We're coming into the fall season and people are starting to ask where is the market going? Well I am here to tell you. We are starting to see just a little more supply in the market, but inventory is still lower than 'normal.' Normal is six months, and in Austin we are still around 2 months of inventory. Nationally we are still in low supply territory which has driven up prices since 2013 with no signs of stopping.
Two major factors in supply in Austin are increased materials pricing and high employment. Tariffs and all of the construction work going to repair homes in Houston has sapped the supply of raw materials and the labor to build new homes. If we look at the new construction from before the housing boom to after, it's easy to see where we got into trouble. This matches the supply side in the previous graph to show we had way too much inventory combined with cheap and easy debt which created the buying frenzy. Since the bust, we have been under built for a decade now and are still trying to catch up.
So what does this mean for housing prices? You may hear some people predicting another housing crash because prices keep going up. The deep scar of the housing crisis of 2008 is still with us. However the data doesn't really indicate that so much right now. We still have limited supply and low unemployment, so there just aren't enough houses which is driving prices up. Home prices are expected to continue to rise over the next five years although at a slower pace. In 2018, we are closing in on 5.9% appreciation in housing prices. The predictions show that will slow down but prices will still go up.
If we look at this data locally, most of the growth has been occurring on the west coast. Several states have well over 10% price appreciation.
If we combine this outlook with the fact that interest rates are headed up, housing affordability is going to become more and more difficult in the near future. The cost of money is going up, the cost of homes is going up, and the supply is not catching up fast enough. So the best time to buy in the short term is now. An increase in housing supply is the one lever that could change this, and so far we are not seeing enough production to bring prices down.
Resources:
Mortgage Rate Projections
http://www.freddiemac.com/research/pdf/201807-Forecast.pdf http://www.fanniemae.com/resources/file/research/emma/pdf/Housing_Forecast_071718.pdf https://www.mba.org/Documents/Research/Mtg%20Fin%20Forecast%20Jul%202018.pdf https://www.nar.realtor/sites/default/files/documents/forecast-08-2018-us-economic-outlook-07-30-2018.pdf