This past quarter in Austin proved to be strong and even record-setting. Over the past few months, our market here has established what is expected to be the new normal of low inventory and rising sales prices. It's safe to say that locals and newcomers alike need to recalibrate their expectations and perhaps come up with a new game plan.
If you're thinking of becoming an Austinite any time soon, here’s what's been going on.
In a nutshell: Regardless of the market correction, it's a good time to buy. If you're hoping for the market to "shift back to normal" by next year, you will be disappointed. Austin is on the up and up, so renting and waiting a year is likely not a smart strategy.
Let’s start with comparisons from June 2020 to June 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 June 2020:
- The median sales price has increased from $407K to $575K, which is a 42% increase. This is an all-time record.
- Inventory has halved from just over 6 weeks to 3 weeks.
- New listings have increased from 1,448 to 1,672, which is a 15% increase.
- Active listings have decreased from 1,520 to 801, which is a 46% drop.
- The number of average days on market has dropped from 28 days to 13 days.
- The total sales dollar volume has increased from $588MM to $969MM, which is a 63% increase.
Rising Median Sales Price
From June 2019 to June 2020, the median home sales price went up by 3%.
From June 2020 to June 2021, the median home sales price jumped by 42%!
Our median home sales price is now $575K. In my last market update for Q1, the median sales price in the City of Austin was $491K. I had said that I wouldn't be surprised if $550K by the end of 2021...We exceeded that in a single quarter.
Am I saying that we will repeatedly see 40%+ jumps again next year or next month? No, but I am saying that I think the median home sales price will continue to rise month to month.
Side Note: April 2020 to April 2021's median sales price increased from $421,000 to $550,562, which is a 32% rise. And May 2020 to May 2021's median sales price increased from $424,050 to $566,500, which is 35% rise.
These price increases make total sense, especially with all the new companies and talent coming to the city by the month. Here are some new expansions that have been announced in the past couple of years, just to list a few:
- Austin FC stadium in the Domain is now open and the season is in full swing as of this past summer.
- Tesla's GigaFactory in Southeast Austin by the airport almost seems like old news, but is surely not something to sleep on. Tesla invested nearly $1B into this massive facility. It's expected to be finished before the end of 2021 and bring in over 10,000 jobs by the end of 2022. Fun fact: Last month, my Tesla technician told me that they're going to start testing new car pickups and minor repairs at GigaTexas in the coming months. How exciting!
- Apple's new 133-acre campus in North Austin is well on its way, which will employ 5,000 employees across many different departments including engineering, finance, R&D, sales, and operations. More jobs means more talent means more highly qualified buyers.
- Google is opening new offices to add to their existing base on W 2nd St downtown. They're expanding their presence in Austin on the East Side with a 150,000sqft office in Saltillo Plaza. They're also building a 35-story tower downtown that's supposed to be completed by 2023.
- Amazon invested $250MM to build a 820,000sqft warehouse in Pflugerville that's expected to bring in 1,000 jobs.
- Chanel has purchased 50+ acres of land by Del Valle to build a manufacturing warehouse for their skincare products.
- Samsung revealed that they're searching for a home for their upcoming $17B plant. Rumor has it that they're eyeing Taylor in Williamson County, which is about 35 minutes northeast of downtown Austin. This facility would be expected to employ 1,800 employees and would be one of the largest foreign investments in recent US history.
- The Buffalo Bills are rumored to be eyeing Austin as their next homebase if they can't secure a new home venue in Buffalo.
- HBO just leased 110,000sqft in Kyle Crossing in Kyle, which is 30 minutes of downtown.
- Netflix signed a lease for 20,000sqft in East Austin.
- Compassionate Cultivation, a major cannabis company, just broke ground on their new 95,000sqft HQ complex in Bastrop. They just announced in June that they raised $21MM in their series B funding round. They've invested $8MM to build their new home, which is expected to be completed by May 2022. They're currently leasing a 7,200sqft space in Manchaca through July 2022.
Given all the steady developments in the city, plus the fact that inventory was low to begin with, it's safe to say that sales prices will continue to rise.
As a final note here, many homes are in multiple offer situations where buyers must offer over asking price with a full appraisal waiver. If you're in a multiple offer situation and you think that you're getting a "good deal", you're likely not offering enough money.
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 low, coming in at just 3 weeks. In my last market update for Q1, we were down to 2 weeks, so this is a minor improvement month over month, but it's still not good.
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.
No matter which way you shake it, there is simply no way that new construction will be able to meet Austin's demands within the next 5 years. We will be in a sellers market here, and maybe even across the nation, for a long time.
This means that buyers have and will continue to have limited negotiating power and very little leverage. Buyers are simply lucky to be getting a house. It sucks for buyers, but that is just often the reality.
