Austin housing market starting to feel coronavirus effects
For Central Texas' long-sizzling housing market, 2020 is the year the unexpected catastrophic global event — the typical caveat in the region's otherwise ongoing rosy market forecasts — has actually come calling.
Just two months ago, local housing industry expert Eldon Rude, in delivering his annual housing outlook for the five-county Austin region, predicted that this year will be "a huge year" for housing, if there was no "unforeseen global or economic shock that would result in a sharp drop in consumer confidence."
Otherwise, Rude said, "If job growth remains at levels we have seen in recent years, I don't see anything on the horizon that will slow the robust demand we have seen for housing in the region in recent years."
With the coronavirus pandemic, the unanticipated event has hit.
Some economists say the coronavirus crisis likely already has triggered a temporary global recession, ending a record 11 years of economic expansion. The downturn is expected to be "deep but short," said Nigel Green, founder and chief executive of deVere Group, one of the world's largest independent financial advisory organizations.
"The slowdown will be temporary because it's not caused by deep-rooted problems and imbalances in the economy, (but) rather by a wholly unexpected shock that's gripped the world," Green said.
Austin-area housing market experts and real estate agents say it will take more time to see the full fallout from the coronavirus outbreak on the Austin-area housing market. But some effects are already being felt, such as agents calling off open houses and some prospective sellers and buyers opting to stay on the sidelines for now.
Vaike O'Grady, regional director in Austin for Metrostudy, which tracks the housing market, said "we are just starting to see the impact" of the coronavirus on residential real estate.
"The fundamentals of the Austin market (including job and population growth) are strong, but we've never faced a situation like this before," O'Grady said.
"Home shoppers have been encouraged by record low (mortgage interest) rates, but recent stock market volatility has led to some pain and uncertainty," she said, noting that a few builders in recent days have reported canceled sales due to stock market losses. "And like everyone else, builders are grappling with how to keep their employees and their customers safe and healthy."
Mark Sprague, a housing market and financial industries expert with Independence Title in Austin, said the Central Texas economy has diversified and strengthened over the past two decades. He said he is optimistic that the region "is in a strong position to withstand economic downturns that have greater impact nationally," although the effect on those "who depend on each paycheck to pay their bills and provide for their families...cannot be discounted."
"Overall, Austin's economy and housing market look to be resilient during this uncertain time," Sprague said.
Mary Anne McMahon owner/broker of RE/MAX Posh Properties and Motto Mortgage ATX, said there are still a lot of unknowns "with a tug of war in the housing market between cheap home financing and growing economic dread caused by the coronavirus outbreak."
"There is still an air of uncertainty over which way potential homebuyers will be pulled," McMahon said. But, like Sprague, she said the market is well positioned to handle the potential negative impacts.
"With Austin's very strong economy, evolving population, record low mortgage rates and an economy with a 50-year low in its unemployment rate, we will continue to prosper and have forward momentum," McMahon said.
Real estate broker Christopher Watters said that the local housing market is in for a"correction as companies, including restaurants and bars, lay off workers due to the coronavirus. But he said he thinks any downturn will be short-lived.
"Right now, we're in an extreme sellers' market, but it will go to more balanced market once all these layoffs start hitting Austin," said Watters, who owns Watters International Realty, an Austin-based real estate brokerage that operates in 11 other U.S. cities and in Canada. "There will be a slight correction in the market and I think listings may sit a bit longer but I think Austin will get into more a balanced market."
By the end of the year, "we'll see the Austin market skyrocket, once people get back to work and things start cranking again and life gets back to normal," Watters said.
Despite the outbreak, some Austin real estate agents said homes that are priced competitively in popular neighborhoods are still selling within a few days with multiple offers.
One Austin homeowner, Nash Garrison, said he isn't letting the coronavirus outbreak keep him from putting his two-story bungalow on the market.
