Austin Inventory Crisis | Where We’re At In This Market (ft. Chris Jacobs)

We had Chris Jacobs of Housing Report to talk about where we’re at in this market. We spoke about what’s going on in the market in the past 12 months, graphs on Austin MSA average values, 5-20 years supply vs. demand, new vs. pending units, inventory, appreciation. We as well talked about the comparison of these graphs for the last 20 years, active prices per area, and predictions to look forward.

With the crazy inventory Austin has from the past couple of months, in June 2020, we started to consume available inventory faster than it was coming to the marketplace that was sustained for a solid six months. What it had done on the annual charts was used to see that for the last 20 years, we consumed 80% of what was available. Chris said that it would just kind of gobbled up where you'd have homes to sell on the market forever and never sold there was that kind of ebb and flow of supply. Since we hadn't hit a negative supply, so we started reducing the number of active units, it kind of really manifested itself.

There was a slowdown during Christmas and then goes the new year where we saw that the inversion of supply and consumption were on a rolling one-year horizon, we're consuming inventory faster is coming to the marketplace. 

That started about 16 days ago, we're on day 10 of consecutive where the one-year rolling number is greater pending is greater than one year supply. And I think that really was kind of the catalyst for it's going to get crazy. 

Companies Relocating to Austin

In terms of causation, which I don't know to be true, this is what I think. Obviously, this was gonna happen, we had our slow time in December, which wasn't slow at all. If you Google Austin investment properties, we are number we're on two spots in the top three. Typically that lead to a few leads a month, nothing big, but it was sometime in December, and I but remember after the Oracle announcement that in between 30 days we had leads, registrations that are looking for investment property in Austin. That may not seem like a lot, but it actually is a lot compared to what we normally get. The people that we were getting were more serious are people in the Bay Area.

Chris added, Oracle’s relocation announcement in December 2020 is one of the interesting things to look at. It was a corporate relocation with no movement of jobs so they’re still keeping their brick and mortar in California. With what COVID is doing and the fluidity of the workplace. You don't have to work where your office is. So obviously, there's that ancillary movement of people who are like I'm getting out of the Bay Area, why be house poor when I'm gonna be house rich in Austin. So I think that there is some correlation there.

Another corporate giant building its facility in Austin is Tesla, when Elon Musk announced building a Tesla Gigafactory in East Austin. It is said to bring jobs 5,000 people to staff its facility. 

“There are other sub-suppliers that are going to come you have all your sub tiers below that are gonna come, apply materials this week announced. They've got their million three square footage on 290 East and 130. They announced they're adding another 800,000 square feet in one building. So they're taking their position in Austin, 2 million square feet,” said Chris.

From several agents, I’ve heard that there are executives from Tesla that are moving to Austin, though it has not been announced yet, it will be announced that Tesla HQ is moving, I think that they’re gonna move the whole operation in Austin.

“They’ve acquired acreage and adjacent acreage down there that I really think it really is going to be announced and it really will be happening. I was on a call with the Cedar Park EDC, last week, looking at some hotel pad sites for an investor. The EDC indicated that, hey, we've got some big job announcements coming forth in Cedar Park, and I'm like Cedar Park is landlocked and running out of space, and they're still bringing jobs to town. I think Tesla would not surprise me one bit.”, said Chris.

“If they completely relocated. I think California is going to tax itself out of jobs, especially some of these higher jobs, higher-paying jobs, where they're like, well, I can do it anywhere. I'm never home anyway. Let me go relocate to Texas and pay the property taxes. That's still cheaper than my income tax bill. And I've had California investors out the union going I need eight new duplexes and I'm just like, there aren't any. Right? You know, we'll get them for you, but they just don't exist.”

Where the Valuation and Marketplace is Going

One of the things Austin's historically done for 20 years as we get, we can maintain that six to 8% annual growth, amortize out over a period of time. COVID really kind of had us all scared come March, we all kind of like hunkered down, we're gonna save every penny we have, we don't know what the market is going to do. Then interest rates dip to below three. When that happened, stuff went crazy. 

