Austin Housing Market Overvalued?!
Is Austin Overpriced?
I recently came across several news articles that cite a study by Florida Atlantic University stating that Austin real estate is the second most overpriced market in the country.
I’m here to put some context to those reports and provide you a better understanding of what I feel these reports failed to portray.
The study by Florida Atlantic is a yearly study that incorporates data compiled by Zillow, these numbers from Zillow are the average sales price estimates based on historical trends. I’m not sure they use reported transactions like Austin Board of Realtors uses. But they only use data between the 35th and 65th percentile. This makes sense to me, maybe a tad generic but even when I do comps for buyers and sellers I sometimes take out the lowest and the highest numbers, depending on the situation. But it happens. So ok, whatever...
From Zillow on their ZHVI:
“The specific primary data employed is the Zillow Home Value Index (ZHVI). This measure is a smoothed and seasonally adjusted housing index that is reported monthly with a three-week lag. The ZHVI does not include the tails of reported transactions. Instead, it only reports closings in the 35th to 65th percentile range, which allows for a more accurate estimate of any local housing price trend. The ZHVI has been reported monthly since January of 1996, which is a sufficiently long enough time span for trend development.”
The fine folks at Florida Atlantic run this information from Zillow through a “logarithmic fit” that they created to see where the housing prices “should” be at. Once that data is compiled they somehow place a premium/discount to the price. I say ‘somehow’ because my limited understanding of advanced statistics leads me to no other conclusion than that it must be some form of witchcraft.
I personally felt that the methodology was a bit vague for my understanding (see above), so I decided to contact one of the professors who ran this study to see what info I could gain. I didn’t think they’d respond to little ole me, but they did! I must have some pull with the intelligencia after all, who knew?
I reached out to Ken H. Johnson, Ph.D., Associate Dean of Graduate Programs, College of Business at Florida Atlantic University and asked him why there was a ~50% premium placed on Austin real estate. He mentioned some of the info already in their methodology, but this nugget piqued my interest:
“Austin’s premium suggests that the typical property in Austin is selling at a significant premium based on the history of housing prices in Austin.”
Ok, I get it. So Austin’s housing market is outpacing historical trends. Is this news? Not really.
As a Realtor for almost 10 years I’ve watched the market here and compared it to other markets in order to gain insight for my clients on how our market is performing versus other markets. I use these numbers to calculate where I believe our market is headed. Inevitably, I’ve been advising folks to buy because we were due, in my opinion, for a continuous/steady increase in pricing for the foreseeable future. I based this judgment on many factors including, industry, comparable markets and historical trends. So I already had a good idea that Austin would outpace the Zillow estimates.
I took a look at the ZHVI data to see what I could learn. To my surprise the ZHVI for Austin for July ‘21 seems off the mark based on Austin Board of Realtors data. The value they placed for Austin’s average was more than the actual average. So if the ZHVI was already bloated, then of course the study's conclusion might be too. I needed more info.
I reached out to the professor again. Worried that I might be pestering him because I really don’t have any media credentials to speak of, so as an amazing, awesome, friendly salesperson I expressed my appreciation for his communication with me, as I didn't expect any to begin with. Plus it’s my nature to be grateful. My question:
“If the ZHVI is valued more than the actual, then there wouldn't be a premium? e.g. Austin median prices in July were ~$16k less than the ZHVI. But maybe that's accounted for in the 35-65 rule you mentioned in the Method.”
To be honest I think he kind of dodged this question at first, maybe I could have worded it better. But then he sent a reply that clarified things a tad more:
“Yep — Austin is selling above where its pricing history suggests that it should be selling. Simply put, Austin is the second most overheated market in our analysis.”
Overheated. That’s not the same word as ‘overpriced’ but to be fair Florida Atlantic didn't use the term ‘overpriced’, it was the news outlets that used it.
He went on to mention that he was a sales broker for 12 years and that his take on this info is that it’s a great time to sell. He’s definitely a smart guy.
I really appreciate the doc taking his time to explain things to me so that I could mangle this explanation to y’all that may help clarify things a bit. Maybe I’ll do more investigative journalism in the future, I seem to have a knack for it ;)
One more note that I wanted to pass along is that I originally read the KVUE report on this topic, and I think they got some of their numbers mixed up, most notably is the median sales price in Austin. They stated the median sales price in Austin/Round Rock was $589k in July ‘21. But for Austin/RR it was $480k. The median sales price just in Austin was closer to their reports at $575k. I wanted to mention that for your information.
Moral of the story, if you have any questions about the housing market in Austin, call me. If you see a report that seems crazy, call me. If you’re looking to sell your home, call me. And if you’re looking to buy a home, call me. Also follow me on YouTube ;)
Thanks for reading! Love y’all! -Josh