Are We Seeing a Shift in Real Estate in the Austin Suburbs?

With the recent chaotic nature of the stock market and changes to global economic measures, many people have been asking us how these things might affect our local housing market. Could a course correction be on the horizon? We’re not economists, but we listen to a lot of smart people, do our research on a regular basis and complete a lot of residential real estate transactions, so we’re seeing some of these trends first hand. The RJF Team also tracks microdata for individual suburbs in the Austin area and neighborhoods that see a lot of activity, so we often see trends that don’t appear for a few months in reports like the ones released by the Austin Board of Realtors®, which reflects all homes sold throughout Central Texas.

A lot of people are saying that a market shift is inevitable, and it’s very likely that we’re seeing the start of that shift right now. We’ve been seeing changes in the local housing market – particularly the outer suburbs of Austin, including Round Rock, Georgetown, Cedar Park and more – for about three months or so. I don’t say that with a sense of doom and gloom because I’m generally an optimist by nature, but the microdata and statistics for home sales in Round Rock show that the up cycle could be winding down and a market shift could be coming.

Depending on if you’re talking about when the media started covering the changes in the market or when the cycle truly started on the ground, we’re at the end of a 7 to 9 year cycle that the market has been going up. According to Gary Keller, founder of Keller Williams, on rare occasions some economic force can enter the market that resets the seven year cycle before it completes. This could be a new commercial sector or large business entity entering the local market, bring thousands of jobs and acting as an economic force in Austin. While this could happen in Austin now, most economists are looking at the current data and don’t think that’s likely in this situation.

Our area is a very strong in and around Austin because so many people love this town and many more people are moving here each day. As job creation picks up in other markets, however, not as many people will continue to pour into our area. This can also have an effect on the housing market because not as many buyers will be looking for new homes.

Any market changes are going to hit the hub city last, meaning that any changes in housing trends will first be shown in Georgetown before moving to Round Rock before finally hitting Austin. There could be months between when those changes first appear and even longer before the media catches on and begins publicizing it. In real estate, higher priced homes are also going to be affected first before more moderately priced ones, staying on the market longer and having to lower prices more often before selling.

Housing markets nationwide are affected by the Federal Reserve (commonly known as the Fed), which controls the interest rates in this country, and they usually like having it around 6 percent. That’s believed to be a healthy spot for when the economy is strong and thriving. The Fed has been trying to raise interest rates for over a year now, but they haven’t been able to because the economy isn’t strong enough. Some economists have said that we’re not at historic lows, we’re at “hysteric lows”. Keeping interest rates low causes inflation to increase, but for some reason inflation hasn’t risen as much as it usually would in this case so the Fed is running out of weapons to boost the economy artificially. The lenders we work with regularly suspect that the Fed will begin increasing interest rates at the first sign that the economy can handle it.

The other thing we like to track is the state of new homes and the activity of builders. New home builders always lag behind. When the market was going down, builders were pulling out of areas and no new homes were being built because it was too risky for them. When the market started going back up, though, it meant builders weren’t prepared with available inventory or even the space to start building, so there were no new homes available. In this last cycle, builders started building new homes like crazy just to try to catch up to demand with new neighborhoods popping up regularly throughout the Austin suburbs. Eventually the builders caught up and their available inventory continued to increase because once demand tapers off, they still have homes being built. That’s when you start seeing buyer incentives and price decreases being offered. That is what’s going on right now.

As for resale homes, an increase in inventory is giving buyers more options and also providing more competition. At the beginning of the year, we had fewer than 300 homes active on the market in Round Rock when we used to have 800 active homes on the market during the more balanced times. Looking today, we now have inventory in Round Rock of about 500 homes at any given point on the market. This is a significant increase that means buyers have more choices and homes are often sitting on the market longer.

