Austin Market Update - December 2022

[David Ivy]

The 2022 Austin real estate market was a year of extreme contrasts. The year began with scenes like that below, where there were multiple buyers lined up (often literally) for extremely limited housing inventory:

The year ended with significantly reduced buyer demand and the median sales price down ~22% from its peak, which happened just months ago in May 2022. See this chart of the monthly median sales price of single-family home in Austin in 2022:

While a number of factors contributed to this shift, rapidly rising mortgage interest rates had the most significant impact locally  in 2022. Here’s a chart showing the average interest rate of a 30 year fixed mortgage in the US last year:

As rates moved toward 6% and beyond, the Austin metro and national real estate markets began rapidly cooling. Higher interest rates made it more expensive to own a home, which meant that fewer people can afford to buy. Moreover, though many owners are sitting on equity after benefiting from strong appreciation in recent years, they also have mortgages at rates significantly lower than what’s currently available. That’s a big disincentive to sell in many scenarios.

The December 2022 report from the Austin Board of Realtors. It was the second month of year-over-year price depreciation in 2022, which will likely be a trend that carries through the first half of 2023. Here are last month’s stats for Austin and the surrounding metro:

We will need to watch closely as we head into the spring for signs of buyer demand, especially if rates can make it into the 5's. The months of March-May will be very telling. If buyer demand fails to increase significantly, it’s very likely that we have at least one month delivering a year-over-year price decline in the double digits. Our best chance for that is May 2023, which will be one year from Austin’s most recent pricing peak. However, tracking the month-over-month numbers will be just as important (if not more so) as we hit the traditional spring/summer selling season.

If you’re a buyer, then you’ll be happy to know that there are ~275% more active listings on the market now compared to this time last year. From an inventory, price, and negotiation perspective, conditions for buyers in the Austin metro are better than they’ve been in many years. Interest rates hovering in the 6%+ range are higher than you’ve come to expect from the past decade, but they’re not outrageous (or even considered that high) from a broader historical perspective. Moreover, there are ways to mitigate these higher rates. For example, I’m seeing regular success negotiating interest rate buydowns at a seller’s expense. If interest rates are the primary factor holding you back from buying, then it’s important to talk to your lender and agent about rate reduction strategies.

If you’re a seller, then you’ll want to pay close attention to the market as we head into the spring. While it’s too early to say for sure, Austin's usual seasonal market pattern would suggest that spring will be better for sellers compared to Q4 of 2022. Going forward, you have to respect the available sales comparables, and strongly consider pricing competitively compared to other active listings in the area. Buyers have much more selection and can now be more picky about a property’s condition. Preparing a home well, staging when appropriate, and having strong marketing are crucial to help your listing stand out. Sellers often have less negotiating leverage compared to previous years. It’s becoming common for buyers to request a closing cost credit from a seller up front on an initial offer before any further negotiations related to inspection items or repairs.