Austin Housing Market Forecast
The popular housing market bellwether is slowly returning to prepandemic fundamentals.
Using information from the U.S. News Housing Market Index, we’ve compiled the data you need for a better understanding of the current state of the market. Here’s what you should know about how the Austin housing market has changed in the last year and looking ahead into mid-2023.
Given the enormous popularity of the greater Austin, Texas, area for online searches, newcomers and employment growth, it may act as a reasonable bellwether for the state of the U.S. housing market. This will certainly be tested in the spring and summer selling season, when the National Association of Realtors reports that about 40% of sales of existing homes throughout the U.S are historically made between the months of May and August. Besides offering warmer weather, buying a home during these months allows buyers with school-aged children to shop, bid, close and move into a new residence before the start of a new school year.
Similar to the overall U.S. housing market in mid-2020, the Austin housing market went into serious overdrive marked by a sharp decline in months of inventory, bidding wars and rising prices as sales jumped, fueled by buyers eager to take advantage of record-low mortgage rates. Flash forward to early 2023, and both the Austin and national housing markets are taking a bit of a breather, featuring more supply, falling prices and more careful buyers ensuring that making a deal in an environment of higher mortgage rates still makes financial sense.
However, for buyers of newly built homes, the current overhang of unsold inventory is unlikely to last, given how assertive some builders with in-house mortgage subsidiaries can be with incentives such as mortgage-rate buydowns as low as 4% to 5%, especially for those who can close quickly.
Using information from the U.S. News Housing Market Index, we’ve compiled the data you need for a better understanding of the current state of the market. Here’s what you should know about how the Austin housing market has changed in the last year and looking ahead into mid-2023.
How the Austin Housing Market Changed in 2022
As the demand for housing continued to rise in Austin in the early months of 2022, builders of both homes for sale and for rent ramped up production, with the number of building permits pulled nearing 4,400 in March 2022. However, as mortgage rates started to rise along with higher inflation throughout the year, building permit issuances steadily fell to under 2,100 by January 2023. During the three-month period ending in January 2023 versus the same months a year earlier, the number of overall permits issued fell by 38.5%.
For single-family detached homes, the rise in building permits peaked several months earlier than for multifamily units, edging up to over 2,400 units in March before trending down to about 700 units by December. While detached home permits did rebound to approach 900 in January, they’re still down by 53% for the three-month period ending in January 2023 year-over-year.
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With households increasingly priced out of single-family detached homes for sale, they continued to turn to the condominium and apartment markets for new housing, so the peak in multifamily developers pulling permits didn’t occur until July. Since then, as the demand for apartments began to wane, the overall trend for permits also declined. During the three-month period ending in January 2023, 24.8% percent fewer multifamily permits were requested versus the same months ending in January 2022.
Austin Housing Supply and Demand
The supply of housing in Austin, which dipped as low as 1.05 months in December 2021 based on sales rates tracked by Redfin, steadily rose in 2022 as more inventory for sale was released into the marketplace. Previously peaking at 4.61 months in October, the supply of housing for sale dipped below 3.5 months in December as mortgage rates fell by half a percentage point, but rebounded to 5.3 months in January 2023 as rates rose.
Comparing the month of January 2023 year-over-year, the supply of homes for sale rose by 3.83 months, or an increase of over 260%. Notably, while this level of inventory is still below the six months of supply typically considered balanced between supply and demand for listings, it marks the highest number of months of supply since at least early 2012. It’s also 19% higher than the months of supply for the overall U.S. in January at 3.21 months, which rose 1.71 months year-over-year, or about 114%.
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According to Ashley Jackson, an agent with Realty Austin and 2023 president of the Austin Board of Realtors, the seasonal increase in home sales started earlier this year, especially for entry-level buyers most sensitive to mortgage rates. Her advice for those looking to sell is to work closely with an agent to understand the nuances of the marketplace and follow their advice to effectively compete with increasing competition from out-of-state investors. For buyers, her advice is simple: “Buy during this window. I’ve lived here for 40 years, and this is a rare opportunity to buy under the asking price along with seller concessions.”
In the rental market, Austin’s vacancy rate of 4.9% reported by the Census Bureau for the fourth quarter of 2022 is slightly lower than the 5% level generally considered to represent rental market equilibrium between supply and demand. It’s significantly lower than the 5.8% rate reported for the nation. Although Austin’s rental vacancy rate did edge up 0.1 percentage points year-over-year, it’s down sharply from the seven months of supply estimated in January 2022 and 11 months estimated in January 2021.
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Still, sales activity in the months ahead may also be impacted by rebounding mortgage rates resulting from stubbornly high inflation, especially for the critical service sector, which accounts for over three-quarters of the U.S. economy. In the week ending Feb. 24, according to the seasonally adjusted Purchase Index from the Mortgage Bankers Association, rising mortgage rates led to a 6% decline in applications. With purchase loan applications reportedly down 44% year-over-year to the lowest level in 28 years for the second consecutive week, many homebuyers may remain on the sidelines until affordability improves.
Consumer sentiment as measured by the University of Michigan’s Survey of Consumers rose to 64.9 on a 100-point scale in January but was still down 2.3 points year-over-year. Notably, while the sub-index measuring Current Economic Conditions for January was higher at 68.4, the Index of Consumer Expectations was lower at 62.7. These differences suggest that while the consumer outlook is improving in the short term, they’re expecting continued inflation and some economic turmoil in the months ahead.