About June 1 about when that inversion happened, we could see that serious spike and you saw that shift from where homes were averaging about 422. They hit 480. We've teased 500. We just kind of slowed down at the end of the year. At the beginning of the year, we're crossing that 500 marks, and that 500 marks was crossed when we hit that rolling 365.

We started 2020 with the average pending floating around $395,000. We ended the year with the average 30-day rolling/floating in the Upper 475. And I want to say our year-end number was in the 467-ish range when we amortize that out over a year. We started the year we get into this craziness of showing homes is like going to an amusement park, you got to stand in line and wait your turn and you get your 30 seconds on it and then you get off and you make an offer, then you get back in line. But we're seeing that pending values increase over the 500,000 points, and they're not slowing down. This is the MSA in Austin which are Travis County, Hays County, Williamson County, Bastrop County, and Cadwell County as a whole. If we had the same scenario last year, we’d expect this number to increase 15% over last year’s number.

If you bought a home for 400, last year, it’s worth over 500.

“I have clients who are on the hemming and hawing about selling and I keep telling them like, wait a month, they'll go up,” says Chris. “The message for sellers is if you need to sell today, it's a great time to sell, we'll get you top dollar, it's gonna be a circus at your house for a weekend. But if you don't have to sell them, you want to kind of ride this out, there's still a lot of waves left to ride on this thing. Because there are no indicators that we have any change coming forth.

I think the number one thing we as an industry need to be watching out for is interest rates. And that probably will drive our first shift in slowing stuff down. So this is kind of cool.”

On the graph above, it shows the cities, the number of active units, we have our month, which really should just be days, we have our average list, we have what's gone pending in the last 30 days and what is closed in the last 30 days. An interesting story Chris looked at is Cedar Park where the area has zero homes available for sale because it was all consumed over the weekend. 

By January 27, he ended the day where there were 11 homes active on the market where he suspects that the number is going to be lower by today. 

“They had point one eight months and average list of 475. In the last 30 days, the pending was 432. And the past 30 days of closings were 421. So you can actually see the values increasing in Cedar Park. From what closing lasts 30 days to what went pending, which will be our next 30 days of closing to what will be closing beyond that in the next 45 days. Cedar Park closing at 105% of ask,” he says.

“You can actually see in the next 60-day horizon Cedar Park, January report reporting closes will average about 421, 425. The pending for January will be about 435 and then the actives are 475. So we can just kind of see that wave kind of building in Cedar Park and if you go and look we close 65 doors in the last 30 days we had 61 doors go pending, and we have a supply of 11. The increase all seem reasonable.” says Chris as he talked about the pending average that he has taken from the active pending that was gone under contract in the last 30 days.

Austin Housing Inventory

Chris talked about the difference in the average list price in Austin which is 1,750,000 and 30 days pending; though the difference in the price of average less than average penny is a million dollars. This is okay as it doesn't mean it went up a million dollars.

“So what we have in Austin's example is we have a disappearing marketplace. In Austin, you are not going to find a door under $350,000. So we've really had no FHA buyers available.” 

“If you go look at 650, and under, we're about 292 homes. 248 of them are listed for more than $650,000. So what we have is we have a lot of luxury stuff that just you know, that's a totally different marketplace than our under $2 million markets because I really feel under 2 million in Austin is kind of a normal home, unfortunately. When you look at Zilker, you look at Barton Hills, you're not going to get in for under a million dollars, and you could sit then $2 million, and it's not a special house,” he says.

If you are looking for a home in Austin right now, you’ve got 292 choices in the Austin proper within the City of Austin. The average price is 1,750,000. This is a moment in time that is going to change, obviously, I think you’ll see it go down as more inventory hits the market. 

12 and 13 million dollar listings are kind of skewing this, says Chris. “If I went and removed everything over 3.4 million, we would see that average list come down to about $740,000. And then 3.4 million and higher is about 45 doors. It's truly luxury housing that, you know, we just let cord sell that.”

