Austin Market Update: Quarter 1 of 2023

Is it a good time to buy a house in Austin? 

If you’re looking for a clear answer, you won’t find it from anyone honest. 

On the one hand, it’s a better time to be a buyer than it has been in years. The balance of power has shifted away from sellers, and we’re not seeing lines around the block the minute a house goes up for sale. Sellers have learned to be more reasonable and are even making hefty concessions to encourage people to buy. 

But that shift of power has come from increased interest rates. Between the higher interest rates and the increased prices over the COVID bull market, we are now experiencing a major affordability issue. Both rates and  home prices are high, pricing many buyers out of the market. 

Worse, we’re starting to see some supply contraction again since current homeowners who may be able to afford a new home aren’t incentivized to sell. They don’t want to give up their 3% or lower interest rate. 

So, is it a good time to buy a house in Austin? For some people, yes. Others, maybe not. Let’s look through the numbers and see what we can learn.

The Market Statistics & What They Mean

Let’s start off with the Q1 market stats that were just released by the Austin Board of Realtors.

Compared to 2022 (last year):

• The median sales price has decreased from $624,000 to $529,495, which is a 15% decrease. 
• Inventory increased from 2 weeks to 2.8 months. 
• Active listings have increased from 533 to 2,166, which is a 306% hike. 
• The number of average days on market has increased from 20 to 66 days. 
• The average interest rate on a 30-year mortgage has increased from 4.67% to 6.32%, according to Freddie Mac. 

Prices have gone down, there are more homes for sale, they’re sitting on the market longer, but interest rates have gone up. 

These year over year changes don’t tell the whole story though, so let’s unpack them a little further.

Where are Home Prices Really?

Median sales prices have decreased from last year and are close to prices from 2021. 

Over the past few years across the country, we have seen incredible (and unsustainable) price increases. This is especially true in Austin. To recap, here were our jumps over the past few years:

• From March 2018 to March 2019, the median sales price went from $370,000 to $375,000 (+1%)
• From March 2019 to March 2020, the median home sales price went from $375,000 to $415,000 (+10%).
• From March 2020 to March 2021, the median home sales price jumped from $415,000 to $514,000 (+24%).
• From March 2021 to March 2022, the median home sales price jumped from $514,000 to $624,000 (+21%).
• From March 2022 to March 2023, the median home sales price lowered from $624,000 to $529,495 (-15%). 

Over the past 5 years, the median sales price jumped from $370,000 in 2018. 43% appreciation in 5 years is…insane and unprecedented. 

Austin could use a little cooling off. And while houses have dropped from a year ago, they’re still up significantly from 5 years ago. If you removed 2022 from the chart and just drew a line from 2021 to 2023, you’d have a 3% increase over those two years. 

So while it’s true that house prices have “crashed,” that’s only from what was an unrealistic peak. 

The real question is: will they go lower? And while it’s hard to say yes or no, some of the other stats give us some hints. 

More Homes on the Market

Along with decreased prices, we’re also seeing many more homes on the market. 

Active listings are homes that are sitting on the market for anywhere from an hour to months and years. In Q1 of last year, there were only 533 active listings. But in Q1 of 2023, that number has increased by 306% to 2,166.

On top of that, the average number of days a house sits on market has increased from 20 to 66.

All this put together, this is the first time in years that buying in Austin has felt like a fair fight. Our supply is high compared to the past 24 months, which is causing homes to sit longer on the market. Generally speaking_, the longer a house sits, the less leverage a seller has. Going from less than a month to over three months is a huge change that tilts the power scales away from sellers.

Unclear Fluctuating Interest Rates

Rates have been finicky the last couple of quarters. 

I’m writing this on April 25, 2023, and less than a week ago, mortgage rates rose from 6.27% to 6.39%, after declining for 5 weeks in a row. 

The Fed is expected to raise rates another 25 basis points in May, which will cause an increase in mortgage rates. However, it’s also expected that rates will taper towards the end of 2023. 

At the end of the day, we can speculate, but there’s no way to predict what will happen with 100% certainty. They could be higher at the end of the year, they could be lower, we don’t know.

