Deja Vu All Over Again

While the headlines are still reporting negative year over year sales, let's examine what is really happening in the US and local Texas markets.

In short, inventory is extremely constrained, not quite as bad as last year, but still quite low. Yet, despite higher interest rates, demand is fairly strong, and certainly sufficient for the level of inventory. So unlike all the gloom and doom predictions, prices are rising and well priced homes are receiving multiple offers in many areas!

In order to understand the current market, we need to first understand available inventory. The above graph shows current US Single Family inventory including inventory for the past six years. While we are about 30% higher than the past two years, we are no where near pre-pandemic levels! Although hard to conceive for anyone who was buying and selling last year, we can look back and see that at this time last year inventory was rising 4% per week. This seems inconsistent knowing that at this time last year, prices were near their peak!

However, last year, many sellers took advantage of soaring home prices and the threat of increasing rates to sell their homes and buy another home while interest rates were still low, thus creating inventory.

This year, that is not the case. Although it looks like inventory may be starting to rise, the current inventory trend is very different from last year as well as the normal pre-pandemic trends. We are seriously supply constrained!

Price Reductions

The graph below shows the percentage of listed single family homes that took price reductions. This is not the amount of price reduction! It is the percent of homes that reduced the sale price, prior to going under contract. Note that while the current percentage of price reductions is still quite higher than 2022, price reductions have not yet started to rise as in most normal years. However, if inventory starts to increase, as seen in the previous graph, price reductions could increase as well. At this point, there is enough demand to meet the current supply, and thus price cuts are not increasing at last year's rate!

Keep in mind that we are looking at list prices for properties that will not or did not likely close for 30-60 days later after list date. Most real estate reports use sales data, which is a lagging indicator.

All markets are Local

Let's take a look at price reduction data for several Texas markets. Each graph shows the trends for each of four market segments, based on median price. Each market is divided into highest (luxury), upper tier, lower tier, and lowest priced homes. This in itself allows me to show my clients the segment their home is in, and how that segment is performing. This allows me to better set price expectations for selling a current home, or investing in a new home!

In Sugar Land, TX, there was a distinct difference in the way that homes in the top and bottom ends of the market took price reductions versus homes in the middle of the market. In 2022, homes in the top and bottom segments saw price reductions months before mid market homes. This suggests that both luxury and lower priced segments were much more price or interest rate sensitive last April and May, well ahead of other segments. It could also reflect additional supply in those segments.

In Magnolia, TX, homes in nearly all segments of the market saw price reductions increase in May 2022. I believe that because of all the new construction in the Magnolia market, new home builders, worried about the interest rate effect on current inventory and planned starts, began reducing prices. Indeed, many Houston area builders were slashing prices last summer and fall! It is also interesting to note that homes in the lower market segments saw a higher percentage (around 60%) of price reductions this past winter, suggesting that homes prices in those segments were overpriced!

In Austin, TX, there are a couple of distinct differences in the price reduction data. First, last fall, the percent of homes that took price reductions approached 70%, which is higher than any time in recent history. In addition, the current level of priced cuts is still hovering around 50% for most markets. When comparing the Altos Market Action Index, it is no surprise that Sugar Land, simply based on price reductions, is the strongest seller's market compared to Magnolia and Austin!

If you choose to work with me, I will use these and other great predictive data to help determine the best market value for your home!

If you're thinking of selling, let me help you get the maximum value for your home, with the least amount of stress! Likewise, if you're looking to buy, let's work together to determine the best time and the best market price for your new investment!