Home sales in the Austin area fell from May to June. The drop was unexpected because of the strength of the housing market in Central Texas and because June is a prime time to buy homes.
Austin’s housing market is still strong. Home sales in June 2013 were up 16 percent compared to June 2012. And median home prices are strong too, up eight percent over the past year, according to the Austin Board of Realtors.
So why did Austin-area home sales drop last month, even if it was a decline of less than 100 units? Housing economist Jim Gaines with the A&M Real Estate Center gives us five major reasons.
#1. Fewer Distressed and All-Cash Sales
This is mostly the investor market, people who buy homes to turn them into rentals or flip them. That market share has been declining, Gaines says, helping to bring down the overall number of home sales. A major reason for that decline is...
#2. Higher Prices
Median prices for single-family homes in Austin are up by eight percent over the past twelve months, according to the Austin Board of Realtors. That makes it less appealing to drop cash on a home, and the sense that prices haven’t peaked means sellers aren't necessarily rushing to cash in.
#3. Credit Market Hasn’t Loosened
We still have somewhat tight credit policies being enforced by lenders, Gaines says, “which is especially hitting hard the first-time home buyers and the lower income home buyers.”
Those individuals tend to need to borrow a greater portion of the value of their home, because they don’t have the savings for a larger down payment. They may also not have as good a credit score or employment history. “It’s just tougher for them to play in the market,” Gaines says.
#4. Fewer Homes on the Market
“We can’t have sales if we don’t have people offering their homes to be sold,” Gaines says. While home building and construction has picked up remarkably, it is still not enough to meet demand.
Since November, there has been a less than three-month supply of homes available in Austin. That means all the homes would sell out within three months if nothing else changed. A healthy level of supply is considered to be about 6 or 6.5 months, Gaines says.
#5. Higher Mortgage Interest Rates
Thirty-year fixed-rate mortgages hit a two-year high this month of 4.51 percent. Rates are currently about a percentage point higher than they were in May, according to the Federal Home Loan Mortgage Corporation.
“A guy who might have qualified for a loan when it was 3.8 percent, all of the sudden he doesn’t qualify for a loan when it’s 4.25 percent” because his monthly payments would be higher, Gaines says.
“When interest rates go up, typically we find that it does have more of an effect on the sales volume than on the price,” Gaines says.
Bottom line, on a year-over-year basis, Austin’s real estate market is white hot. It’s still “going and blowing” as Gaines says. In some cases, particularly desirable homes in good neighborhoods are getting snatched up before they’re even listed.
But in many ways, Austin is becoming a victim of its own success: so many people want to live here that supply is becoming severely limited, leaving slim pickings for potential buyers and driving up prices. Factor in rising mortgage rates, and buying a home in Austin might not be quite as attractive as it was just a few months ago.