There is no question that 2018 was a tough year in the stock market. In Q4 the S&P was down 13.97 %, the DJIA was down 11.8% and the NASDAQ was down 17.5%. This volatility in the financial markets has stirred up some questions about the Austin real estate market. To better understand the state of our market and how it could be impacted by these fluctuations, we need to evaluate the components that contribute to home sales. Even though we get nervous when we hear the headlines of a drop in the stock market, the reality is that stocks are held by most people as long term investments. Stock market portfolios are not counted on as a primary source of income but rather a tool for long term wealth creation. While the overall net worth of a buyer does affect the price of a home he or she can afford, it does not typically dictate ordinary expenditures. Monthly income is often the largest consideration when making housing decisions, and that should not change for most people with stock market corrections. As we focus specifically on Austin real estate, supply and demand are what set market prices. Currently in Austin, across all areas and price points, we have 2.2 months of inventory. The definition of a balanced market is six months of inventory. Supply of homes in the Austin market is very low. Limited land, strict development requirements and the high cost of construction are obstacles to increasing supply. Demand for Austin real estate remains extremely high as Austin’s GDP, high employment and overall desirability remain robust. Austin’s job growth in 2018 was 3.9% and unemployment is currently at 2.9% compared to the national average of 4%. We are ranked the #2 fastest growing metro area in the country. The GDP in Austin is 6.9% while 3.5 to 5% is considered healthy. This sends the message that money is being made and spent in Austin. Interest rates also play a role in the real estate market. While many people assume that interest rates for mortgages are influenced by Federal Reserve’s action, actually, they are most closely tied to the 10 `year bond yield. When the stock market is volatile it often pushes investors to the stability of the bond market. The resulting increase in demand for bonds leads to a decrease in the yield for 10-year bonds which subsequently results in `a decrease in mortgage interest rates. Mortgage rates have actually gone down since November of 2018 even though the Federal Reserve has raised the fed funds rate. It is important to keep in mind that the interest rates on mortgages are still at historic lows which provides a unique opportunity for Buyers. The biggest impact of a volatile stock market on local real estate is the downturn in consumer confidence. Historically consumer confidence is more important than interest rates for buyers purchasing homes. When we experience uncertainty in the financial markets, consumer confidence can be the element that causes the most stress on spending habits. When the markets dip everyone feels a little less wealthy and buyers may have trepidation in making big purchases, including housing. This is an important reason to price homes accurately with the insight and comps needed to justify the price. Overpricing in a volatile market can result in a home taking longer to sell and ultimately garnering a lower sales price. Overall, we are so lucky to live in Austin with our strong economy, diverse population and exceptional quality of life. As we hear rumbles of a softening economy and housing market declines we must weigh in the Austin economic indicators and always know that real estate is local.
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