With today’s release of March real estate statistics, the Austin market posted its ninth consecutive monthly decline. While the news is mixed, the Austin market — and Texas in general — have fared better than most any other market in the U.S.
Still, it’s not like it used to be. While the average sale price last month was up 5% over last March, sales were down 21% from the same period last year. Today, nearly 40% of houses put on the market are removed before they sell. Price per square foot has dropped by 4%, and the average discount from listing price for completed transactions has increased from 1.9% to 3.5%. It’s worse everywhere else, but Austin is still feeling the pain.
A big question is whether there is a bubble in Austin. The consensus is no, although some price decreases are likely this year. The common wisdom is that the economy is strong, net migration is high, and Austin never experienced the boom that inflated values across the rest of the country. These three reasons are compelling, and they are often recited as the fundamental reasons why Austin is different.
Interestingly enough, Austin may be more exposed to a downturn than many experts recognize. The local economy is dependent on technology. This was made very clear during the dot com bust when migration patterns reversed, jobs were lost, and the housing market stalled. Months ago, Austin and San Francisco were named the strongest economies in the country based on the strength of the technology sector at the time. Since then, much has changed. Today, technology employers are beginning layoffs as the sector weakens. While nobody expects this downturn to be as bad as the last one, a tech downturn will effect the Austin market.
As for the second factor, this remains positive as Austin will continue to grow. Austin’s buzz has never been hotter — the Austin brand will draw people to town under almost any scenario. This migration will be an important buffer over the next couple of years. If this pattern changes, it is time to get worried.
The final “fact” about the Austin market — that it skipped the boom — is simply not true. While the broad Austin market experienced only modest growth over the last five years, prices in central Austin have soared. Between early 2005 and late 2007- just a little over two years — prices for single family homes increased by 41% in Area 4 (Hyde Park), 43% in Area 2 (Allandale & north central Austin), 55% in Bouldin (near Zilker Park), and an incomprehensible 2-year gain of 83% in Area 3 which covers East Austin close to downtown. During this short period the typical central East Austin house increased in value from a median price of $168K to more than $255K. In Bouldin, price per square foot for the median house peaked at more than $300 / square foot in the second half of 2007 — prices that make downtown condo projects look affordable.
Like any other market, it is difficult to believe that prices can nearly double during a couple of good years and then not retreat when the economy slides, mortgage rates rise, loan underwriting guidelines strengthen, and the national market implodes. While Austin remains stronger than almost any other market, central Austin prices may be at risk over the next year. While new condo prices are unlikely to go down — they are too linked to costs — any negative market change will certainly add pressure on developers as they try to complete the sales process for new projects.
Here is a summary from the Statesman:
Central Texas home sales continued to slide in March, falling 21 percent from a year ago, the Austin Board of Realtors reported today.March, which had 1,832 sales of existing homes, was the ninth consecutive month that home sales numbers dropped. And pending sales — sales expected to close in April — show that the slowdown could continue. Those sales fell 54 percent, the highest percentage on record, the report shows, to 1,349.Even with the slowdown, real estate experts assert that the Central Texas housing market is faring much better than most areas around the country. But the national housing crisis has jaded consumer confidence, and Austin has not been immune to the slowdown.The area’s median price of a single-family home for March increased by 5 percent year-over-year to $186,680. However, homes are taking longer to sell, with an average of 73 days on the market, an increase of 14 percent. With homes taking longer to sell, more homes are on the market, up 24 percent to 9,638.