In late March, a former client asked, “Ivy, when do you think this COVID crisis will cause housing to collapse?” He presumed 2020 would mirror 2008 when foreclosures flooded the market. Qualified buyers lowballed desperate sellers and scooped up remarkable bargains.
Are we now mirroring the 2008 housing market in Austin? Allow me to make three observations
#1: Instead of Lagging like 2008, Housing May Lead an Economic Recovery
According to the National Association of Home Builders (NAHB): “In a sign that housing stands poised to lead a post-pandemic economic recovery, builder confidence in the market for newly-built single-family homes jumped 21 points to 58 in June, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI). Any reading above 50 indicates a positive market.”
To support this confidence, the U.S. Census’ Monthly New Residential Construction Report revealed a 14.4% increase in building permits for new residential construction, and a 4.3% increase in housing starts.
To further bolster this premise, Pending Home Sales increased by 44.3% in May, registering the highest month-over-month gain in the index since the National Association of Realtors (NAR) started tracking this metric in January 2001.
#2: All Time Low Interest Rates
As I write, interest rates for a 30-year, fixed-rate conventional loan is starting as low as 3.188%. This rate ties the all-time low EVER as recorded on June 11 and again on June 30, 2020. That would be just days ago. A conventional 15-year fixed rate is currently pegged at 2.938%
What does that mean? Let’s say a buyer purchases a $343,000 home. They have saved $27,500 for a down payment. Good for them!
If interest rates are 4.85%, their principal and interest will be $1,665 a month.
If interest rates are at the current 3.18%, their principal and interest will be $1,361 a month.
In contrast, interest rates in 2008 were 6.03%.
#3: Austin’s Low Inventory
The rule of thumb for inventory reporting goes like this: if we are under a six-month supply, sellers gain the upper hand; if we are over six months, buyers call the shots. As of last month, according to the Austin Board of Realtors, inventory levels are now at 1.1 months (and all sellers smiled). Compare this to the 6.6 months of inventory reported for Austin in November 2008. Of note, in that same month, while 930 homes sold in Austin, 832 were withdrawn from the market, 664 listings expired, and 1496 did not sell.
“Ivy, when do you think this COVID crisis will cause housing to collapse?” I do not see it. Yesterday one of my team members invested five hours searching for one of my new buyers. He found three matching her general criteria. A year ago, I would have shown her fourteen to seventeen. When I inquired, he simply replied, “We ought to rename Austin, ‘Sale Pending City.’”