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Foreclosure Trends
With such low unemployment and most existing homeowners benefiting from low mortgage rates offered in 2021 and part of 2022, both foreclosures and delinquencies tracked by Black Knight remain at very low levels in the Austin area. As of October 2022, just 0.30% of homes in Austin were in foreclosure, compared with 0.35% for the nation. Although local delinquencies were higher at 3.8% in October versus 2.9% nationally, most delinquencies do not make it to the foreclosure process as quickly as they did during the financial crisis of 2007-2008.
However, there is a new wrinkle with the latest housing boom, which may not be trackable by mortgage servicers: all-cash sales. According to Redfin, the share of all-cash sales soared above 30% in 2021 and continued throughout 2022. If these homes were bought as investments using non-mortgage debt and rents decline, this level of hidden distressed homes could hit the existing home market with further price declines in order to make a sale.
Median Home Price in Austin
Fortunately for buyers, the rising inventory of homes for sale has helped moderate home prices, with the median sales price falling 3.6% year-over-year in January to $458,000. While this median price is still nearly 20% higher than the national median of $383,000 and has fallen 17.5% from its peak of over $555,000 last April, lower prices could boost sales in the upcoming spring selling season.
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For newly built homes, potential buyers could snag a better deal than they might with existing resale units. According to market researcher Zonda, which tracks actively selling new home communities in Austin and other markets nationwide, an overhang of 14,000 homes under construction during the last quarter of 2022 may not still be for sale much longer given aggressive price cuts and other incentives offered by home builders.
Keith Hughes, Zonda’s director of business development for markets in Texas, including Austin, says that while local builders were offering massive discounts as recently as November, they’ve since found a pricing floor and are back to raising prices in between phases, albeit slowly. “Take your Realtor with you and make some deals,” says Hughes. “Eight-five percent of all new homes involving Realtors are now paying full commissions.”
Although home prices rose quickly in 2022, they peaked earlier in the year than median rental rates did from Zillow’s Observed Rent Index, which continued to rise through August to $1,955 per month before falling each successive month to $1,844 by January. Consequently, although observed rents in Austin roe 3.1% year-over-year during the first month of 2023, they still fell 5.7% from August. With more multifamily supply on the way – including nearly 400,000 units under construction in just the South Census region alone in January – it’s possible that rents will continue to decline depending on how many of these units are located in the Austin area.
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With the Census Bureau’s American Community Survey reporting 955,000 households as of December 2021, Austin may be the fourth-largest city in Texas but it’s growing fast as tech-related companies continue to relocate from higher-priced states. From 2019 to 2021, the region grew by over 137,000 new households, or over 68,000 per year.
Nationally, while costs for new single-family homes as reported by the Census Bureau’s Construction Cost Index have retreated from their November peak of 195.5, they’re still up 12% year-over-year to 190.6.
Similarly, while average mortgage rates tracked by FreddieMac’s Primary Mortgage Market Survey did retreat from their peak of 6.90% in October to 6.27% in January, as of March 2, 2023, the rate for a 30-year fixed rate loan rebounded to 6.65%.
Unemployment Trends in Austin
Even if its housing market is softening, Austin continues to enjoy one of the country’s strongest job markets, with non-farm employment up by nearly 51,000 year-over-year in December and an unemployment rate of just 2.7% versus 3.5% nationally. These new jobs accounted for 1.1% of the national gain for the same time period even though the Austin metro area’s population accounts for just .75% of the U.S. total.
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Although construction jobs are not provided as their own category for the Austin area, they are included along with mining and logging positions by the Bureau of Labor Statistics. As of December 2022, the number of jobs in this category fell 4.6% year-over-year to 71,800. However, during this same time period, there were significant gains in leisure and hospitality (17.1%), information (6.1%), professional and business services (5.0%) and education and health services (5.0%).
Builder Confidence in Austin Improves
Although builder confidence on a scale of 0-100 for the South Census Region from the NAHB/Wells Fargo Housing Market Index fell 39 points year-over-year to 45 in February, it’s still up from 39 in January, higher than the national level of 42 and the strongest showing since last September. Broken down further by category year-over-year in February, national builder confidence in current single-family sales fell 43 points to 46, single-family sales projections over the next six months fell 32 points to 48, and traffic of prospective buyers fell 36 points to 29.
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For nonresidential construction activity, the Architecture Billings Index provides another economic indicator with a lead time of approximately 9 to 12 months, with 50 marking the split between increases or decreases in billings. In January, the index for the South Census region rose 4.3 points year-over-year to 46.9 while the national index fell 1.7 points to 49.3, suggesting that commercial real estate activity in this part of the country may slowly be on the mend but still contracting.
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Austin Real Estate Market Predictions
With the spring selling season underway, there is no shortage of pundits predicting further declines in home prices, especially if mortgage rates continue to rise with little relief in sight. However, due to the region’s strong population and employment growth, favorable business climate and continued interest from investors, the region’s housing market will likely recover faster than many other housing markets with weaker economic fundamentals.
The U.S. News Housing Market Index is forecasting nearly 8,900 single-home permits from February through June in addition to over 8,800 permits approved for multifamily homes for the Austin MSA. Although permits for both single-family and multifamily units did fall further than predicted in the latter half of 2022, that could change if Austin’s population growth remains strong and mortgage rates again retreat well below 7%.