Any home over $400K, for the most part, is sitting a lot longer. There are some outliers that still sell quickly, especially when it comes to homes in the right location with the right features and qualities that are difficult to find elsewhere, but for the most part, higher priced homes have begun to sit on the market for much longer than they did even just this past spring and often require a price reduction. We look at the market every single day and the number of price reductions happening with higher priced homes is significant.

We’re still considered being in a seller’s market, but these are the trends that make it look like we’re headed towards a course correction to a balanced market. Builders are coming to us to push their inventory more and providing incentives to buyers and their agents.

Our goal is to always serve our clients. No matter whether you’re on the seller side or the buyer side, our team just wants to provide you with the information you need to make decisions for your family. When our sellers come to us and say that they want to sell, we’re aggressive for them and get their home in front of as many buyers as possible. If sellers don’t want to sell, we’re the first ones to give them a high five. Selling a house shouldn’t be about us. It’s about you, so we want to make sure that you have all the information you need to make the best decision for your family.

We’re never fearful of a down market. The RJF Team was born in a down market and that’s where we thrive. Because our team is so aggressive and go after every buyer for our sellers, our team does better than many Realtors who might only be in the business when homes are selling quickly. If we’re looking at current trends as from the point of view of a real estate financial advisor – knowing that we’re not economists, just looking at all the data points available to us – the current market looks like it’s starting to fluctuate and course correct after seven years of rising home prices.

Austin will remain stronger than most other markets. We’re not going to end up like Detroit or like the big cities of the East and West Coasts, where they see huge 50 percent dips and momentous highs when they shift cycles. Austin is more likely to continue its pattern of going a little bit up and then a little bit down.

We’ve been pushing prices $10K or $15K over market in many neighborhoods over the last few years, helping our clients get the most money possible in a time when home prices were increasing significantly. Now you may need to price your home ahead of the market to get it sold in the time you want or risk sitting on the market for months. You need to make sure your home is staged right and that you have the proper upgrades as well.

We’ve been spoiled for more than seven years because homes were selling quickly and often receiving multiple offers, meaning sellers didn’t have to do all the things they had to do in a slower market. When you’re in an up market, pricing a little bit over market doesn’t really hurt you as badly. If you don’t stage your home or have the right upgrades during an up market, that doesn’t hurt you as badly either because buyers are in a frenzy over limited inventory. When that frenzy stops and the market starts course correcting, you have to price right, have the right upgrades, and have staging to make your home look its very best.

Potential buyers may be facing a paradox. Last time the market slowed down, home prices went down and interest rates went down, so buyers received added value on both sides. This made it the perfect time to buy to maximize how far your money could go. Right now interest rates are about as low as they can get. It’s possible they could inch down just a little bit, but not for a sustained amount of time. We’ve been at an unsustainable interest rate for a while now, and it’s unhealthy for our economy to stay here for much longer. So when the market does correct and prices start to go down, interest rates won’t be able to decrease much more. Knowing that whenever interest rates increase 1 percent, it decreases a buyer’s purchasing power by 10 or 11 percent, it means home prices will have to decrease significantly for a buyer to break even to what they can afford today. Even if we’re headed to a buyer’s market, buyers won’t have the same perfect storm of lower home prices and lower interest rates to help them purchase more house for their dollar.

So it’s still a great time to buy out there. If you tried buying even just earlier this year and found yourself facing multiple offers, start looking at houses again. We’re not seeing that same sort of competition out there right now. Certain price points and neighborhoods may still face stiff competition, but it’s still much lighter than it was just six months ago.

The Robert J Fischer Team wants to serve you as real estate experts no matter what kind of market we’re facing. If you’re interested in selling but have concerns about the shifting market or just want more information about trends in your neighborhood, call us at 512.537.4977 or email us at info@RJFteam.com. We also have an entire team of buyer specialists who want to help you get into your next home. Whether you’re looking to sell a house or buy one, our team will fight to get you the best deal and provide you platinum customer service every step of the way. Call us today at 512.537.4977 to set up a no hassle, FREE appointment with one of our real estate experts.