As the November 30 closing deadline for “first time” home buyers in Austin and across the U.S. approaches, buyers are creating price bubbles in South Austin in the sub-$200K range. Perhaps other areas as well, but I work South Austin mostly so it’s the area with which I’m most familiar. We have one buyer who has now repeatedly lost out on homes below $150K in South Austin. Most recently, an offer of $5,000 over the list price still wasn’t enough to beat the other multiple offers. Which begs the question, who’s getting this $8,000 tax credit anyway? It looks to me like sellers in South Austin are getting some or all of it as buyers scramble to compete for a limited inventory of close in, affordable homes in South Austin.
There are currently 158 homes for sale in the 78745 zip code of South Austin (MLS area 10N for the most part). Of those 70 are pending. Normally, in a balanced market, we’ll see 1 Pending listing for every 3 to 5 Active listings. South Austin 78745 currently has a huge Pending/Active ratio of 70/88, or almost 1 Pending for every active listing. If we limit the search to homes with list prices below $200K, the ratio is 55 Pending to 41 Active, or 1.34 Pending sales for ever Active listing. That’s what I call an “inverted ratio” (greater than 1.0), meaning the market is absorbing homes faster than they are being provided by Austin sellers.
If we limit to the search to homes priced below $150K, the ratio is a monster 17 Pending/6 Active. That’s almost 3 Pending listings for every Active listing. Wow!
This means buyers in these high demand areas and price ranges have no negotiating power, and at least some of their $8,000 tax rebate is being given to the seller in the form of a higher price than would otherwise be obtained without this government interference in the marketplace.
So, as I stood outside a less than spectacular home this afternoon next to a flooded driveway with obvious drainage problems (which I recommended the buyer not pursue), with a buyer trying to stay below $150K and seeking the $8,000 tax rebate, I had to wonder out loud if I might be able to find a better deal for them in the the December-February time frame following this government induced off-season market surge. But that’s all I can do is wonder. I can’t advise with any level certainty other than to say that many of these homes are absolutely selling for more than market value, and a buyer should properly factor that into their purchase and tax rebate equation, and therefore not think of the rebate as an $8,000 rebate, but instead something less, perhaps even zero.
When the dust clears from all of this in December, the stats will reveal how many of these homes are selling at or above list price, and in the following months we’ll be able to graph the List/Sold price ratio and see just what sort of price bubble the buyer tax rebate is causing. I think we have a good chance of seeing the exact sort of let up that happened with car sales immediately following the “cash for clunkers” program. The rebate will be over, remaining inventory will be met with normal holiday season challenges, plus all the buyers will have been used up in the three months prior.
Conventional wisdom, and everything you read currently, says buyers better hurry up and get under contract before the end of October so they can close by the Nov 30, 2009 deadline. I’m not so sure. And it’s possible that a second round of this rebate will be put into play soon after this one ends. Chances are that that one could be an even bigger rebate, such as $15K, and any buyer, investors included, will be eligible. Which means we may be in the unfortunate position in January of telling an October $8K rebate buyer “Congratulations, you paid $8K over market value in order to get a $8K rebate on a home that you could have waited three months to purchase for $8K less with a $15K rebate.
Don’t we love government meddling in our economy?