Jack Stapleton, owner of Realty Texas and incoming president of the Central Texas Multiple Listing Service, a listing service for homes in the area, said the lack of affordable options is one of the biggest issues in the region. He said it discourages first-time buyers from living here.
“If I put a home on the market for $180,000, I’m going to have nine offers,” he said. “We don’t have enough of these homes.”
Stapleton said the problem in these situations emerges when a first-time buyer cannot increase his or her bid—potentially even above the asking price—to make it competitive without possibly losing out on a loan that depends on confirmation from a bank’s appraisal of the home’s value.
To secure a loan, the bank must find that the house’s appraisal matches the value of the bid. If the bid is valued higher than the appraisal, the bank will not give the bidder the loan.Buyers who have previously owned property can have the appraisal requirement waived, but first-time buyers cannot, Stapleton said.
“We are pushing buyers out of the market and into rentals, and it isn’t because they can’t afford the payment,” Stapleton said. “It is because they don’t have the cash to win out in these multiple-buyer situations.”
He said this problem is only encouraged by a dichotomy of builders—ones willing to produce homes for a lower cost and lower profit margin, and ones who produce custom builds and are willing to wait on bids to make a larger profit.
This is reflected in the average number of days spent on the market and the amount the homes sell for in relation to the original asking price, Stapleton said.
In the past 180 days as of June 25, new homes in Williamson County priced at less than $200,000 have spent an average of six days on the market before selling and have sold for 102 percent of the asking price.
The number of days on the market increases as home prices increase, with new homes priced between $450,000 and $500,000 spending an average of 200 days on the market before selling. Homes priced in this bracket sell for roughly 99 percent of the asking price.
In recent years the median sale price of a new home has increased.
Since January 2011 the median price of a new home has risen from $201,819 to, as of May 2017 data, $292,453 in Round Rock, Pflugerville and Hutto.
In 2016, Williamson County home prices overall increased 7.1 percent year over year, according to the 2017 Williamson County housing market report released by the Williamson County Association of Realtors.
The inventory of homes also illustrates demand for lower prices, Stapleton said. Real estate agents largely agree that an inventory of six months, or an amount of homes on the market that would take six months to sell, indicates a balanced market with no clear advantage for the buyer or seller.
In Williamson and Travis counties and in the Austin-Round Rock Metropolitan Statistical Area, the advantage is for the seller in homes priced below $500,000. Buyers have an advantage when seeking homes above that price point, according to inventory data.
Profit versus affordability
Michelle Sheehan, part owner of Gaston & Sheehan Realty, said despite this data, homebuilders are encouraged to build higher-priced homes because of the potential for a heftier profit margin.
Sheehan said there is a fixed cost to building a home, whether the house will be 1,600 square feet or 4,000 square feet, so anything one makes above that fixed cost becomes profit.
“You either come in and be a production builder and throw up $150,000 to $200,000 homes and sell them all overnight, or you build something luxurious like a $1 million home but it will take you longer to sell,” she said.
She said one can tell the difference between these two builders from the way they are willing to diverge from the basic home.
If a builder has a basic plan and rarely makes changes to new homes from that layout, the builder is likely what she calls a production builder.
Sheehan said these types of builders often buy sheetrock and trusses years in advance at a lower price and therefore cannot make many changes to the homes based on the whims of a buyer.
Luxury builders, in comparison, make money on custom builds, taking the time to add in any feature a buyer might want, thus raising the cost.
Burdens on builders
Chris Wales, builder Blackburn Communities’ vice president of sales and marketing, said the issue is not as simple as choosing a profit margin.
Wales said there are plenty of regulations and increasing costs being levied on builders that drive what Sheehan called a fixed cost upward, increasing the final price of the home.
“If you can show me how to build a house for under $200,000, I am all ears,” he said. “I don’t think that is possible in the Cedar Park-Round Rock area, especially east of I-35. A lot of that relates back to land costs and
location.”
Wales said land in the Williamson County and eastern Travis County region is expensive because of schools, scarcity and amenities. Plus he said land east of I-35 is naturally valuable, with historical monarch trees often planted and regional parks located close by.
Builders often choose to place homes with more luxurious standard features on pieces of land that are more valuable, aligning the prices.
“I can’t put a $260,000 house that is really just bare bones on an expensive lot because it isn’t what the value demands,” Wales said.
Vaike O’Grady, the Austin regional director of Metrostudy, a research firm specializing in housing market information, said an increasing number of municipalities are making it harder for builders to buy smaller lots.
O’Grady said some cities have imposed minimum lot-size requirements, which limits builders from developing on lots smaller than the city-approved size.
The effect of this is having builders come into the area who build at a more expensive price point and often push out first-time buyers, O’Grady said.
Both Round Rock and Pflugerville have some kind of a minimum lot size development ordinance, and Hutto is researching one.
To cap it all off, most buyers from all price points come into the house-hunting process with high expectations.
Sherry Hindmarsh, a real estate agent with ReMax Capital City III, said buyers want a move-in-ready home.
“The biggest problem right now is that everybody in the world watches HGTV,” she said. “People want everything right now, and they want it to be perfect when they move in.”
Sheehan agreed, saying even first-time buyers desire high-end finishes.
“I have young couples that call me all the time wanting granite countertops, stainless steel appliances, an open floor plan and walk-in closets,” Sheehan said. “I think we as Americans have this higher standard of living than maybe any other place in the world.”
