on track to be another record-setting year for the region’s housing market,” Steve Crorey, president of the Austin Board of Realtors, said in a written statement.

“Consecutive years of record-breaking sales activity have set the bar incredibly high, and it’s important to remember that we’re comparing June 2018 figures to that strong activity. The Central Texas housing market remains strong and continues to move at a demanding pace.”

The board’s figures cover the five-county Central Texas region from Georgetown to San Marcos.

Jim Gaines, chief economist at the Real Estate Center at Texas A&M University, said the June sales dip is not an indication that the Austin-area housing market is cooling off.

“The Central Texas housing market is among the top three in the country,” Gaines said. “The region’s population growth, particularly along the Interstate 35 corridor, is fueled by diversified economic opportunities that bring jobs, new businesses, and resources across multiple industries. Strong population growth and home sales activity are expected to continue in the Central Texas region for the rest of the year and into 2019.”

Within the city limits of Austin, single-family home sales from January through June edged up 1.3 percent year-over-year, to 4,757 sales, and the median home-sales price rose 3 percent, to $375,760.

For the month of June, home sales in the city of Austin declined 4.5 percent, to 988 sales, and the median price dipped 0.4 percent, to $388,000. Home sales had not seen a year-over-year decrease in the month of June since 2013, the board said.

Market Shift?

It’s no secret that the Austin-area residential real estate market has been crazy-busy for the past five-plus years — supply and demand severely out of balance, multiple offer competition, rapidly rising prices, and frustrated prospective home buyers.  I have heard recent comments that things are changing this year.  I have “felt” something different in recent weeks myself with some listings competing with nearby new construction, but I trust data so I decided to check on this from 30,000 feet …

Market cycles happen, and this one will too.  This “up” market is actually very long in the tooth now, but the usual indicators don’t show a slow-down.  With that said, this is the reason I created my Market Dashboard ten or so years ago.  Even with great data, though, the only way to know for certain that a market has turned a corner is when you can look back at the change weeks or months in the past.  Today’s research looks at a few specific metrics to see what trends are apparent at this point.

As a starting point, here is the history of single family home listings and sales since 2004:

Think back to the over-heated market we saw in 2006 and early 2007, leading up to the mortgage industry meltdown, and you can see that the downturn yielded higher inventory and lower sales volume, as you would expect.  You can also see that year-over-year sales began increasing in 2012 and that listing inventory came down, subject to very noticeable seasonal swings.  Listing inventory is noticeably lower this year and last than in the previous four years.  More on that a little later ….

“Months of supply” is an important measure of market health.  Most market economists consider listing inventory of 6 to 6 1/2 months to be “normal” — i.e., a generally balanced market environment.  Here is how our supply has looked over the same timeframe as the previous chart:

Compare the gray bars to the 6-month level on the right-hand axis and notice that we have generally had 4-months’ supply or less since 2012.  Notice also that inventory is even lower now, just over 2 months’ supply.

Sales prices are another important metric, and here is a look at actual closing prices compared to original list prices:

Yes, across the entire five-county metro area, actual sale prices, on average, have been 97% to 99% of original list price for more than five years!  As I noted above, at least as of June it appears that listing activity is lower this year than last, and that last year’s listing activity was much lower than the year before.  With continuing strong demand, that’s a recipe for increasing prices.  In another week or so, the Real Estate Center at Texas A&M University will publish their “final” figures for June 2018, and I will update my market dashboard with that information so I’ll have a more complete picture.

Slower sales — i.e., longer time on the market — is something that agents are very conscious about.  Unfortunately, most don’t have visibility of enough listings (as a percentage of thousands of listings at any time) to judge whether it’s a general issue or just one overpriced listing.  While some neighborhoods and some market segments are experiencing the change more than others, this overview of Austin metro area activity supports the conclusion that there is a broader change in “days to sell”:

It is worth noting, however, that market velocity is still higher than in 2004, 2005, and 2006, near the last market peak.

So, are we in the midst of market shift?  Maybe … but job creation and population growth are still reported to be strong.  Moreover, builders of new homes have finally caught up to some degree with our market growth over the past two years, and their unit volumes are not well reported in MLS data.  On the other hand, the challenge of being a buyer in this market is itself a constraint on listing activity — a sort of gridlock that causes potential home sellers to just stay put because they don’t know that they can find their next home in time for a coordinated move-out/move-in plan.  (Or because they can’t afford the next home they really want after five years of price appreciation.)

When I began this today, I conjectured that rising mortgage interest rates might be causing the market to slow, but I reviewed that carefully and don’t see a correlation yet.  If anything, the expectation that rates will rise in the coming months is causing buyers to move more quickly than they might have planned, exaggerating demand at the same time that the creation of new listings slows.  If so, that will exacerbate the gridlock that I mentioned earlier.

Slowing down a bit after this long in a boom market wouldn’t really be surprising, but I’m not willing to reach that conclusion based on this data today.  I will keep an eye on this and follow up, however.  July and August results should be very informative.

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