Movement in the Market
New listings have increased from 1,448 to 1,672, which is a 15% increase. These are homes that are freshly listed to MLS.
Active listings have decreased from 1,520 to 801, which is a 46% drop. These are homes that have been sitting for anywhere from a few days to a million days.
The number of average days on market has dropped from 28 days to 13 days. This means that your average home sits on the market for 13 days. Though, in my experience, the "hot" homes have multiple offers within 24 hours and are under contract within 48 hours.
Putting these numbers all together, we can see that, as new homes are getting listed, they're getting swooped up and going under contract extremely quickly.
In my experience, this means that buyers have to be ready to move quickly once they see something they like. In this seller's market, I typically tell my clients that, if a house is hitting even just 75% of their desires, we should be submitting an aggressive offer. No house is going to be perfect, but you can make it feel like home once you move in.
Massive Sales Volume
The total sales dollar volume has increased from $588MM to $969MM, which is a 63% increase. This is insane and also checks out given what I've discussed above. This statistic doesn't really introduce any new information, as it's obviously caused by the increased movement in the market at higher sales prices, but I just had to include it because it just blows my mind.
So How Do You Buy A Home Now?
With such a competitive market, it’s more important than ever to have managed expectations, a strategy, and, of course, a great real estate agent.
Overall, I encourage my buyers to be as prepared as possible, especially if they are first-time homebuyers with a hard deadline (i.e their lease is expiring). You never want to feel trapped or rushed, since that can easily lead to buyers remorse later.
This means getting pre-approved and beginning the search in MLS (special realtor client Zillow, basically) as soon as possible. I always want to ensure that my buyers feel comfortable, empowered, and confident when submitting offers on homes, and the best way to do that is to be well-versed in the market. Oftentimes, this involves browsing houses on MLS for a few weeks, dialing the search in, going on a round or two of house tours, and then moving quickly and aggressively on one of those homes.
Strategy 1: Root for the Underdog
I talked about this last time, but there are usually at least a couple homes in your MLS portal that have been sitting on the market for quite a bit. 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 strategies 2 and 3. 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.
Strategy 2: Adjust Your Expectations & Your Criteria
Life is hard and sometimes you have to make sacrifices.
In the world of Austin real estate, maybe that means expanding your radius to be a bit further from downtown. Maybe that means lowering your bedroom or squarefoot count. Maybe that means buying a home that's a "stepping stone", meaning it won't be your forever home, but you could see yourself living in it for a few years.
Here's a good exercise: Try making a list of qualities and features your ideal home would have, this should be pretty easy. Now try making a Must Haves list with 3-5 things that you simply can't or won't budge on. This is much harder. Ask yourself why you want each thing on the Dream Home list and be as honest as possible with yourself.
My husband and I personally followed this strategy and did this exercise recently.
Our current home has 2 bedrooms and we undoubtably need more space. We were hoping to just move one more time and call it a day, but with the craziness of the market, our timeline, and our budget, this simply wasn't possible. We went back to the drawing board and readjusted our expectations. You can see my lists below:
- Yard with a pool (or space for a pool)
- 4 Bedrooms with a study or 5+ bedrooms
- .25+ acre lot
- No A/B unit
- Move-in ready
- Sprawling kitchen
- Fireplace in living room
- Walk-in closet in master
- Within 15 minutes of downtown
- Walking distance to a coffee shop
And then I sat myself down and really dialed it in. This was honestly harder than I thought it would be!
Here's a snippet of my thoughts: "Why do I want a quarter acre of a lot, where did this number come from? A quarter acre is arbitrary. It just seemed like enough space, but in reality, we don't need that much acreage. I just want enough space to entertain and for our future kids to have space to play."
- Yard large enough for future kids, dogs, and dinner parties
- Kitchen that's laid out for collaborative cooking with friends
- 3+ bedrooms
- No major renovations necessary (ex: Throwing in a new backsplash is okay, but I don't want to rip down walls).
- Within 20 minutes of downtown
With our new mindset and strategy, we found an amazing "stepping stone" home that's smaller and maybe not in our ideal location, but it is perfect for us for the next 3-5 years. Once we're ready to move on, we will rent it out.
Using this strategy, we got an upgrade from our current house, an awesome spot to call home for the next several years, AND an appreciating and probably cashflowing investment property when we're ready to move again. I call that a win!
Strategy 3: Re-Frame Your Price Range
This was also in my last update, but this is also a good strategy to use, perhaps in combination with the others mentioned above.
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 10%-20% below that topline number. This is because you will likely need to pay anywhere from 10% - 20% 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.
Ready to talk about your options? Feel free to drop me a line!
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