Hang in there Austin investors!

[David Ivy]

I think there are some initial signs that the Austin area market is starting to change.

For the second time in 2016, single-family home sales volume declined in Central Texas, down 3.1% year-over-year from July 2015. In the City of Austin, that number is 7.3%. Meanwhile, the median home price in Austin hit $345,000 in July 2016, a 4.6% increase over July last year. So, median price was up, but sales volume was down. Average days on market is also up to 33 days, compared to 29 days in July last year. There is still around two months of inventory, slightly up from this time last year.

My sense, and the sense of those I talk to in the Austin real estate community, is that rising prices are starting to have a cooling effect on sales volume and the market as a whole. Though it has been politicized, the affordability of housing in Austin is also a very real market force that will eventually reign in housing prices in the area.

As prices rise and rise, the pool of potential buyers for those properties shrinks. The median income earning family in Austin has been priced out to the suburbs, fueling the rapid growth of Cedar Park/Leander, Buda/Kyle, and other outlying communities in recent years. Many of these former and would-be Austin residents have been replaced the tremendous influx of new residents, many of them drawn here by careers in the high-tech and creative sectors and comparatively lower cost of living. However, even they have a price at which Austin housing becomes less attractive.

One indicator I like to look at is the difference between the lower and higher end segments of the Austin market. Homes priced between $100,000 and $200,000 are virtually non-existent in the greater Austin area, with inventory at less than one month in July 2016. At the very same time, homes priced above $400,000 had more than four months of inventory. Still not a balanced or buyer's market by any means, but it's worth noting. What's most telling to me, however, is what's happening in Austin luxury market ($1M+), which is now transitioned into a very strong buyer's market at more than 13 months of inventory. Homes at the top of the market, with the smallest pool of buyers, have already gone over the peak. I think this is particularly telling. As homes prices in other market segments continue to rise--and I do think they have some to rise yet--those segments will go over their own peak as well.

Of course, there are many more things to say here. I just wanted to throw out some numbers and thoughts to spark a discussion. However, I do believe that things will get better for Austin investors, buy and hold in particular, in the next couple years. Thoughts?