People have been telling me for 4 years the Austin area real estate market is about to crash. In fact I’ve seen some of the same people visiting our open houses for 4 years who haven’t bought a home because they are convinced prices will come down. So far that hasn’t turned out to be a good decision.
The real estate market works in cycles so no doubt one of these days the Austin area will cool off. Currently we are in a long upward trend. The thing about trends is they tend to continue until some event happens. What that even will be is anyone’s guess. It could be 6 months from now or 10 years from now.
The truth is if I knew when the trend will end I would be typing this from a beach on my own private island rather than my home in Austin.
What we can do today is look at the data for home sales and see if the data is pointing to a bubble popping. One factor that would indicate the likelihood of a market crash is the equity homeowners have in their property.
To have a crash you will need to have a large number of homes being sold quickly at fire sale prices. In other words lots of foreclosures. Some concern has been about mortgage companies relaxing lending standards and buyers being able to purchase a home with little money down. The thinking is home buyers that start with a low equity position and get in a rough spot financially have a better chance of not being able to sell their home resulting in a foreclosure.
Let’s look at the data for the Austin area. I collected the data for the homes that were sold in the Austin area in June. There were 32 homes sold and I was able to determine the loan amount and loan to value for 29 of the homes.
Here’s what I found.
Cash sales – 8 Sales…including 4 of the 5 highest priced homes in the neighborhood.
20% down payment or more – 16 Sales
10% down payment sales – 3 Sales
5% down payment sales – 1 Sale
3% down payment sales -1 Sale
This data covers home sales spanning sales prices from $251,500-$800,000.
What does this tell us? The vast majority of buyers in the Austin area are financially secure and already have a large amount of equity in their home through their down payment or cash sale. We rarely have sales fall through because of financing issues. Based on this data it’s hard imagine our real estate market “crashing” any time soon.
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Posted by Eric Peterson on