Here are some number about the Austin inventory and the average list price:

• Austin - 292 active homes - $1.7 mllion

• Buda - 14 active homes - $433,000

• Cedar Park - 11 active homes - $475,000

• Dripping Springs - 21 active homes - $1.4 million

• Georgetown - 75 active homes - $725,000

• Lakeway - 12 active homes - $1.7 million

• Leander - 32 active homes - $640,000

• Liberty Hill - 20 active homes - $504,000

• Pflugerville - 7 active homes - $391,000

• Round Rock - 18 active homes - $547,000

Agent Question: I understand there are no indicators of our market slowing down and it will likely continue to be a seller's market. How do we know it will still be as crazy of a frenzy a year from now? I know the property will appreciate over one year, but do we think sellers will still get these crazy over asking offers with buyers waiting for all their contingencies?

I can say one thing about that. There is going to be a point in time where a lot of people aren't going to be able to because they're going to be priced out of the market and that will create a slowdown where there will be a certain point of the values that will keep rising, not a recession. With people jumping out and getting off the fence because they can’t afford it and that will create an increase, I believe in the rental market. You’ll see rental rates increase at a higher demand, I think that this market is here to say, and here to appreciate for the next two to three, maybe even four years of steady increases, you're just gonna have less, you're gonna have more inventory in the next year or two, because you're gonna have fewer people that can afford that inventory.

With how tight the market has become, Chris thinks that we might see an exodus of agents. There are agents that are writing 40 - 50 contracts trying to get a home for a buyer and there’s no sign of turning around.

On March 1st, the market was ramping up like crazy. We were getting ready to have a crazy summer and on March 1st buyers disappeared. It was a full month. It was a full month till about April 6th and 7th. And they started turning the treasury on in late March on buying mortgage-backed securities and increasing at one. 

We were all kind of preparing for the worst because we were just watching these pendings go away. And it's like, okay, we're cut all luxury spending, cut everything, let's just hunker down and figure out what's going on. Well, they turned on the printing presses, and those rates dropped below three. And as we saw, from about April 8, through June, it just blew up. 

On June 1, we saw that inversion of demand exceeding supply. If we follow that demand exceeding supply, it is operating at about 20% higher than our current supply is coming to the marketplace. So I think in the next 45 to 60 days, we're going to just see an acute shortage where we might see our pendings back off a little bit because they're just, there are no homes to sell.

When Chris talked to loan officers, they said that the credit scores aren't the issue for borrowers credit, it's cash to put the downpayment down on the home is the number one obstacle keeping buyers out of the marketplace. 

And as these prices escalate, that cash close just goes up. It's pretty interesting when we look at the shift in the median value over the last year, the payment stayed about the same, even though the value has increased because mortgage rates have gone down. But the cash to close has gone up 10 or 15%. 

When you tell the buyer, hey, you need another 10% or 15% cash, it's kind of hard to keep up with the savings rates that are required to keep that cash. 

This really just shows that we went from a seller's market to a strong seller's market in June. So this is my distribution of the price curve by county. I kind of you know, we all were used to measuring inventory in months, and I kind of made a shift late last year and started measuring its days. 

One of the things that kind of stuck out with last night the numbers are when we started looking at the MSA homes under $350,000. There are seven days of inventory. 

• Only three days of inventory in Travis County. 

• There six days of inventory in Williamson County, this is all under 350,000. 

• There are 10 days in Hays County.

I've never really followed Bastrop and Cadwell. I've done one or two deals out there and 14 years. They've got 16 days of inventory, which is astronomical. And what was more surprising was Williamson County as a whole is down to eight days of inventory across all price points.

If you're a developer, and you're wanting to build a neighborhood, you know, Bastrop and Cadwell have kind of always been like the redheaded stepchild of Austin. But that might be an opportunity for you. This might be an opportunity for you.

“Bastrop might be the big winner,” says Chris as he talks about the Tesla factory, “it is easy to get in and out, there are favorable buildings. It’s not like the city of Austin, they don’t have to deal with the city. I bet Bastrop sees a building boom that they've just never found in the next five years. So that'd be our biggest source of homes under $350,000.”

Supply and Consumption from January 2001 through December 2020

Our supply has been pretty steady of homes for about 20 years now. 

