Will the butterfly effect have enough rippling power over the gripping Austin Housing Market
Eyes glue to the news, schools close, stores close, commerce pauses, events cancel, stocks dive, spring break plans went down the toilet - and yet grocery stores sell out of toilet paper - a time in history that could henceforth be known as the Great Toilet Paper Pandemic of 2020.
People are terrified and confused. Some fear for their health. Some fear for their freedom. Some fear for their retirement fund. And others just want to go to the store and not be smacked back to the reality of this uncharted dystopian world of no toilet paper.
Things then get a little bit worse. Panic sets in, and then also something kind of wonderful begins to spread as well - Hope.
While it might seem frivolous to talk of such things as housing markets and economic health during this time, let’s talk about it anyways. Because breaking down the unfamiliar into chomp size pieces helps bring focus back to a situation that may actually not be the bleak despair some fear it to be. In fact, the Austin, TX housing market provides the very resiliency that could carry us through these muddy market waters.
Let’s tackle the facts first.
Here, we will unpack (a) most recent housing market stats (b) 2008 verses today (c) history of pandemics/natural disasters - effects on the housing markets (d) Precautions (e) Austin Resiliency (f) Opportunities.
Recent Austin Housing Market Stats (Updated 3-24-20)
(Note: This section will be continuously updated to keep up to date with the Austin housing market).
February 2020 continued the January trajectory of untapped acceleration in the Austin housing market activity boasting 45% more pending homes than the year prior. This is probably not surprising, and I will review this in more detail to come. However, I know what people are really curious about is what is happening right now.
Take a look for yourself: During the first three weeks of March, when the reality of the implications of COVID 19 began to truly saturate the American conscious and stock markets reflected an equally volatile uncertainty, the housing market barely skipped a beat. In fact, it actually reflected a higher number of pending contracts than the year prior during this exact March spring market frenzy in 2019. The market in Austin is moving, and buyers and sellers alike are demonstrating confidence in the local housing market as evidenced by the most recent stats to date. (Updated 3-24-20).
As we ambiguously floated into week three of March 2020, we again noticed higher pendings than the comparable week of March 2019. However, that is not to say the market isn't affected by COVID -19. What we are seeing however is an astounding resiliency considering the circumstances of the current situation.
Would this week look different in Austin real estate if we had never met our unwelcome visitor COVID- 19? Absolutely. However, agents, buyers and sellers are committed to overcoming physical obstacles and pushing forward. When this is all said and done, expect people to be in a frenzy to get back out there and pick up the bumping market again. Until then, Austin is holding strong and paralleling not only a historical, but what has almost become a cultural phenomena, for Austinites as they refuse to let the pandemic overtake their positive psyche.
Market Crashes Verses Housing Crashes
Evidence Against the Bubble:: Analysis of 2008 Short verses Today
When the Dow dropped record lows, many felt that reminiscent trepidation of the market crash on Sept. 29, 2008. But this isn't 2008. In fact, the troubles in the housing market that followed 2008 were the cause of, (as opposed to the effect of) the brewing housing market instability. Until 2020, this was the largest point drop in history. The reasons for plummeting stemmed from Congress rejecting the bank bailout bill, but the stresses that led to the crash had been slow roasting for quite some time. When subprime loans were offered by banks and packaged and sold off together, homes began to foreclose at record rates, and the system folded.
It is easy to let fear overcome us when faced with new uncertainty. We want to box facts into history as we search for best and worst case scenarios. The recession in 2008 was a result of long brewing factors and gaps in a healthy housing market. The housing market in 2019 was HOT, but not "too" hot. In fact, the Austin housing market has a solid foundation built to last, and is quite the opposite of a housing "bubble."
Take a look at this graph. This the percent change of medium home price. It has been decreasing overall, meaning although home prices have risen during this time, the percent of increase in prices has narrowed over the last eight years - both in the United States, Texas, and Austin. Moreover, the Austin market actually demonstrates a gentle slope of percentage change - signature evidence against both a disruptive market or housing bubble.
This curve is in direct opposition to what was going on between 1990 and 2008.
"During the housing bubble that began in the 1990s, home prices more than doubled by 2006 before crashing. The housing market remained in the doldrums through 2012. Although prices have risen steadily in recent years, they’re just 22% above their peak. Homes aren’t overpriced. That means with mortgage rates low, housing can help offset troubles in the rest of the economy." (Faucher USA Today)
Black Monday
If this isn’t 2008, maybe a better question to ask would be: “Is it 1987?”
Moreover, if the market crash wasn’t housing led, will that shelter the housing market from following suit?
It is impossible to know for sure. One fated day -Black Monday, October 19, 1987 - marks eery similarities of desperation as people suddenly saw their lives turned upside down in a moment when the Dow Jones Industrial Average (DJIA) fell exactly 508 points (22.6%) - at that time it was the greatest one day drop since 1929.
