What makes a healthy housing market? I would say that a market in equilibrium is one that is healthy. Too many sellers and not enough buyers put downward pressure on pricing as buyers lack the confidence to make a decision. The abundance of inventory is difficult to navigate and creates paralysis by analysis. Too many buyers and not enough sellers, unhealthy competition ratchets up and prices begin skyrocketing. Buyers begin to fear losing bidding wars, become frustrated with the process, and at times want to simply nix the decision to purchase altogether. Then, there is what is happening in Austin, TX, and the surrounding area.
Per Austin’s local MLS, there is a .2 month supply (that’s 6 days for the mathematically challenged) of available homes for purchase. Let that sink in. Austin would run out of homes for sale in 6 days if not another home was listed for sale. Properties that are listed for sale are receiving 50-100 offers each and selling for 25-30% over the list price. Sellers are giddy, buyers are exhausted. A perfect Texas Hill Country size storm is brewing and appears to be headed beyond a category 5 hurricane status. What is causing this?
For one, Californians are fleeing the Golden State and upon arrival possess a 33% larger budget for housing than local Texans. This reality creates a bit of an unfair fight. In this market, sellers and their agents are probably not even countering each offer, but rather blanket responding in this manner: “We have received 50+ offers on the property. Please submit your best and final offer inclusive of best terms by March XX, 2021 at 5PM CST.” This sentence translates to “cash offers with no contingencies and a 14-day close will be considered.” You can see how buyers would become fatigued as this scenario is playing out every day right now.
Secondly, the COVID Rules for housing are manifesting before our very eyes as families continue to reevaluate how, where, and in what they are going to live/work/play. The one domino that is yet to topple is the commercial real estate market. Recently, Pinterest paid nearly $90 million to terminate a lease as the tech giant continues to adjust to a new normal post COVID. Talent markets are no longer local. Meaning, tech employees from Silicon Valley can relocate to the Austin area and maintain their employment, pay less for housing, and improve their quality of life.
Points to consider: once the sellers close on the sale of the home, where are they going? They can’t easily replace it locally as the market is far too competitive. For the first time I can recall, Texans are facing the California conundrum of “if I sell, must I move out of the area?” Moreover, can you imagine needing to execute a 1031 Exchange in the Austin area right now? The 45-day window to identify a replacement property is going to feel like a 3 day weekend. I deeply feel for the investors in this scenario.
Suffice it to say, if you are a seller in the Austin market today, relish this time. I am not sure we will ever see another housing market behaving like this. And if you are a buyer, I leave you with this: if this is going to be your 10+ year home, it will be difficult to overpay. However, if you are an investor, proceed with caution.