We have seen the chatter about Austin and Dallas being two of the most over-valued markets in the country. For the last 5+ years we have enjoyed the spoils of being in a seller’s market. So have we reached the crest and started moving towards the proverbial shift? I get asked this question all the time. My short answer is yes…….The stats don’t lie. We are seeing homes sit on the market longer, price reductions happening at a higher rate than years past and months of inventory going up. If those aren’t signs of a shifting market then I don’t know what is. Below are a few stats courtesy of the Austin Board of Realtors for the month of June. There are a few things to take away from this information:
- Median single family home price is still up 7%
- The number of homes sold is up 4%
- Average days on market is slightly up by 2%
- New listings are up by 6%
- The number of active listings are up by 19%
- Pending sales are up by 9%
- Months of inventory is up by 0.5 months to 3.1 (This is a measure of how long it would take for every active listing to sell assuming that no new listings hit the market)
For the purposes of this article, I will focus on Austin since it has been cited as the most over-valued market in the country. Dallas/Fort Worth is not far behind so a lot of these trends ring true there as well. Houston has been slowing for a while with heavy external pressures due to volatility in the energy sector and years of steady new housing development. San Antonio doesn’t always make the news like Austin and Dallas, but it has been a strong market for quite some time and is definitely worth watching for the same signs.
Ok, back to the data. What does all of this mean? First off, we are moving in the direction of a normalized market, which isn’t necessarily a bad thing and can help us avoid being in bubble territory. These data points show signs that we are shifting out of a seller’s market and moving towards a buyer’s market. As inventory increases and the number of pending transactions fails to keep pace, we wind up with more supply, which inherently reduces the demand. Buyers have more options now than they have had in years past so they are more inclined to slow down and wait for the right “deal”. Part of the reason we have seen so many price reductions as of late (just yesterday in the greater Austin area, there were 170 price reductions) is because over zealous sellers are still trying to ride the wave from 2012-2016 and are failing to properly price their homes from the onset. Median home prices are still climbing so these price reductions are likely more a reality check for sellers and not a decline in values.
In Austin, one of our biggest issues is affordability, which can be a significant indicator of a market shift. As median home values increase at a rate that significantly out paces median house hold income, there is an inevitable tipping point. Many see that becoming a serious issue closer to 2020 if we continue to see these steady increases in value. If buyer’s simply can’t afford to pay what sellers are asking, we could see more buyers exiting the purchase arena and moving towards leasing.
Simple supply and demand is another major issue we are tackling. According to the Austin Business Journal in 2016, Austin averaged 159 new transplants a day. Supply has not been able to keep up with demand. Builders struggle to find rich development opportunities to build new affordable homes at a rate that keeps up with demand, in turn, we see the values for resale homes sky rocket. Thus creating a supply problem that has contributed greatly to our affordability problem. So……We now have builders putting up homes wherever they can, creating a labor shortage which has driven up labor costs. As builders costs go up, so do the price tags on homes, further affecting affordability.
Pair all of this with buyers who are reading all of these articles about Texas markets being over-valued and they begin to get gun shy. Some are sitting back and waiting to see how things shake out with a listing after the first week or two when they feel like they have more leverage. Others have simply grown tired of the bidding wars and choose to watch from the sidelines to find a house without the same level of competition.
How can you be successful selling a home in Texas when a market shift is happening?
- Don’t get greedy. Price your home in line with the market and keep a close eye on what other homes are doing in the neighborhood. Take a look at our other blog article “Pricing, it’s all about the comps” for some good insight in to properly pricing your home. Avoid “chasing down the market”. Chasing down the market means that you over priced your home and you are stuck dropping your price to chase the market and find a buyer. Price your home well at the outset to create demand from the beginning. The first week on the market is the most powerful and when the most eyes will be fixed on your home so make it count.
- Set realistic expectations and know the market. Many home sellers are shocked to hear that Austin, one of the most thriving housing markets in the country has an average of 45 days on the market. You would be amazed how many sellers assume their house will be sold in a week with absolutely no factual data behind that expectation. Look at other comparable sales, identify what that average days on market will be and walk in with that expectation. If you want or need to sell quicker, be willing to get more aggressive with your price.
- Your listing better look good. Now that buyers have more options to look at, it becomes easier for them to check homes off their showing list. If you don’t captivate them quickly through their online search, you will be climbing up hill to get them in the door.
- Be prepared to negotiate. A couple years ago, sellers could name their price and get it without flinching, you may still do that selling a house as is in Texas. But, It’s not quite that easy any more. Don’t be offended by an offer and be prepared to negotiate. In a normal market, that’s how it works. A buyer makes an offer, the seller counters, so on and so on. Detach from your emotions and treat it like a business transaction.
- Look at the data carefully. Number of active comparable listings, average days on market for sales and current days on market for actives, average prices in your neighborhood, average square footage are all important factors to look at. If there is a lot of inventory in your neighborhood that means buyers have a lot of choices so your price and how well your home is presented is EXTREMELY important.
In closing, it’s still good to be a seller in Texas, Home values are still rising, demand is still strong, homes are still selling. but you need to understand things have changed from years past and everyone needs to re-calibrate expectations. Don’t listen to “off the cuff” advice or comments from anyone unless they can prove that they know your market. Look at the data for your house in your neighborhood and create a plan accordingly.
Home inspections are a critical part of real estate. They impact both buyers and sellers and are key in negotiations and identifying any problem areas in homes.
Even if you’re buying new construction, you should be using a home inspector.
Building a real estate investor business is tough. You need to have the right people, the right processes, and the right tech to scale.
Even if you build everything right, things will still go wrong. The market isn’t always constant and you need to be prepared for shifts.
What should you do if the market goes down? How can you stay ahead as a real estate investor?
Real Estate Real Fast EP1 (with Romney Navarro, hard money lender expert and CEO of Streamline Funding)
If you’re looking to do some serious real estate investing, you might be interested in using a hard money lender. While most homeowners go with conventional financing, a hard money lender can be more useful for buying and selling properties.