Although the market began to recover over the next three months, the inexplicable worldwide phenomenon left a fearful and uncertain future for many. This trepidation and loss of trust rocked the housing market for four years. Many felt the oncoming of another Great Depression. While it was difficult years, it did not reach the depths of despair many feared, and also laid the opportunity for a rebirth of New York City (Strum, Mansion Global).
Now here we are after March 12, 2020 a day now known forever as Black Thursday, when we experienced a global stock market crash with the greatest single-day fall since Black Monday. All this because of fear and uncertainty surrounding what is next for our nation amongst the Coronavirus Pandemic. Although this feels similar, Black Monday does not reflect nor predict exactly what is happening now.
Although there are definitely parallels - watching the stock market go from a bull market to a bear market overnight definitely resonates right now. However, similar to 2008, the housing market in 1987 was already weakening before this fated crash. Also, this was a very different time for buying power with interest rates between 9 and 10 percent, verses the 3.5 to 4.5 interest rates we have seen over the last few years. Without that buying stimulus to heal the market, it was difficult for the housing market to recover as quickly.
The Effects of Pandemics on the Dow and Housing Market
September 11th
Although not technically a "pandemic," I was curious about other sudden drops in the market that were historically catastrophic in cause - similar to the Coronavirus Pandemic. Following one of the most tragic days in US history, 9/11/01, the NYSE and the Nasdaq remained closed until September 17, 2001 - the longest shutdown since 1933. On the first day of NYSE trading after 9/11, the market fell 684 points, a 7.1% decline, setting a record for the biggest loss in exchange history for one trading day. At the close of trading that Friday, the Dow Jones was down almost 1,370 points, representing a loss of over 14% (Davis, Investopedia).
Similar to today, major stock sell-offs were industry specific hurting the airline, insurance and travel sectors the hardest and oil prices per barrel dropped significantly. However, the housing market did not bounce "back." It did not need to as it didn't have time to sit long enough for any real fluctuations in the housing market to cleave. Instead, home sales continued on their upward trajectory.
SARS
The SARS epidemic sounds like a similar situation to the Coronavirus outbreak, but is it? We may want to pull optimistic similarities here as the housing market only skyrocketed in the years during and proceeding the SARS epidemic. Unfortunately, the COVID 19 pandemic is much more expansive and correlated to the market than SARS ever was. To start, SARS was able to power through undetected by the market. This was partly due to its lower infection rate. Also, at the time of SARS, U.S. invaded Iraq - taking media attention away from the outbreak and the stock market was in the early stages of an economic expansion and cheaper stocks. Both these factors added a filter of protection from potential market hysteria. (Cowen, Market Watch).
H1N1 Flu
Which leads us to H1N1. The market appeared to be gravely affected by this outbreak in 2009. However, this was more related to the 2008 crash. What you see here is potentially a prolonging of a recession that was already happening. The housing market was already tanking, and H1N1 fears only added salt to an already wounded economy.
Pandemic Conclusions: There is ONE consistent finding in each of these scenarios, whatever the housing market was already doing at the time of a pandemic, the housing market continued to do afterwards. That would bode well for Austin.
Austin Resiliency
Austin, TX is strong with a peculiar historical resiliency during national recessions. Secondly, the national housing market is still set for continued health despite this tumultuous month. In fact, Austin has the capacity to not only survive this, but to thrive. So here is where I am going to infuse your brain with historical graphs to demonstrate the depth of true market value Austin accumulated before this disaster.
Between 2007 to 2009 and 2010 to 2012, only nine of the fifty most populous cities saw an increase in home sale price, and Austin lead the pack with an over $13,900 increase in median home sales price!
Now look again at these graphs and you will notice these four things:
1. Austin "handled" the 2008 recession like a boss.
2. Austin's medium home price hones a gentle upward slope.
3. Despite Austin's increasing home prices, the percent of change has been decreasing, signifying a stable market as opposed to a bubble.
4. When markets in the nation and Texas dropped slightly, Austin's price growth steadied.
In Conclusion
Will we feel the economic effects of the coronavirus in Austin? Predictably so. Will it alter the trajectory of the housing market in Austin? History would support the theory: No. Which thereby actually gives rise to an opportunity for economic growth if leveraged correctly (and we can help with that).
Housing markets hone a much slower and deeper curve than stock markets, and a short recession won't have time to truly fester here. In fact the much less volatile housing market can help offset troubles in the rest of the economy, if we let it.
Lastly, I believe the word of the day is "resiliency." Austin is so much more than a hot market, it is a "resilient" market. And now more than ever, we know how important this multifaceted economic strength is. The Austin economy isn't flimsy and this tech city has the highest resiliency factors in terms of abilities to work from home and a movement virtual. There is significant hope and strength, and let's face it, plain old Austin, Texas stubbornness to not only survive this, but to fight this unprecedented pandemic and new normal.
Everything we are facing right now, we can get through. This will NOT last forever. We will be hopeful but always honest and researched, so stay informed as we continue to provide you with updates and in depth analysis every step of the way.
We are here for you. As your expert, as your community partner, but most importantly as your friend. Please always let us know, How can we best help you today?
