Austin Real Estate & Recessions
, May 22, 2022
How Did Past Recessions Affect Austin Real Estate?
We’ve been monitoring the current crisis closely and have read quite a bit of speculation with regard to the coming recession from different credible sources. Some sources speculate that this will be a very short, V-shaped recession with a strong rebound in Q3, while other sources predict that it will be long and disastrous. We tend to look at the middle ground and predict that 2020 will be pretty bad, with some sort of rebound in Q3, and a return to a somewhat normal market in 2021. Regardless, all reputable sources agree that we’re entering a recession (which is defined by 2 consecutive quarters of negative economic growth.)
Since almost everyone can agree that we’re entering a recession, it’s productive to look at how the Austin real estate market was affected by past recessions. We discovered TAMU market data for the Austin-Round Rock MSA from 1990 to present, which is available for download here. We took this information and created 3 charts, which are available here.
Since 1990, the USA has experienced 3 recessions:
- July 1990–Mar 1991 (8 months)
- Mar 2001–Nov 2001 (8 months)
- Dec 2007–June 2009 (18 months)
The most obvious question for any buyer or seller is “What did this do to home prices?” The surprising and consistent answer is, “Not much.” We don’t have data for 1989, but 1990 finished the year with an average sales price of $81,770 (whoa!) 1991 saw an average of $88,132, which is an average appreciation of 7.7%. The 2001 recession saw a very similar lack of price changes. The average sales price increased in 2001 by 1.3% and it increased again in 2002 by 2.6%. The 2001 recession appears to have slowed appreciation, but prices didn’t decrease. (The median price saw a similar movement.)
The 2008 recession was specifically caused by bad mortgages. The general consensus is that it crashed the real estate market. Looking at the numbers now, that wasn’t the case in Austin. In 2007, the average sales price was $245,178. The average price in Austin bottomed out at $235,887 in 2009 which is only a 3.8% decline. In 2010, the average price was $246,460, which is higher than the 2007 peak. Effectively, we regained the minimal losses that the recession caused 1 year after the recession ended.
Most people remember the 2008 recession as a difficult time. If real estate prices only saw a minimal decline in 2008 and no real decline in the past recessions, then why do people reasonably correlate recessions with down real estate markets?
Units & dollar volume sold provide insight. 1990 saw 7068 units sold with $580M in volume. 1991 saw 7485 units sold with $662M in volume. This means there were 6% fewer units & 14% less volume sold in 1990 as compared to a recovered 1991 market. The 2001 recession is a headscratcher. Talking with friends and colleagues who worked through this recession, their memories are of a really tough market. The numbers don’t reconcile this, though. 2000 saw 18,321 units & $3.5B in sales. 2001 saw 18,095 units & $3.5B, and 2002 (post recovery) saw 18,414 units & $3.6B. These numbers are close enough that they’re effectively rounding errors and it’s safe to say that the Austin real estate market was unaffected by the 2001 recession in terms of sales.
Again, 2008 showed more movement. During the 2008 financial crisis, there was a relatively steep national decline in price because of the large number of foreclosures (which were correcting bad loans.) Most people moving to Austin had homes to sell elsewhere that they couldn’t sell, so they had to rent in Austin and wait for prices to recover there. This took time. At the 2007 peak, there were 27,571 sales and $6.8B in volume. This bottomed in 2010 (one year after the recession ended) at 19547 sales and $4.8B in volume. The bottom represented a 30% decline in sales. This is why so many agents left the business and why sellers remember this as a difficult time. The market was relatively recovered by 2012 and 2013 saw relatively large gains over the 2007 peak.
How Did Past Recessions Affect Austin Real Estate?
Properties still sell and pricing doesn’t change much. That said, things are generally sluggish. When there is more inventory on the market, it’s generally good for buyers and hard for sellers. Looking at all 3 recessions, there is more inventory & units on the market during a recession. The 1990 recession had an average of 24% more listings on the market than the 1991 recovery and 1990 had 8 months of inventory (firmly a buyer’s market) vs the 5.8 months of inventory in 1991. 2001 saw more than 2x the number of listings on the market and a jump to 4.3 months of inventory from the 2000 low of 1.98 months. The 2008 recession saw 19% more listings and saw inventory increase by 40% to 5.3 months. The market bottomed in 2010 with 6.3 months of inventory and inventory was fully recovered by 2012.
Recessions are very stressful because of the level of uncertainty. There is no realistic way for us to predict which past recession 2020 will most resemble. We think it’s unlikely that the real estate market will be affected as heavily as it was in 2008 because that recession was caused by a fundamental problem with real estate lending. The most likely scenario is that we will see relatively unchanged real estate prices and some level of decline in volume & units sold. I personally think that we’ll see a 20% to 30% decline in 2020, followed by a recovery in 2021 that will be anywhere from a 10% decline to a 10% increase in volume, depending entirely on how severe the virus is and how long the economy sits on “pause”.
