The article below, from this morning’s Austin American-Statesman, does a good job of articulating what I have been noticing as the Austin real estate market starts to awaken from the past 3 or 4 years slumber. The last two offers I wrote were multiple offer situations – 3 offers on one home and 4 on the other, both in South Austin Area 10, which is an area I really think will appreciate well in the coming years because of its proximity to downtown Austin, shopping, restaurants and the fact that many of it’s homes are still below the median sales price for Austin as a whole.
As the article says, accurately I believe, “With fewer houses for sale and building costs rising, buyers no longer have the advantage.”
AUSTIN AMERICAN-STATESMAN Sunday, August 28, 2005
Austin-area home buyers, prepare to pay more.
After three years of relatively little growth, Central Texas home prices are climbing because of the scarcity of houses for sale in some areas and the increasing cost of building new ones, with double-digit increases in the price of basics such as roof shingles and drywall.
The median price of a new single-family home in July was up 5 percent from a year earlier to $169,740, a record for the region, according to the Austin Board of Realtors.
Meanwhile, the number of single-family-home listings was down to 8,871 in July from more than 10,000 during several months last summer. One consequence: sellers overall were getting almost 98 percent of their asking prices on average.
Mark Dotzour, chief economist for the Real Estate Center at Texas A&M University, said the price increases are no surprise, given the significant drop in the supply of residential properties for sale. Including single-family homes, townhouses and condominiums, the supply has decreased from enough to last 6.5 months in June 2004 to just 4.7 months last June, the most recent month the center has calculated. That’s how long it would take to sell everything on the market at the current pace of sales. It’s the tightest supply among large Texas cities. “We’re getting back to a situation where there isn’t a whole lot to choose from, and that puts pressure on prices,” Dotzour said.
Until recently, buyers largely held the advantage over sellers as Austin continued to suffer the effects of the tech bust, which wiped out thousands of jobs and flooded the market with houses for sale. In June 2003, the supply peaked at a 7.3-month supply. During the heat of the tech boom, when people were flooding into Austin for jobs, there was only a two-month supply.
Just how much more buyers will have to pay in the coming months will vary widely.
“It depends completely on where the house is and where they want to buy,” said Helen Edwards, president and chief operating officer for the Austin region of Coldwell Banker United, Realtors.
Some Central Austin neighborhoods have as little as two months of inventory, resulting in multiple offers and plenty of pricing power for sellers. In some areas, homes are selling in about a month, at or above their asking prices.
Homeowners have considerably less ability to raise their prices in many areas of Hays and Williamson counties because significantly more houses are on the market and home builders continue to build more.
The tightening overall market also is allowing home builders to pass on at least part of their escalating construction costs. During the past few years, builders have mostly absorbed those increases as they dealt with tepid demand and intense competition.
“When you have a very competitive market with a lot of inventory for sale, the marketplace doesn’t really care what’s happening to the increased cost of construction, and so the builders just have to eat it in terms of lower profit margins,” Dotzour said. “My estimate would be that these low inventory levels will allow builders to push up prices they’ve incurred in additional construction costs.”
Grumbling about fuel
Austin-based Main Street Homes has raised the prices of its area homes by $2,000 to $4,000 in the past year. Vice President of Construction Bob Tims said he expects the recent 15 percent to 20 percent increase in the cost of concrete to tack on another $1,000 to $2,000 beginning this fall.
Recent grumbling about fuel costs from carpenters, masons, framers and other outside labor groups means the company will likely be passing on more price increases early next year, he said.
Main Street targets first-time buyers, and its Austin-area houses sell for $115,000 to $119,000. Tims said the company is reluctant to pass on price increases because they often can disqualify some potential buyers, but Main Street can’t afford to absorb what it perceives to be long-term price increases.
Costing more to build Ken Swisher, president of David Weekley’s Austin’s division, said the hard costs of building a home, such as materials, have increased by 8 percent to 12 percent during the past year, which means that an average $200,000 home costs the builder $8,000 to $12,000 more to build today than it did a year ago.
The Houston-based home builder is paying 24 percent more for concrete than it did a year ago, while the prices of shingles and drywall have each increased 10 percent in the same period. Swisher said David Weekley has raised prices “a little bit” in the past few years. He hopes to raise prices more in the next year, but competition among builders continues to make it difficult.
“Depending on what everybody does, I think it could be anywhere from zero to 10 percent,” Swisher said. “It just depends on where you are.”