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-age children to shop, bid, close and move into a new residence before the start of a new school year.
Over the course of 2023, both the Austin and national housing market took 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 made financial sense. Since then, the Austin market has shifted toward a buyer’s market.
“Median home prices have slightly decreased, and the construction of thousands of new apartment units continues to put downward pressure on prices,” says Peter Idziak, senior associate attorney at mortgage law firm Polunsky Beitel Green in Dallas. “In new home construction, we are seeing builders offer more homes with smaller floor plans, including so-called ‘tiny homes,’ as affordability remains a major issue both within the city and in the larger metro area.”
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 2024.
How the Austin Housing Market Changed in 2023
As the demand for housing continued to rise in Austin throughout 2022, builders of both homes for sale and for rent ramped up production. 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.
Heading into 2023, production overall slowed down, reaching a high of nearly 3,386 building permits pulled in August 2023, based on data from the U.S. Census Bureau. Production slowed even further as mortgage rates started to rise, but there have been improvements since then, as rates come down again.
For single-family detached homes, building permits peaked in August 2023 with 1,709 permits pulled before coming down to 1,435 in September. Multifamily units peaked the same month, reaching nearly 1,677 permits pulled for buildings with two or more units and decreasing slightly to almost 1,640 the following month.
In the last three months of 2023, a total of 3,890 single-family building permits were pulled, a 25% increase over the same time period in 2022. Multifamily permits outpaced that, with 5,866 permits pulled in the last three months of 2023, an increase of 34% year over year.
Austin Housing Supply and Demand
The supply of housing in Austin reached 5.39 months’ worth in January 2023 but has since come down to 4.78 months’ worth as of September 2023, based on sales rates tracked by Redfin. Housing supply increased by 0.88 year-over-year and is currently on an upward trajectory.
Notably, while this level of inventory is still below the six months of supply typically considered balanced between supply and demand for listings, it’s comparable with the number of months of supply since at least early 2012. It’s also 48% higher than the months of supply for the overall U.S. in September at 2.5 months, which rose 0.12 months year-over-year, or about 4.2%.
“We are seeing increases in both listings of existing homes and new construction entering the market,” Idziak says. “Both the average time on the market and the average amount of inventory have doubled their respective numbers from 2022, and new listings and the average time on the market have continued to increase through the first month of 2024.”
According to Amanda Trevino, broker associate with the Mueller Silent Market Team at Compass, the Austin market was a little more challenging for sellers in 2023 and now favors buyers. “The things that have historically been important in listings — staging homes, pricing right, being proactive — were even more important,” Trevino says. “After interest rates lowered at the end of the year, we’ve seen an increase in buyer demand, competition for homes and prices.”
In the rental market, Austin’s vacancy rate was 11% as of September 2023, reported by the Census Bureau, which is much higher than the 5% level generally considered to represent rental market equilibrium between supply and demand. This rate is significantly higher than the 6.6% rate reported for the nation. Year-over-year, this is a 6% increase for Austin, thanks to the construction of new apartment units.
Because mortgage rates have come down to the mid-6% range, Idziak predicts more buyers will enter the Austin market this year. “Demand has tapered off a bit as higher interest rates in 2023 had many prospective homebuyers feeling priced out of the market,” he explains. “Thankfully, rates have been trending down since November 2023, and that should help bring buyers back into the market who were priced out when average rates were over 7%.”
In the week ending Feb. 14, according to the seasonally adjusted Purchase Index from the Mortgage Bankers Association, mortgage application activity was weaker than the previous week as mortgage rates moved higher. On an adjusted basis, the Purchase Index decreased by 3% compared with the previous week. Unadjusted, the Purchase Index increased by 4% and was 12% lower than the same week a year ago. Purchase applications were meek due to affordability challenges and low existing housing inventory, the MBA noted. Refinance applications also declined with rates higher than a year ago.
Consumer sentiment as measured by the University of Michigan’s Survey of Consumers rose to 79.0 on a 100-point scale in January 2024, up 21.7% year-over-year. This is the highest level since July 2021 due to improvements in the outlook for both inflation and personal incomes.
