You can’t go a single week without hearing about Austin, TX.
This week, the headlines say that Google is investing an additional $50MM towards even more office space and data center sites. And this summer, in anticipation of an overabundance of vaccinated travelers, American Airlines is adding 10 flying routes out of our ever-growingAustin-Bergstrom airport.
It’s no secret that Austin is on the rise. We are becoming more and more desirable of a city to not only visit, but also to live in.
So if you're thinking of joining in on the fun, here’s the skinny of what's been happening in Austin real estate market over the first quarter of 2021.
In a nutshell: Yes, it’s bananas. But if you’re thinking of buying, your efforts will pay off, so long as you go in with a firm strategy.
Let’s start with comparisons from February 2020 to February 2021 so you get a snapshot of how quickly the market is changing. These statistics are pulled straight from the Austin Board of Realtors for the City of Austin.
Compared to February 2020:
- Interest rates have fallen from 3.47% to 2.81% for a 30-year mortgage.
- The number of months of inventory has decreased from 1 month to 2 weeks.
- New listings have decreased from 1,032 to 806, which is a 26% drop.
- The median sales price is up 24%, coming in at $491,000.
Let's break down what those numbers mean.
Lower Interest Rates
Similar to the beginning of COVID-19 when I posted my last market update, interest rates are still relatively low compared to what they have been in the past few years.
Rates hit record-lows last Fall and we are seeing an increase again. I predict rates will continue to increase over the coming months. But rates are still good, so don’t let this deter you right off the bat.
For context, here are the past few years of interest rates for a 30-year fixed mortgage:
- February 2018: 4.33%
- February 2019: 4.37%
- February 2020: 3.47%
- February 2021: 2.81%
Even though rates dipped as low as 2.68% in December 2020, 2.81% is still an awesome rate. Of course, interest rates vary person to person, so connecting with a lender early on is of the utmost importance.
Same as my last market update, though, qualifying for a loan has continued to be a bit more difficult. Lenders are raising standards and playing by tighter rules, requiring higher credit scores and larger down payments, especially if you’re a non-W2 employee.
On a side note, a lot of my clientele fall into the more complicated non-W2 employee bucket. Hell, my husband and I are very much in this complicated bucket, so if you are, too, not to worry! Maybe you’re self-employed, maybe you’re heavily into crypto, maybe you have 3,512 streams of income, or maybe the last company you worked for just IPO’d and your stocks are tied up until a certain date. These are things I have experience with, so I've got you covered. It’s just good to know that your strategy for purchasing your home will be more complex than your fellow W2’d friends.
Extremely Low Inventory
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 2 weeks, a record low.
To get this number, you 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.
There are 26% fewer homes on the market than there were this time last year. New developments simply can't get built fast enough to keep up with the demand. And homeowners who are looking to move within Austin aren't selling their old homes because there's nowhere to go.
As for builders, some of the biggest single family home developers that do pre-sales are sold out of homes that haven’t even been built yet.
Most builders, though, have stopped doing pre-sales because they end up leaving a lot of money on the table once the house is ready to close due to the rapid appreciation. Some builders who pre-sold their builds back in January or February are even heavily encouraging their buyers to break their contract so they can re-list the new build for more money.
Anecdotally, I have 3 new builds that are still under construction, but went under contract within the last month or 2. Had these builders waited until now, they probably could have gotten anywhere from $50K - $150K more due to the market’s demand. Of course, there’s really no way for these builders to have known that the market would behave this way back then.
Rising Median Sales Price
From February 2019 to February 2020, the median home sales price went up by 14%.
From February 2020 to February 2021, the median home sales price jumped by 24%!
Our median home sales price is now $491,000. If we hit $550,000 by the end of 2021, I would not be surprised.
People are flocking to Austin like they never have before. I think the initial wave was certainly explained by the effects of COVID-19, as many folks fled denser cities in search for greener pastures here. And once large tech companies like Tesla and Google decided to make significant moves here, too, all bets were off.
We’re seeing a huge influx of “new money” come to town, including moguls like Elon Musk, Joe Rogan, and Dave Chapelle. All this money hailing in from the Coasts are driving up prices like we’ve never seen before. When buyers' timelines are tight and their pockets are deep, home prices are bound to leap.
It’s become the norm for homes to hit the market on a Wednesday morning at 8AM and have a line of hungry buyers wrapped around the block by 9AM. The listing agent’s phone is likely blowing up for the next 48 hours as they organize and present 30 offers to their sellers by Thursday afternoon, when they’ll accept an offer that’s all cash and 20% over their asking price. And if it’s not all cash, it will have a full appraisal waiver.
So How Do You Buy A Home Now?
With such a competitive market, it’s more important than ever to have managed expectations and a strategy.
Strategy 1: Go After New Builds
For clients that aren’t on a tight timeline and can wait a few months, I’ve been heavily encouraging new builds.
As I mentioned earlier, some builders are accepting offers before construction is complete, which reduces the chances of entering into multiple-offer situations and needing to offer significantly over the asking price. The drawback here is that you’re at the mercy of the builder’s timeline and the city’s permitting process. There could be significant delays, especially if the builder doesn’t pass certain inspections or if the city is dragging their feet.
This is great for someone who's planning a move 3+ months in advance, someone who's purchasing an investment property, someone who's purchasing a vacation home, etc.
Strategy 2: Re-Frame Your Price Range
For clients who need a home yesterday or are more time sensitive, it’s really important to go in with the understanding that, to win in a multiple-offer situation, we will need to submit offers that are over the asking price.
Because of this, it’s a good idea to get pre-approved by a local lender and then look for homes that are anywhere from 15%-30% below that topline number. This is because you will likely need to pay anywhere from 15% - 30% over asking price in some scenarios, especially if the home is a “hot home” that fits most of the boxes that everyone wants (i.e recently renovated, large yard, beautiful kitchen, walking distance to restaurants, etc).
It’s also important to understand that, if you’re not paying cash, we will also need to submit a full appraisal waiver to be competitive and have the offer considered. When financing the home, signing an appraisal waiver makes it more like a cash offer in the seller’s eyes. You can read more about appraisal waivers here.
This is a good strategy for someone who wants to stick to their budget and is willing to realign their expectations to become a homeowner.
Strategy 3: Root for the Underdog
There are usually at least a couple homes in your MLS portal that have been sitting on the market for quite a while. In a market like this one, the hot homes will be gone within 48 hours. If that's a landscape that you want to compete in, see strategy 2. But if you're less interested in going after the ultra-desirable homes, it may be worth your while to look at homes that have been sitting on the market for longer than 7 days (7 days is an eternity here!).
Be sure to do your due diligence to make sure the home doesn't have any deal breakers, but sometimes these homes haven't gotten any action for reasons that aren't so severe. Maybe the home was overpriced, maybe it needs some TLC, or maybe it just has a funky layout that you can overlook. The longer a home's been on the market, the better your chances are of putting it under contract. And you may even have some negotiating power on its price and other terms, which is almost unheard of these days!
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