I'm going to start slowly repurposing this site to be primarily focused on real estate because that's what my world revolves around at the moment.
I originally wrote this earlier in the month as a Twitter thread, but I want to start making longer-form blog posts about the Austin market.
I’ll try to avoid confusing real estate terms as much as possible so it's easier to understand if you're new to real estate. I may even make a more robust glossary of terms down the line because that’s definitely something I wish I had access to, especially when I was a first-time home buyer.
But without further ado, here's what’s going on in the Austin real estate market for the 3rd quarter of 2020.
In a nutshell: It's the perfect time to sell and an exciting time to buy.
I want to kick off with some comparisons from August 2019 to August 2020 so you get a snapshot of how quickly the market is changing. These statistics are pulled straight from the Austin Board of Realtors.
Compared to August 2019:
- Interest rates have fallen from 3.61% to 2.89% for a 30-year mortgage.
- The number of months of inventory has decreased from 2.5 months to 1.4 months.
- The median sales price is up 19%, coming in at $430,000.
- The average days that a home will sit on the market has decreased from 46 to 37.
Let's break down what those numbers mean.
Low Interest Rates
Because of COVID-19 and the myriad of other events that have transpired this year, borrowing money is close to free right now.
We're seeing record-low interest rates because the Federal Reserve has cut short-term rates and injected money into the mortgage system to shield the economy from further damage caused by the pandemic.
Additionally, the federal funds rate (the rate that commercial banks borrow/lend their money to each other) has also been lowered to 0.1% (this time last year, it was at 2.13%!). And we won't see it increase until the central bank sees strong enough evidence that the "economy has weathered recent events," which won't be for a while.
In simple terms, this all results in super low interest rates that will stay low for the foreseeable future and until we see stability.
For context, here are the past few years of interest rates for a 30-year fixed mortgage:
- September 2018: 4.63%
- September 2019: 3.61%
- September 2020: 2.89%
While these changes in interest rates may seem small, they're not, and the decreases are a big deal.
For a $240,000 loan in 2018, at 4.63%, you’d have paid $204,000 in interest over the 30-year life of the loan. That same loan today would only cost you $119,000 in interest. You save $85,000, enough for a down payment for another two slightly-cheaper homes!
This means that it's a great time to take on a mortgage… if you're able to.
With millions of folks laid off, furloughed, and left unemployed, qualifying for a loan has become more difficult. Lenders are raising their standards and playing by new rules, requiring higher credit scores, larger down payments, and even discounting income for non-W2 employees. If you’re looking for a local Austin lender where you’re not just a number and where an algorithm won’t determine your fate, feel free to reach out!
On a personal note, my husband and I ran into this issue when we were refinancing our Austin home and purchasing our investment property. Neither of us are W2 employees and the lender required heavy and very frequent documentation to prove that we were still making money and that our businesses weren't failing or going to fail. They even lowered the amount of income used to qualify us by 30%, just because we aren’t salaried and therefore "aren’t steady." We figured it out, but it was much more burdensome and annoying than last year when we bought our Austin home.
Even with these raised standards, there's still an overabundance of people who are getting approved. And when lots of people can afford to take on a mortgage, demand increases. But what about supply? Great question.
Inventory is the market’s supply and runway. It answers the question: if no other properties go on the market and homes continue to sell at the same rate they have been, how long would it take to run out of available homes?
Our inventory is extremely low, coming in at just 1.4 months.
To get this number, just divide the number of active listings by the average monthly sales over the last year.
If that number is between 0 and 4, it's a seller's market (like right now), if it’s 5 to 6, it’s neutral, and if it’s over 7, it’s a buyer’s market.
Because of all the uncertainty, people are holding off selling their homes. There are 20% fewer homes on the market than there were this time last year. And new developments aren’t getting built fast enough to keep up with the demand. In fact, some of the biggest single family home developers in Austin are sold out of homes that haven’t even been built yet.
Low supply and high demand mean, you guessed it, high prices.
Rising Median Sales Price
From August 2018 to August 2019, the median home sales price went up 2%.
From August 2019 to August 2020, the median home sales price jumped 19%!
These numbers can only be explained by the effects of COVID-19, which has prompted many folks to let their apartment leases expire and to pull the trigger on purchasing a home. When demand is high, prices increase. And when supply is lower than ever, prices shoot up even higher.
Decreased Days on the Market
A sharp decrease in the days a home sits on the market is also indicative of a "hot" market.
In the more popular and growing neighborhoods (looking at you, 78721!), the median time for homes going under contract is 6 DAYS.
I pulled up all homes in 78721 that closed in the past 90 days. Below you can see a few different statistics, but that last column, which shows the number of days homes in the area have sat on the market.
The average is 28 and the median is 6. The minimum isn't listed (it's VERY likely 1 day) and the maximum is 412 days.
We can see that the difference between the median and the average is HUGE, which means the data is severely skewed.
There were probably a few very slow homes on the market (like the one that sat for 412 days) that pulled up the average drastically (just like that kid in your class who got 100s and ruined the curve for everyone else).
Here, the median is a more accurate depiction. In order for this data to be even more helpful, I'd like to see a standard deviation, but that's not an easy number to identify in MLS without combing through every home's details. It's possible, but I think we get the overarching message here without it: we're in a fast-paced, dominant seller's market.
Literally every home that my clients have made an offer on in the last few weeks has been a multiple-offer situation that often goes under contract within the first 72 hours for anywhere from 1 to 15% over asking price and sometimes in all cash.
Buyers are also submitting appraisal waivers (the buyer agrees to pay the difference if the home doesn't get appraised as high as their offer price) and not requesting any fixes from the sellers.
The attitude of most sellers is, "Don't ask me to make concessions because I'll find another buyer that will buy the home as is." And they're right.
On the other hand, if you're a buyer, it's best to get ahead of the game. We likely won't see any changes for the better in the coming months. Most buyers don't want to live in large apartment complexes with shared common areas, elevators, and hallways, so the other option is to move into single-family homes.
We're also seeing huge influxes from the major cities like New York City, San Francisco, and Chicago. With remote work as the dominating option, those previously tied to more expensive locations no longer want to pay a premium to live close to their offices. They're moving to smaller, up-and-coming, and cheaper cities like Austin. Tesla, Google, Amazon, and other tech company expansions into Austin will bring even more folks in, driving demand and prices through the roof.
If you’re debating selling your house, it’s a fantastic time to do so. We know for a fact that we’re in a very strong seller’s market right now, but we don’t know that it’ll be the same scenario in six to twelve months. So it depends on what your priorities and goals are with the sale of your home. If you’re less risk-averse and your primary goal is to get the highest price possible, I’d advise you to wait. If you’re more risk-averse and could use the cash now, I’d advise you to sell now.
If you’re looking to buy, I think it’s better to do so sooner rather than later. As I mentioned, I think prices are going to rise, but I could be wrong. It really depends on whether you want to wait it out and cross your fingers that it’s going to be better next year. Plus, it might be nice to be all moved in for the holidays.
Buying and selling homes are both very unique, personal, and oftentimes emotional decisions. There isn’t a blanket answer that’s right for everyone for such a big decision. I highly encourage you to get educated about the market and what’s
Ready to talk about your options? Feel free to drop me a line.