I prepared the graph below for a presentation I did last night to a local Austin real estate investor club. I’ve been commenting to buyers and sellers lately that the Austin real estate market has been “drawing W’s”, which is to say that average sold prices have been taking big swings up and down each month. I decided to put the price swings in graph form to illustrate what I’m talking about. Let’s take a look.
Do you see the W? From August to September 2008, Average sold price dropped over $10K in one month (from high $250s to mid $240s), then it rose slightly in Oct (start of W), then dropped almost $10K again in Nov from mid $240s to the $230s, then jumped over $10K in December back into the $250s, dropped over $10K in Jan back to the mid $230s, then up more than $10K again in February back into the $250s.
I asked the audience of experienced Austin investors at the meeting last night if anyone had an opinion about which direction we’ll see it go in March, and nobody claimed to know. Neither do I. But let’s look at some more stats.
I can look at the chart and see that both average sold and median sold prices today are higher than they were 12 months ago. Normally, when I run stats each month and post them here on the blog, I look only at the previous month and the same month a year ago. This is because looking back 1 year at the same month is really the best comparison to a current month, due to the seasonal variance we’ll talk about in a minute. The previous month is interesting to look at, but not determinative of a trend.
But maybe I’ll start including a trailing 12 month chart each month as well, because I think it’s informative to see that, despite these big “headline” swings month to month, and despite lower sales volume and high “not sold” counts, that the general trajectory of the Austin real estate market has not taken the nose dive that it sometimes feels like it’s taken.
The graph above prompted me to create a second graph, which you see below. In this graph, I charted all of 2006, 2007 and 2008 (Jan-Dec) so we can see the trend lines of each year and how they compare to one another. Let’s take a look, and then I tell you what I find interesting about this data.
The group of three lines at top are all Average Sold price lines. The three at the bottom are all Median Sold price lines. I grouped the Avg/Median for each year with a similar color, so I hope it’s easy enough to read.
Here is what I observe.
Everyone agrees that 2006 and 2007 were great years in the Austin real estate market, if you measure “great” by level of appreciation and sales velocity. Appreciation for 2006 was about 10%, and appreciation for 2007 was about 8%. How did 2008 do in comparison? Well, average values for 2008 dropped about 1% overall, while median sales values were up about 3%.
But let’s look at the trend lines and take note of a few things.
– In each year, average sold price dropped month-to-month from May all the way through November. This happened every year for the past three years. I haven’t looked at 2005 and beyond yet. For some reason, this trend was cause for alarm in the news in 2008, but not so in 2006 or 2007. It’s really just a normal seasonal dip.
– In each year, average sales in December spiked upward. I don’t know why this happens, but my initial guess is that fewer low end homes sell in December because those buyers are more strapped for cash than high price range buyers. I’d have to investigate that theory further though.
– 2008 was beating 2007 and 2006 in average sold price from May through November and almost through December. Were it not for a slow start at the begining of 2008, the YTD average sold price would have shown a gain for 2008 over 2007.
– Except for Jan through April, and December, the trend lines are stacked in the order one would expect in a rising market in 2008.
Of course, like I said, it’s hard to predict what next month will bring, or this coming summer. We may be driving in the fog toward a pricing cliff just beyond our headlights, but I don’t think so. The doom and gloomers believe this to be the case, ever since 2007 in fact, they’ve believed this, yet it hasn’t happened.
According to naysayers, 2008 was supposed to be the year in which the Austin real estate market went in the tank. The wheels were going to come off and we’d be in a ditch. Only an idiot would buy in 2008, according to the doom and gloomers. Yet here were are, and the crash hasn’t happened in Austin overall, except for those in higher price ranges or in outskirt areas where we advise against buying anyway.
I still think we could see an overall slide of 3% to 5% in pricing for 2009, but as we’ve seen with January 09 (down 5%) and Feb 09 (up 6%) each month is still a guessing game. And let’s not forget, that real estate runs in cycles. Ups and downs over time are normal.
On a side note, I was talking to a home flipper last night at the investor club meeting who hasn’t purchased anything in awhile, mainly because the good deals are not that easy to find and also because it’s too difficult to predict what we call “After Repair Value” (ultimate sales price) or marketing (hold) time. He’s still trying though.
I asked where he was prospecting for candidate properties and sellers. He said he mainly contacts out of state owners. His logic being that things are so bad everywhere else, that those owners may be in more need of cash and wanting to fire-sale their Austin properties. I asked how that was going, and the response was interesting.
He said many of the out of state owners view their Austin property as somewhat of a crown jewel in their real estate investment portfolio. They say things like “My Las Vegas property has tanked. My Phoenix property is way under water. But my Austin property is doing just fine. Why would I want to sell it?” Hmm, why indeed?
The perception from outside Austin is that we are sitting pretty and in very good shape. So why are so many local buyers moping around wringing their hands, afraid to buy? All it takes it a few layoffs at Dell and AMD, along with a daily overdose of cable network news, and you’d think the sky was falling in Austin. It’s not.
In the same way that a tiny bit of sleet shuts down all the schools and the entire government complex in Austin and UT, and everything comes to a halt, a few local layoffs combined with bad national economic news seems to throw a wet blanket on buyer confidence and bring out the doomsdayers.
And, some would say, I’m not allowed to say this because I’m “just another Realtor cheerleading the market”, but gosh darn it, interest rates are below 5%, first time buyers (or if you haven’t owned in the past three years) get an $8,000 tax credit until Dec 2009, there is a lot of good housing inventory to pick from, and if you’re willing to look hard for the right seller and not be too picky about your house, you can find a great deal on a home in Austin, right now, today.
Unless your job is in question, or you are financially unqualified, there is no set of market data or emotional logic that can defeat the undeniable benefits of buying a home in Austin right now.
I’ll leave on a final note with something I heard Warren Buffet say during an interview last week. He was talking about how he had no idea where the stock market was heading, and he said “I’ve never made a penny predicting where the market was heading or what it would do next. I’ve made my money by making smart buying decisions and protecting myself”.
Real estate buyers can do the same. Instead of trying to guess and time the market, staying on the sidelines waiting for a “better time”, just go make a smart purchase decision. Everything else will work out over time, unless that is, you think Warren Buffet is an idiot.