We all know that Economics 101 teaches the rule of Supply and Demand in an open market - (those that paid attention anyway), and the real estate market is a perfect example. Yes, fewer homes for sale does mean less supply, but the result is not necessarily upward pressure on prices.  The reason - Because unless "demand" increases accordingly, prices may not react to less supply.

Most people think that decreasing supply, which is occurring in Austin real estate is good, but that would be good for one part of the market, Austin Home Sellers. Austin home buyers obviously do not want lower supply, thus fewer choices, because that means they will pay more for their home.

However, over the long term, lower supply is good even for today's buyers because decreased supply is one of the factors necessary for increased home prices.

When coupled with increased demand, home prices are most certainly going to rise.

So, with increased demand for Austin homes because of historically low interest rates and the fabulous gift of a tax credit, and decrasing supply of Austin homes for sale, why are prices NOT increasing? Didn't we learn in the aforementioned Economics 101 that increased demand and reduces supply mean higher prices?

The answer is an emphatic "yes", but there is a "but". The decreasing supply has only been exprerienced for approximately 5 months, while the increased demand has only been seen for 3 months.  Austin, Texas home values will react to "Supply and Demand", but the supply has been high for of 30 months and the demand has been low for more about the same amount of time. 

Our improvement must hold some longevity before market reaction will really prove what we know from Economics 101 to be true, and most economists expect the year 2010 to be the year when that occurs!

Those who buy a home in Austin, Round Rock or surrounding areas in 2010 will look back in a few years and feel VERY good about it!