If you’ve been keeping an eye on the Austin real estate market lately, you’ve surely heard that the ATX has become one of, if not the most, competitive markets for home buyers in 2021. You’ve probably heard about homes flying off the market at record speeds, selling for hundred of thousands of dollars over asking price, and new builders only being able to sign 1 or 2 contracts a month for homes that won’t even be completed until 2022. However, something you may not have heard about yet is the subtle shift in the Austin real estate market over the past two weeks. I’ve seen homes sell for asking price, homes that only had a few offers, and the return of due diligence periods.
This shift is subtle, and if you are not actively working in it everyday, you may not even notice it. But I feel it, and if it continues, it will have implications. You may be wondering why this may be. All of the signs point towards continued demand and thus higher prices. And, that is still true, but the market is behaving slightly differently. I hypothesize this subtle shift is due to a few different variables.
Many individuals looking to purchase in the Austin market are quite simply beginning to feel defeated. I have a few buyers who have been trying to buy a home for the past few months, and are still empty handed. They’ve offered well over asking price, waived their appraisal contingencies, and offered 5 digit earnest money deposits yet they still haven’t been able to get an accepted contract. After the 4th or 5th time of this, some buyers begin to feel like they simply cannot win in this ultra-competitive market. Some of these buyers decide to stop trying altogether, or opt to purchase in another city altogether. Others are still observing from afar, but are less motivated to make offers on available homes.
Sold Home Data is Starting to Show the Truth of the Market
In order to determine an appropriate asking price for a home, you need to look at the sold prices for comparable homes. Since the home sale cycle from list date to close date is usually around 30 days, sold stats are constantly lagging behind the market. Over the past few months, most homes have been appropriately listed at prices determined by the sold comparable homes. However, the majority of those homes went under-contract at a price far higher than the asking price. We are now beginning to see those homes close, and new listings are being priced using those sold stats.
For single-family homes listed in the Austin MLS, the median list price/sqft increased from $197/sqft in February to $213/sqft in March. As listing prices are increasing, I foresee this leveling out the difference between asking price and contract price. This is not to say that the majority of homes will not continue to sell for above asking price. I think that trend will continue, but I think we will see the difference between asking price and sold price decrease. Earlier this year we saw some homes selling for hundred of thousands of dollars over asking price; I foresee the ratio of list price to close price decreasing in the coming months.
Increase in Inventory
The February storms caused a serious strain on an already tight supply of inventory in the Austin market. Some homeowners that planned to list in February were forced to wait to list due to unexpected repairs as a result of storm damage. Others simply decided to wait to list, since the city was essentially shut own for an entire week. In February, we had 2,360 new single-family residential home listings in the Austin MLS. In March, we had 3,745 new single-family homes hit the market. Historically, we see the largest inventory increases in the Austin real estate market between March through July. So far, the number of new listings in 2021 has been lower than what we saw last year (even with the pandemic). However, it looks like the trend for increased listings in the spring to summer months will continue for 2021.
What This Subtle Shift Means for Austin Buyers and Sellers
This subtle shift should benefit those looking to purchase in the Austin market. Home prices likely will continue to be the highest they have ever been, BUT as sold comps catch up to the true market it will be easier for buyers to purchase homes. Appraisal waivers (essentially agreeing to purchase the home no matter what it appraises for and agreeing to bring the difference between the appraised value and the offer price in cash to closing) were almost mandatory over the past few months. This made it nearly impossible for someone without a ton of extra liquidity to compete in multiple offer situations. It was particularly detrimental to those buyers looking to purchase a home using a VA or FHA loan as these loan programs expressly prohibit the use of the Appraisal Waiver Addendum. Now that we are beginning to see the new market sales data, homes are more likely to appraise at or closer to offer prices. This has huge implications for any buyer using a loan to purchase a home.
For someone considering selling their home in Austin in the near future, you can still expect your home to sell for top dollar. In fact, you will likely get more for your home in the coming months than if you had listed your home for sale in the first quarter of 2021. However, you may not get all of the other offer terms that many home sellers received earlier this year. We saw home sellers receiving offers where the buyer incentivized the seller with a complimentary lease back. Sometimes, the buyer offered for the seller to stay in their home for an entire year for free after the buyers purchased the home. These will likely become more conservative or dissipate entirely. You also may see the re-emergence of typical seller expenses such as the title policy, and buyers may begin requesting a seller paid for home warranty again. All in all, these nominal expenses will not adversely affect your bottom line. You can expect to still sell your home for the highest price, but you may arrive there with fewer offers and more buyer preference in regards to offer terms.
If you have questions about the Austin real estate market, or need advice when contemplating your next move, contact me.
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