[READ: What to Know About Buying a House When You’re 60 and Older]
Foreclosure Trends
Both foreclosures and delinquencies tracked by Black Knight remain at very low levels in the Austin area. As of October 2023, only 0.3% of homes in Austin were in foreclosure, compared with 0.4% for the nation. Although local delinquencies were higher at 4.1% in October versus 3.2% nationally, most delinquencies do not make it to the foreclosure process as quickly as they did during the financial crisis of 2007-2008.
Median Home Price in Austin
Fortunately for buyers, the rising inventory of homes for sale has helped moderate home prices. Down substantially from its peak of more than $550,000 in April 2022, the median home price in Austin was $455,000 in September, having fallen 4.2% year-over-year, according to Redfin data. This median price is still about 10% higher than the national median of $412,000. Lower prices could boost sales in the upcoming spring selling season.
Buyers struggling with affordability challenges may have better luck in the new construction market. “New construction has been a great opportunity for buyers in Austin, with many builders offering financing incentives that the resale market can’t compete with,” Trevino says.
In September, Austin’s rental prices also decreased by 3.2% year-over-year, standing at $1,885 per month, according to Zillow Observed Rent Index data. Nationally, rent prices increased by 1.4% year-over-year to $2,047. More multifamily units are on the way, so it’s possible that rents will continue to decline depending on how many of these units are located in the Austin area.
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 more than 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 2022 peak, they’re still up 1.1% year-over-year. Since June 2023, construction costs have been rising, but not as sharply as they were in 2022.
Mortgage rates have fluctuated some over the last year, generally hovering around the mid-6% range over the past several weeks. The average mortgage rates for the 30-year fixed-rate mortgage tracked by Freddie Mac’s Primary Mortgage Market Survey retreated from 7.79% in October to 6.64% as of February 8, 2024.
Unemployment Trends in Austin
Austin continues to enjoy one of the country’s strongest job markets, with non-farm employment up nearly 85,000 year-over-year in September and an unemployment rate of just 3.6% versus 3.8% nationally.
Although construction jobs are not provided as their own category for the Austin area, they are included with mining and logging positions by the Bureau of Labor Statistics. As of January 2024, the number of jobs in this category increased to 938,400, up from 929,900 the year prior.
Builder Confidence in Austin Improves
Although builder confidence for the South Census Region rose 2 points year-over-year to 43 in October, it’s been on a downward trajectory since peaking for the year in June at 60, according to the 100-point scale from the NAHB/Wells Fargo Housing Market Index. Builder sentiment for the South Census Region is higher than national numbers, but only marginally. As of October, national builder sentiment was 40, up by 2 points year-over-year.
According to Idziak, the pace of new construction is strong in the Austin area, with new housing starts above 2022 levels. “Austin also recently passed the Home Options for Middle-income Empowerment (HOME) Initiative, which will allow up to three units on lots zoned as single-family,” he says. “This initiative should also spur additional construction of new homes, many of which will be tiny homes or ‘mother-in-law’ cottages that should hopefully increase the number of affordable units available for homebuyers.”
For nonresidential construction activity, the Architecture Billings Index provides another economic indicator that has a lead time of approximately nine to 12 months, with 50 marking the split between increases or decreases in billings. In July 2023, the index for the South Census region decreased 4.7 points year-over-year to 48.9, suggesting that commercial real estate activity in this part of the country may be slowing down.
Austin Real Estate Market Predictions
With the spring selling season quickly approaching, experts are divided about where home prices will go. If mortgage rates tick upward, we could see price declines as buyers pull back and wait for rates to drop again. If rates go down, as many housing experts predict, then we could see a surge of buyers entering the market, putting upward pressure on housing prices.
“The market currently expects the Fed to begin cutting interest rates at its May or June meeting, and that action should see mortgage rates fall over the second half of the year. Falling rates should help spur demand, and I think we could see average prices start to increase in the fall,” Idziak says.
The U.S. News Housing Market Index is forecasting nearly 5,360 single-home permits from December through February in addition to almost 4,750 permits approved for multifamily homes for the Austin MSA. Permit activity predictions have aligned with actual numbers for multifamily housing but were higher than reported numbers for single-family detached homes.
More from U.S. News
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The Most Overvalued Housing Markets in the U.S.
Understanding Housing Inventory and What It Means for You
Austin Housing Market Forecast originally appeared on usnews.com
Update 02/23/24: This story was published at an earlier date and has been updated with new information.