There's the ebb and flow and seasonality and there are some hills and valleys. But as a whole, the supply in Central Texas has stayed steady. But over that 20 year period, the demand has blown up. And you can actually see how supply has gone nowhere. And our demand keeps coming up. And I would not be surprised if this chart next year shows that demand crossing over the supply line. 

This shows complete steadiness in this market, it’s not a bad place to invest. When people talk about Austin being a safe place to invest, Chris gives the average value since 1990, in Travis, Austin MSA, where there were three instances where the average value dipped into a negative in ‘03, ‘08, ‘09. It barely dipped, it was less than 1%. 

When we go look at the median value, which really kind of takes us some of the higher-end housing, that median dip less than half of a percent in that year. So we just didn't have the luxury transactions driving up the averages. But since 1990, the average home in Austin was about $80,000. And at the end of 2020, this is all housing stock. So these are single-family homes, townhouses, and condos. The average was $447,000 in 30 years. 

One of the things that really surprised me is we talked about bubbles. Bubble, one of the things that come up, and I don't really don't think we're in a bubble, because when we go look at 2000.

“2000 was the dot com, boom, in the dot com bust that started about September of 2000, the average value in the MSA increased over 17 and a half percent. When we go look at 2012, we're at about 12%.”

“So even though we're seeing these astronomical numbers as a percentage change, it was it's not a record year. I mean, dollar-wise, it's a record year, but a percentage shift in the marketplace is not a record year.”

About Investing in Austin

If you are looking into invest in Austin, here are a few things you should take note of:

1. Come in strong, and forget your cap rates, forget your 1% rule and all this stuff they watch on, podcasts or BiggerPockets, or whatever, this is an appreciation play.

2. Work with an agent that knows how to work with investors. Here in Spyglass Realty, our Austin real estate agents are certified to the course that we put them through. Part of that is sourcing deals that somewhat maybe off-market, we're still able to find those at some point. 

3. We have solutions for you to be able to sell your home, and you know cash at fair market value, and then buy a home. Like we can get your home sold in seven days. In seven days, you're closed. 

I talked to a seller yesterday that told me, you know what, Ryan? I get it, it's gonna go up the next couple of years, but like, my house is worth $1 million in Zilker and it's like, 1500 square foot and updated. He says, yeah, but at some point that's gonna slow down and there are diminishing returns, where if I sell this $1 million home, and then I move out to a neighborhood like Driftwood or Bastrop with it, then there's more room to go, that's a good thing. 

You need to be working with people that have solutions to your problems. Putting your home on the market and writing contingent offers is not a solution to your problem, because you will never get that offer accepted. 

You gotta be talking about people that have options, do they have a mortgage company that is willing to put in a buy your home and hold back a portion of the money until it's sold? We have that. Do they have investors that really pay cash, we have that. 

If your home's value and I see this a lot and Barton Hills and Zilker, that your land value is actually more worth more to a developer than an owner-occupant would pay, we have that too. 

If you're a seller, and you're looking at what am I going to do? How am I going to navigate this crazy market, you look for the company, or the broker, or the agent that has the most options.

If you are a real estate agent in this market, you have to be really innovative, you’re going to have to compete. With about 17,000 MLS subscribers and probably 14,000 agents out of that, probably 30%-40% don’t do any business and I expect that number to go completely down.

Here’s what I am saying, one of the agents got into multiple offer situations, one had 40 offers another had 70. And I said, Look, guys, don't let this overwhelm you because you think you're competing with 70 people. But here's the situation, you're only competing with seven because the 80-20 rule in real estate is actually the 90-10 rule. 

What that means is 20% of people are doing 80% of the business, and real estate is 10% of people are doing 90% of the business. If you are in a multiple offers situation with 70 other people, you're dealing 90% of those people are going to be dumbasses. 

An experience Chris shared with us is when he had multiple offers on a condo this weekend, he just kind of look at them, and then there was one that stood out. And really, it was a strong agent that won the deal, not necessarily how it was written. She had her stuff in order, and it gave her buyer that competitive advantage. That is a big key.

Find Chris Jacobs at the Housing Report on Facebook.

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