2020 Austin End of Year Report

[David Ivy]

In the early weeks of the 2020 coronavirus pandemic, fears of a protracted lock down caused demand for toilet paper to far outstrip supply. The resulting toilet paper shortage produced scenes like the one pictured below throughout the US. The shortage itself pushed demand even higher.

This very same supply-demand dynamic took hold of the Austin metro real estate market in the later months of 2020. While we’ve seen a low-inventory seller’s market for most of the previous decade, current market conditions are even more extreme. For example, Austin ended 2020 with only 0.7 months of housing inventory, with the metro area coming in lower at 0.6 months. In other words, the shelves have been practically stripped bare!

I encountered the scene below on a cold, rainy New Years Eve morning at a listing in North Austin. This scene is now commonplace for single-family listings at more “affordable” price points when they allow showings without a prior appointment. Nearly every listing I’ve visited in recent weeks has had a revolving door of back-to-back showings.”Hot” listings can receive upwards of 50+ offers, with some receiving much more.

To find success in this market, buyers at the most competitive price points are having to offer SIGNIFICANTLY over asking (e.g., $50k+ over asking on homes in the $200s & $300s), fully waive their appraisal contingency, and be ultra-aggressive on all other contract terms. Competition is similarly fierce for 2-4 unit properties, which I’ve seen regularly get 10-20 offers, even as far north as the Killeen area.

All this is great for for sellers, especially if they're holding investment property or planning a move outside of the Austin area. However, for those considering selling their primary residence and moving to something better in the Austin area, a common concern is, "I'd love to sell, but what am I going to buy in this market?" 

In years past, buyers frustrated with the competitiveness of the area’s resale market could reliably turn to new construction as an alternative. They might have to move to outlying areas, but at least they could avoid bidding wars, get more home for their money, and have a chunk of their closing costs covered. However, area home builders themselves currently have next to no inventory due to the sudden, unexpected surge in demand coupled with uncertainties about materials availability and pricing.

Here are the December 2020 stats for the City of Austin and the Austin-Round Rock MSA:

The current extreme conditions in Austin’s housing market are unsustainable. Something will give; it’s just a matter of what and when. From what I’ve seen, and everyone I’ve talked to, there’s no real hope for significantly increasing supply for the next few years. Yes, the city is currently overhauling its land development code, builders are ramping up to build thousands of homes in the next couple of years, and more sellers will come off the sidelines after COVID. However, we’re so far in the hole with inventory, that it’s hard seeing what can actually be done in the next year or two to address the supply side of the equation in a meaningful and long-lasting way.

It's much more likely we’ll see the demand side faltering first, be it from rising interest rates, continually rising prices, or any number of other factors. However, even with a decade of strong price growth behind it, the Austin metro market is still quite “affordable” compared to many others in the US. We’re also all familiar with the incredible economic growth happening locally, with recent moves and expansions from companies like Tesla, Oracle, Samsung, and Apple that area really only the tip of a much larger economic iceberg. Austin will create thousands of jobs over this new decade, many of which will be filled by new area residents. So, the area market may very well have years to go with the current extreme supply-demand imbalance.