01/27/2021
What is happening in the Austin market? I am constantly seeing social media posts about houses being sold far over market value, up to $200,000 over in some cases.
The rhetoric implies this is the “new norm” claiming that Californians are being driven here in hoards by the high cost of living there. Further, that they show up with huge amounts of cash from the equity in the houses they sold there and are still able to buy far over value here and still feel like they got the bargain of a lifetime.
While it is true that many move from California, the biggest percentage of people moving to Austin are actually moving from other cities within Texas according to do512.com.
Regardless, these inflated prices have some astronomical long-term consequences for the city, the least of which is making it more difficult for current Austin residents to move around within the city.
Ultimately, overpaying for a home using cash drives up the “actual” home prices in the area, which in turn drives up the tax assessed value of the home. This drives up your property taxes each year. In Texas, if you have the homestead exemption on your primary residence, the amount your “taxable” value can go up is limited to 10% per year. However, even in the current market, many people see them go up the maximum each year. This means in just over 8 years, your property taxes will literally double. Contrast this with California which only taxes 1% of the value and limits increases to only 2% per year.
So I decided to take a look at the data for what sold in Austin from January 1-January 26th 2020 and see what answers I could gather.
I grouped the data in 2 different ways to analyze. First by zip code, and then by the general cost of the homes (broken into less than $200,000, more than $1 million, and each of the hundred thousands in between.
When I looked at the cost of the homes, I see that it is happening, but not as much as I imagined, at least not yet.
It is happening the most percentage-wise in the $300-$400 thousand range, with 54% of the homes closing at a higher closed price over the listed price. In this range, the highest overage was 126%, which was $66,000 over on a $252,000 listing in Leander. This happened to be a cash deal. Now that would make sense, since because when you are using a lender, an appraisal comes into play and if the house doesn’t appraise for the value you are paying, the loan won’t make, at least not as easily.
However, the highest overage I saw happened the day after I ran my initial reports. A home in Brushy Creek sold for 46% over on a $370,000 listing, bringing in a whopping $541,000. This was a conventional loan. That means in all likelihood, the winning offer (by the way, there were 97 offers on this home) contained an appraisal waiver. That is when the buyer has funds to make up the difference if the property doesn’t appraise. Now when I reviewed comps to see if this home was listed at the correct price, it definitely was. Which means it very well may not have appraised and the buyer had to bring an additional $171,000 to the table to close, in addition to their 5% down payment and closing costs.
When I looked at the percentage of homes selling over list, only 22% were cash. 69% were Conventional loans, and although I am not sure how these worked, 3% were VA and 4% were FHA. (Which I did not think allowed you to make up the difference.)
When you look at the zip codes, it is happening sporadically throughout the market, not on every home. And although there are extremes like the examples above, the average “overage” being spent is less than 10% in any given zip and 2% if you look at the entire market. The one thing that surprised me were the “highest” percentages were not actually in Austin, but in Cedar Park and Round Rock.
So why is this happening? Some say it is the perfect storm. Local inventory is lower than it has been in my 12 years of real estate, with barely 2 weeks of inventory on the market. This is primarily due to the pandemic. There is also increased demand for property in Austin as announcements for relocations of 3 major businesses to Austin (TESLA, Apple, and Samsung) have been announced. People that aren’t even moving here yet are buying in anticipation of sky rocketing real estate prices once these companies are established.
When does it end, or does it end? There isn’t anyone who can really answer those questions, but it isn’t looking like an end is coming anytime soon.
If you have property to sell, my advice would be to make certain you have a place to go before you put it on the market, because it will sell and it will sell quickly. And if you are selling, I will list your home for 1-2% lower than most in the market allowing YOU to get the most out of your sale in this crazy market.
You can also link to the zip code breakdown at www.Listing4Less.com.
