Austin Market Report & 2022 Forecast

[David Ivy]

Happy New Year! December wrapped up one of the wildest years in Austin real estate on record. Median home prices Austin and the surrounding metro experienced appreciation in the 20-30% range for 2021. The charts below starkly illustrate the 2021 market. Be sure to scroll down for my thoughts on where the Austin market is headed for the new year.

Here’s the median sales price of a single-family resale home in Austin over the past 10 years:

Here’s Round Rock:

Here’s Cedar Park:

Here’s Leander:

Here’s Hutto:

Here’s Del Valle:

You might see the charts above and think we must have hit a peak or, at the least, a plateau. After all, as prices go up, fewer people can afford to buy. Something has to give at some point, right? There are also some new headwinds facing the Austin market in 2022. For example, we have a COVID pandemic that continues to disrupt economic activity (including the supply chain for home builders), rising mortgage interest rates, and inflation rising at the fastest pace since 1982.

Will all of this likely decrease buyer demand in Austin compared to 2021? Yes, I think so.

However, while I think buyer demand in Austin will be lower than in 2021 due to inflation, rising rates, rising home prices, and other factors, I also don’t think that demand will decrease so much that we’ll see prices fall. In fact, I think home prices in the Austin metro will be higher at the end of 2022 than they were at the end of 2021, perhaps much higher.

Why do I think this? One word: INVENTORY. The TAMU Real Estate Center defines a balanced real estate market, where prices are mostly stable, as having roughly 6.5 months of housing inventory. This a market where there is sufficient supply to meet housing demand.

However, by contrast, the Austin metro ended 2021 with just 0.6 months of inventory. That is a very extreme seller’s market. To see prices in Austin stabilize at current levels, we’d need to sustain around 6.5 months of inventory for a period of time. But that’s just mostly stable prices. In order for prices actually to fall significantly, we’d need to go beyond a balanced market into a strong buyer’s market with around 8+ months of inventory.

So, those who think that Austin prices will fall, or at least stabilize, in 2022 need a compelling case that inventory will go from 0.6 months to 7-8+ months for a sustained period.

Maybe inventory could increase from the supply side? That's unlikely. Builders are mired in material and labor shortages while also struggling to manage the cost of both. Most builders are only releasing a handful of opportunities per month in each development. Moreover, despite recent efforts, The City of Austin has yet to pass a much-needed rewrite of the land development code that addresses current hurdles to increasing inventory. So, it’s highly unlikely that significant inventory will come from the supply side in the Austin metro in 2022.

What about the demand side? Yes, I think buyer demand in 2022 will be lower than in 2021 in the Austin metro due to rising prices and the headwinds mentioned above. However, with all that the Austin metro economy has going for it currently and throughout this decade, I cannot see how demand for owning Austin housing will collapse so very severely as to push us from 0.6 months into 6.5 months or more of inventory in 2022. We have such a long way to go up from 0.6 months of inventory. We can absorb a very significant decrease in demand while still remaining a robust seller's market.

Overall, it appears that demand should stay high and inventory should stay relatively low for 2022. If demand remains high and inventory remains low this year, then the Austin metro market will remain a seller’s market with rising prices throughout 2022. If so, then median home prices at the end of 2022 will be higher than they are now.

I'd love to hear from anyone who thinks we'll see an increase in housing inventory in the Austin metro significant enough to cause prices to fall substantially in 2022. Again, it's hard to see how it will come from the supply side. If it does happen, it's more likely to come from the demand side of the equation. However, aside from unprecedented and catastrophic inflation, or some other global economic/financial calamity, I don't really see a realistic path for demand to fall precipitously in 2022.