Housing war: First-time buyers face stiff competition and stiffer prices

Michael Turcotte and his wife began looking at homes near Research Boulevard early in the pandemic. "Before we could even put an offer on (a house), there'd be three offers," he told Austonia. "It's gone before you even get to counter-offer."

After experiencing this a few times, the couple decided to build their own house in a cul-de-sac off of I-35, near the Austin-Buda line. Between June, when their builder began work on the house, and August, the property value increased by $30,000, he said.

Turcotte, who manages a chiropractic and massage clinic at the airport, was dealing with a temporary shutdown due to the pandemic and worried that it would affect his ability to secure a loan for the home. He likened the purchasing process to a root canal.

"It's supposed to be a happy time to buy a house," he said. "But it's overshadowed by the lack of empathy and COVID and everything."

Turcotte is hardly the only homebuyer to have faced rejections in the wake of a record-breaking year for the Austin housing market.

Michael Turcott and his wife decided to build a home in the South Austin-Buda area. (Michael Turcott)

The median sales price in the city of Austin rose nearly 19%, to $461,000, in December alone, and residential home sales increased 16.4% year-over-year, exceeding expectations despite—or more likely because of—the pandemic, according to the Austin Board of Realtors' year-end report. Meanwhile, an ongoing housing shortage and reluctance from sellers have pushed inventory to record-low levels. All this equals a hot housing market, but many prospective first-time homebuyers are left feeling burned.

The pandemic effect

The Austin housing market has been strong for years, and realtors and market analysts anticipated 2020 would follow suit given continued job creation and low mortgage rates.

"Austin was already kind of teed up for a good year," said Vaike O'Grady, Austin regional director for the housing market research firm Zonda.

When the pandemic began, things looked bleak for a couple of months. But the Austin housing market quickly rebounded.

"The growth in 2020 was exponential compared to what it was in '17, '18 and even into '19," ABoR President Susan Horton said.

This recovery was due to multiple factors: continued job creation, especially in the tech and professional services sectors; a healthy rate of relocations; and a millennial-heavy population, with many members starting families and looking for more space at home.

"Parents were literally going crazy," Horton said, adding that many families living in apartments or smaller homes were pushed by the pandemic and virtual learning to seek out a new home with more space.

Although the pandemic stoked demand, it had a dampening effect on supply.

Potential sellers, worried about the risk of exposure to COVID-19, held off on listing their homes. "People don't want strangers traipsing through their home in an open-house scenario," O'Grady said.

Some may also have been deterred by the challenge of finding a new home to move into given the competitiveness of the market—or just wanting to see how much their home would continue to appreciate.

"People that live in an area that they really like decided, 'I'm going to remodel,'" Horton said, which allowed more space—and more equity.

A perfect storm

Prospective first-time homeowners, looking for more space and a good investment, are caught in this squeeze.

"It's already scary and stressful," said Mark Strüb, owner of the local real estate firm Strüb Residential. "Now they're literally walking into a war."

When someone posted on the Austin subreddit lamenting the competitiveness of the local housing market, it had a thousand comments within 24 hours.

"I was asking my realtor about a house that had been on the market one day in the Brushy Creek area of (Round Rock) west of (I-35)," one person wrote on Thursday. "He laughed and said it literally had 78 offers that day and was already off the market."

Such high offer counts used to be gossip fodder among realtors. "Then it became almost normalized," Strüb said.

Alex Gilmore is an agent at Pauly Presley Realty and an Austin resident looking to buy her first home. So she's very familiar with the local housing market.

Gilmore and her clients are typically competing against 15 or 20 hopeful buyers when making an offer, and homes often go for tens of thousands of dollars above their asking price. "It has been very, very hard," she said.

Gilmore and her colleagues are advising clients to reconsider their search criteria to include new locations, different house sizes and new builds. "You kind of have to be more flexible than you originally wanted to be," she said.

In addition to the challenges the current market presents to buyers, it's also difficult for sellers.

"People are like, 'Oh, it must be a good time to be a seller,'" Strüb said. But he disputes this idea. "Who wants to sift through 90 offers … and break hearts all day long?"

Despite the current challenges, Strüb said there are some benefits to buying now, such as low interest rates and the potential to build equity quickly.

"If you can crack this nut that is Austin real estate right now, you will build wealth," Strüb said. "It will pay off in the end."

Turcotte feels this way.

"It kind of makes this a home a little more special, in a different way," he said of the bumpy road to homeownership. "We're happy to have just got through it."