How Much Is The Austin Housing Market Slowing?

Whether you are a current or prospective homeowner or renter, and regardless if you are considering buying or selling, it is important to know how the current state of the market impacts your daily decisions while living in Austin.

We understand the importance of providing you with a transparent outlook on the health of the local market so that you can make informed real estate-related decisions. Our monthly blog is here to provide you with the data to create clarity. Email us with the questions on your mind to include in a future newsletter article.

We are experiencing more than the seasonal slowdown in the Austin housing market this fall. On one hand, buyers are finally getting relief from the skyrocketing prices and rapid selling speeds of the last two years. On the other hand, as mortgage rates climb, it reduces affordability and keeps would-be buyers and sellers on the sidelines.

What a slowing market looks like in Austin:

• Homes are averaging 40 days on the market, but Realty Austin listings are selling in 28 days. 
• On average, homes are selling for 95% of the original asking price.
• There are over 10,600 homes for sale, and 6,000 homes have reduced their price in the past 90 days. 
• Median home sale prices are down 14% since May, dropping to $470,000 from a peak of $550,000. 
• The number of homes for sale increased 162% year over year.
• The number of homes under contract fell 29% year over year.

As rates continue to rise, the housing inventory will tighten as homeowners with record-low mortgage rates offered over the last 2 years will be reluctant to sell. We are already seeing this in the Austin housing market as new listings and pending sales are both trending down week over week heading into the fall.

Consumers are feeling stuck. We’re seeing fewer homes come on the market and fewer homes going under contract. The higher the rates go, the more this trend will continue. 

What this means for buyers and sellers:

• Buyers have more leverage and options than they’ve had in over a decade with bidding wars becoming a rarity and homes selling for an average of 95% of the original listing price in the month of September.
• Sellers must reset their expectations as higher mortgage rates have thinned out the pool of buyers who can still qualify for a home loan. The average days on market are stretching out, active inventory has risen, and listing price reductions are at heightened levels.

Why do sellers need to reset their expectations? Price reductions have seriously climbed since June of 2022. As buyers become frozen, the active listing inventory has climbed.

WILL HOME PRICES FALL?

Fortune shares how the Fed’s housing “reset” has transitioned into a “correction,” which is another way of saying prices will fall. Austin is more vulnerable to falling home prices because the Pandemic Housing Boom caused home prices to reach levels well beyond what local incomes would historically support. Prices are expected to decline until the price-to-earnings ratio gets back into harmony. As reported by Fortune, The Fed admits a sharp home price decline is possible, stating, “While this [housing] market correction could be fairly mild, I cannot dismiss the possibility of a much larger drop in demand and house prices before the market normalizes."

That said, falling home prices and sales aren’t expected to generate the kind of shock that produced the Great Recession of 2007-2009 since most homeowners aren’t in danger of losing their homes as mortgage rates rise. In their latest forecast, Fannie Mae economists still expect national home price appreciation year over year in the last quarter of the year before dropping into negative territory next year.

Median home sale price has trended down for the 4th month in a row to $470,000 from its peak of $550,000 in May. That said, this is still a 5.6% appreciation compared to the median sales price of $450,000 in September 2021.

HOW LONG WILL MORTGAGE RATES RISE?

While lower prices are something to look forward to, buyers have another challenge to overcome: much higher mortgage rates. The average rate on a 30-year mortgage is more than double what it was a year ago, and it is inching up over 7%. Money reported, “by some projections, rates could reach as high as 8% by year’s end.”

Despite everyone looking for a sign inflation is easing, it didn’t come with September’s higher-than-expected 8.2% Consumer Price Index (CPI). With the US core inflation hitting a 40-year high, it’s unlikely that the Federal Reserve will dial back interest-rate hikes in an effort to tame inflation. Bloomberg reported that the Federal Reserve worries “the cost of too little action outweighs costs of too much.” The “Economists at Fannie Mae no longer expect mortgage rates to ease much next year, even with a “moderate recession” likely looming.” Inman News.

Rising mortgage rates create a mixed picture for buyers as they evaluate their purchasing power. First-time homebuyers were hit the hardest as those trying to purchase entry-level houses saw hundreds of thousands of dollars in what they could afford disappear. What the Fed does over the next few months and where it sends mortgage rates will be the primary factor continuing to shape buyers’ and sellers’ decisions.

Pro Tip: Looking for a way to break away from renting and buy your first home? Check out our guide, How to Save For a House While Renting.

Don’t let rising rates delay your dreams. Consider modifying your search area and criteria to include condos and townhomes so you can get in the market and begin building your net worth! You can save thousands with home prices being reduced, and refinancing at a lower rate will likely be an option within a few years.

HOW MUCH IS RENT IN AUSTIN?

Average rents in Austin continue to rise with an increase of 8.5% compared to September of last year. As homebuying becomes increasingly unaffordable with the increasing mortgage rates, potential homebuyers may decide to put their buying plans on hold and lease instead. But make no mistake, renters are at the mercy of the landlord, and landlords will likely continue to increase rents because they can get it.

Pro Tip: If you are nearing the termination of your lease, connect with a real estate professional today so you don’t put your future savings into additional rent. There are numerous alternative financing options available to help potential buyers get out of the rental trap!

WILL INVENTORY TIGHTEN?

As the economy continues to shift, so will the housing market. Homeowners who are locked into a low fixed-rate mortgage will quell the supply side of the housing market, creating “Golden Handcuffs.”

As reported by Money, “Higher mortgage rates discourage many sellers from listing — especially those who hold one of the record-low mortgage rates offered in early 2021. Right now, about 85% of mortgage holders have a mortgage rate under 5%, and nearly a quarter have rates below 3%. For these homeowners, selling could mean buying again at a much higher rate — and payment.”

Fannie Mae released its National Housing Survey results for the month of September, and, in a word, people seem stuck. Only 19% of consumers think it’s a good time to buy a home, while 59% think it’s a good time to sell.

If you are feeling stuck or worried right now about what’s happening between inflation, mortgage rates, and the housing market – work with an expert who can help guide you from where you are today to where you want to be.

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