Most of the homes sold in a real estate market sell at prices around the median, or middle-point. Movement of the median price reveals the flow and direction of the market. The chart below shows median prices at year end, over 14 years:
Median Price (single family homes, not including condos, multifamily, or lots):
2001—- 153,000—- 4%
3.4% (7 year average)
2014—- 230,000—-6% year to date
3.4% (7 year average)
The years between 2001 – 2007 included a downturn (Dot.com Bust) and a return to normal. The median price experienced an average growth of 3.4% during that period.
The years between 2008 – 2014 included a downturn (the Great Recession) and return to normal. Again the median price experienced an average growth of 3.4% during that period.
The appreciation rates noted here include all MLS areas in and around Austin. The percent of change each year expresses a general trend, and is not a number that applies to every property.
Here are some questions and answers that come to mind:
What would our median price be if we had not experienced the Dot.com and Great Recession downturns, but had a steady 6% appreciation over the past 14 years?
A 6% increase each year for the past 14 years would have brought our median price to $326,338 today. It is currently at a more affordable $230,000.
What effect will the current low inventory have on the median price?
The shortage of homes is evident to all who work and participate in the real estate market. Inventory is at an unprecedented low. Homebuyers are having to compete for homes, often offering over list price. Low inventory with high demand is a fundamental driver of appreciation – prices will move up when demand exceeds supply.
What appreciation rate can we expect in Austin over the next 5 years?
Mark Sprague allowed me pick his brain while he recoups from knee surgery. According to Mark, “Appreciation in Austin ranges between 5%-9% during growth periods.” We think that 9% appreciation is predictable for 2014 and 2015. At least 6% appreciation for the following three years is likely.
To quote Mark Sprague again, “If we see 3 years of double digit appreciation in a row, we are moving into a bubble. Double digit appreciation is not sustainable, and a retreat by buyers will cause the market to self correct.”
Is there plenty of land for builders to increase the inventory of new homes in Austin?
No. Almost all large areas that are close-in have been developed. Large close-in tracts (such as Steiner Ranch, Circle C, Lakeway area, Mueller, Pioneer Crossing, etc.) are virtually built out. Close-in Austin is full. As Austin grows in population, central parts will become more in demand and more valuable. People want to avoid traffic and be able to drive downtown and to other cool places in Austin. We see high demand and price increases in close-in East Austin, as well as all close-in north and south parts of the city. Westlake and central neighborhoods are prized locations more than ever.
Will builders add lots of new homes and overload the inventory?
Builders usually take about 25% market share, so that is normal. Large builders are building as fast as they can in suburban areas, but there are few spec homes – all are sold. Development work lagged during the recession, so lots are in short supply. The shortage of lots will lead to higher home prices in suburban areas, which will ripple in to central Austin.
Within Austin, we will see a surge of building in older areas by small builders. In-fill, gentrification, remodeling, and tear downs will supply nice homes to some of the 110 people who move here every day. We will eventually reach a saturation point, but this is not imminent.
Will a crisis or slow down reverse our appreciation over the next 5 years?
It is possible that an unknown calamity will arise, but we tend to be optimistic about the investment quality of homes in Austin.
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Roselind Hejl, CRS
Coldwell Banker United Realtors
512-327-0385 – Direct
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