How Will COVID-19 Affect Austin Real Estate?
published on March 26, 2020
The world is sharing an unprecedented health and economic challenge with the Coronavirus pandemic. Coming off of a position of substantial economic strength, we are now in uncharted territory: a pause on the economy that is not based on actual economic fundamentals. The big questions are what the short-term and long-term effects will be and whether there is a silver lining.
First, let’s look at our history. Single-family home prices in Austin have increased a straight 10 years in a row by a stunning 68%. Just last month (February 2020 compared to February 2019), median sales price was up 14% to $395,000 in the City of Austin. Since the recession, inventory is down 89%, from 5.5 months in 2010, to an incredibly low 0.6 months most recently. These are record-breaking statistics!
We also have to consider interest rates, which today at 3.65% are 30% lower than the average rate of 5.25% we had from 2008-2010 (during the depths of our last recession.)
It just so happens I started my company, Regent Property Group, at the start of the last recession. Within just a few months, the number of homes sold was down 35% over the previous year. The U.S. government quickly passed a stimulus package that included individual payments and later added a $7,500 tax credit for first-time homebuyers. While sales slowed or went flat over the coming years, median price increased 11% from 2006 to 2010. About midway through the recession, homes took about 15 percent longer to sell. These numbers are not great – as we are used to now – but they’re also not devastating. And it looks as though the economic steps the government is taking now will be even stronger and more potent.
How Does The Recession Compare to Now?
The tremendous difference between then and now is that we are experiencing an artificial pause. The stoppage is created due to a pandemic, rather than to the underlying weaknesses we experienced before. We still have buyers; we have low but in-place inventory, as well as new construction; and we have interest rates that help make homes more affordable. Once this artificial pause is ended, these strong factors will hopefully remain – perhaps even popping up like pent-up steam.
A Look at the Stock Market
From a stock market perspective, during the recession, the Dow Jones Industrial Average index crashed 53% over a 17-month period (511 days), peaking at 14,093 on 10/8/2007 and ending at its low of 6,627 on 3/2/2009. Once the Dow hit the floor in March 2009, it took four years for it to rise to its pre-recession peak.
In comparison, the Dow dropped just under 36% – from 29,551 to a low of 19,000 – in the short time span of 40 days from 2/12/2020 to 3/23/2020! The underlying conditions of the economy and reasons for the drop couldn’t be more different, however, which means how long it will take to recover is less predictable.
With the Dow dropping so far so fast, it would be comforting to think we have ripped off the Band-Aid and will experience a recovery within a fraction of the time it took during the recession. As of now, an unprecedented $2.2 trillion stimulus package, including a one-time check of $1,200 to Americans who make up to $75,000, has been signed into effect. This is on top of $1.5 trillion in capital injections to calm Treasury-bill liquidity issues and boost economic activity and the additional government-produced actions that are still taking shape. Nonetheless, it is our actual industries that must go back to business as usual before we truly find our economic feet again.
Austin Real Estate during COVID-19
How will Coronavirus impact Austin housing? First, it’s important to know that real estate is considered an “essential service”. This means sales, appraisals, inspections, movers – they all can continue during this time. Certainly, things will be different for a while, as we adapt to social distancing, but for those who need to act now, you still have that option.
Beyond these essential transactions, it’s likely we’ll have less home sales overall. It’s hard to say what will happen with prices: will even lower inventory continue to increase prices? After all, we have a significant backlog of people trying to buy. Or, will buyers pull back, causing a decrease or flattening of prices? Homes with funky floor plans, location issues, street noise, small backyards in family neighborhoods, outdated finishes, etc. may be harder to sell. On the other hand, these properties may present opportunities for investors, who were experiencing too much competition even a couple of weeks ago. Interest rates are still phenomenally low.
Independence Title State Director of Information Capital Mark Sprague said, “None of us have seen a crisis like this. All we can rely on is facts. Facts prepare you and give you a basis for an appropriate response to evolving events. Don’t panic. A measured and analytic response should be more profitable, particularly long term.”
He said not to scrap your 2020 business plan. “Your 2020 may not work out as you’d planned and believed in as recently as four weeks ago. Personally, I think it could be better in local real estate channels. Time will tell. It truly is how you handle it, whether you are successful or not. Much of the concern on the demand and supply sides of the housing equation is timing.”
In other words, optimize your moment for meeting supply or demand.
Real estate in Austin will not stop and will remain an open door for those who need or want to use it. We’ll simply need to pivot for now by offering more services such as virtual tours, video walk-throughs, online document signing, and more.
Time at home is well spent prepping your home and yard for sale, if you expect a move is in your future this year. My best advice: look at your specific circumstances to evaluate what will or won’t work for you and talk to a Realtor® about what actions you can take now to prepare for when the market gets back into full swing. Once it does, it’s likely to be off with a bang!
Disclaimer: I’m not an economist, nor a professional financial advisor, so please consult your professional advisor before making any decision.
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