This week, Clayton Bullock with Moreland Properties listed the three-bedroom, 2,300-square-foot home for $1.45 million. Garrison said he extensively renovated the home, which is on Alta Vista Drive in the Travis Heights neighborhood, but salvaged its original white oak floors.
Instead of holding open houses with random people coming through, Garrison is asking Bullock to screen potential buyers so that only serious prospects are shown the home.
"I'm trying to figure out some new normal, a nontraditional route where the house can get exposure but without having a bunch of strangers coming through just to check it out with zero intention of buying and having to disinfect and Purell everything afterwards," said Garrison, 38. "It's just unfortunate but right now it's a poor time to do that."
Despite the coronavirus outbreak, Garrison said he's sticking to his plan to list the house at this time and "see how the market responds."
"It's still going to be a strong market, regardless of what happens," Garrison said. "I want to keep living my life and doing what makes me happy."
Bullock said he thinks some prospective buyers and sellers who don't have an immediate need to buy or sell "might sit on the sidelines until this all blows over."
Bullock said he held his last open house for the foreseeable future on Sunday — a personal decision, he said, to help keep his family safe. But he said 35 people still showed up to see the listing, a $1.9 million newly built house in Travis Heights.
With housing supply already at record lows inside Austin's city limits, fewer listings could cause prices to keep going up, Bullock said, especially without a slowdown in demand, which he isn't seeing currently.
"A lot of people are relocating here for work, for jobs that aren't going anywhere," Bullock said. "It's going to be an interesting next 90 days. I think we'll come out of it by early summer."
Zillow, an online real estate database company, said its U.S. housing numbers for February show annual home value growth picked back up after a nearly two-year slowdown. U.S. home values rose 3.9% annually in February to $247,084, due in part to a continued shortage of housing. But the economic impacts of the coronavirus pandemic were in their early stages as February ended, so it's possible the uptick will be a blip, not a trend, and reverse itself in the coming months, Zillow said.
"In February we saw inventory stuck near record lows, which was finally enough to reignite home price appreciation after a cooler 2019... Now, though, as so much is uncertain, we are entering uncharted territory for the housing market," said Jeff Tucker, a Zillow economist
Zillow research on past pandemics has shown that home sales activity slowed during the outbreak, sometimes significantly, but prices remained stable and the market recovered quickly once the outbreak subsided, Tucker said.
An economic recession, however, would dampen the outlook for housing somewhat, as that often means a recovery will be slower and more prolonged, Zillow said. But it's unlikely a recession now would have the same impact on the housing market as the last recession did, said Svenja Gudell, Zillow's chief economist. That's because the factors that triggered that downturn "do not exist in today's environment," she said.
"Years of tighter credit standards have reduced the risk of widespread foreclosures like we experienced a decade ago," Gudell said. "Additionally, upward pressure on prices will remain, driven by limited supply with tight housing inventory and demand that's boosted by record-low mortgage rates."
A survey by the National Association of Realtors found that nearly half, 48%, of Realtors across the country say home buyer interest has decreased due to the coronavirus outbreak. That percentage tripled from a week ago, when it was 16%.
"The decline in confidence related to the direction of the economy coupled with the unprecedented measures taken to combat the spread of COVID-19, including major social distancing efforts nationwide, are naturally bringing an abundance of caution among buyers and sellers," said Lawrence Yun, chief economist for the National Association of Realtors. "With fewer listings in what's already a housing shortage environment, home prices are likely to hold steady. The temporary softening of the real estate market will likely be followed by a strong rebound once the economic 'quarantine' is lifted, and it's critical that supply is sufficient to meet pent-up demand."
Locally, the Austin region has less than a two-months' supply of housing inventory, when six months is considered a market with supply and demand in balance.
Sprague, with Independence Title, said once the coronavirus threat subsides, "there is a potential for even more investment by employers in the Austin market."
"I would expect those looking for a more affordable cost of living compared to other major U.S. metropolitan areas will still look to move to and buy homes in Austin," he said.