No matter how this shakes out, it’s good to remember that for each percentage point that rates change, buyers lose or gain about 8% in purchasing power (ie buyers can afford 8% less of purchase price with each 1% interest increase and buyers can afford 8% more of purchase price with each 1% interest decrease).

Tying it Together for Buyers

So what should buyers do? 

At the end of the day, a 6-7% interest rate isn’t exorbitantly high and you’ll have the chance to refinance your home in a few years’ time once interest rates decrease. 

If there’s a house that checks all your boxes, you can see yourself living there/keeping it for the next 5-10 years, and the timing of your life aligns with the timing of the market, maybe it’s a good time to buy despite the higher rates. 

On the other hand, if money is tight, you suspect another round of layoffs at your company, you could see yourself leaving the city in a couple years, it might be smart to table your purchase.

Here are the three categories of buyers that I see:

Right Place, Right Time Buyers

If you need or want a home now and you can afford it, then it's a good time to buy. I’m a strong believer that it’s better to live one’s life fully than try to optimize every last thing and potentially miss out on years of building a home with your family. 

Cash Buyers

If you’re a cash buyer, now’s your time to shine. The Fed has said they plan to do at least one or two more rate hikes through the end of the year, so interest rates on mortgages are unlikely to come down anytime too soon. 

Swinging in with an all cash offer, especially if it’s a home with a motivated seller, creates a favorable outcome for all parties. With the promise of a quick close, the seller will be motivated to make concessions in your favor, from a lower purchase price to paid repairs to covering some or all of your closing costs.

Could you be too early, and there’s another crash coming? Yes.

Could this be the bottom and home prices are only going to start going back up from here? Also yes. 

There’s no way to know, now or ever.

But being a cash buyer right now definitely puts you in a significant negotiating advantage.

Financed Buyers on the Fence

It’s a less obvious decision if you’re financed. 

Higher interest rates have made already-expensive homes even more unaffordable, so you wouldn’t be crazy to want to wait a year or two to see if rates come back down. Though, it’s likely that once they do, prices will start to climb back up as well. So homes might not get more affordable for borrowers, either. 

If you do think the market has already pulled back enough and want to move on buying a house now as a borrower, be sure you’re pre-approved by a trusted lender and be sure that your employment status is steady. 

Advice for Ripe Buyers

If you decide you’re ready, whether cash or financed, I’d focus on homes that have been on the market for a while, maybe 45+ days. 

There are gems, older homes and new builds alike, whose prices are decreasing week by week. You can come in aggressively on these homes with offers for 10-20% below list price, and if you’re willing to be patient, you might strike gold.

I’ve been encouraging my buyers to circle back on homes that they were previously considering last month. Sellers of these homes are growing tired and will be more willing to accept an offer below their asking price. They’re also likely to make major concessions like paying for title, making repairs, giving credits towards closing costs, and/or buying down your interest rate.

Remember that builders are running a business and they have lots of people and loans to pay back on a schedule. If their new construction has been sitting for 3 months, it’s very possible that their construction loans are coming due. It can be crippling to get these extended so qualified buyers can have tons of leverage here.

Homes that are older and/or require sweat equity are also a good opportunity. These sellers are likely growing more and more reasonable, too.

Deal of the Day

An example of this is this east side cutie here:

• Days on Market: 250 days
• 3 bedrooms
• 2.5 bathrooms
• Has a detached ADU Loft (1/1)
• Located in 78702

It was originally listed at $1,386,095 in August 2022 and is now at $1,253,065 today, which is a 10.5% reduction. 

I did a full breakdown of this property back in February when it was listed at $1,299,088. I had said that I would offer $1,235,000 and wouldn’t pay for than $1,250,000. 

Today, I’d probably go in at $1,195,000 and see what they counter with. If you got it for $1.2MM with 15% and a 6.5% interest rate, your mortgage would be around $9,000 per month.

A bonus of this property is its detached guest house. Per Airbnb comps, you could conservatively charge $150 per night. With an 85% occupancy rate, you’d pull in $3,750 per month. If you had a property manager, they’d likely take 35% of that, which would leave you with $2,400 per month.

But you'd get to live in a new 3br/2.5ba home in the heart of the east side for $6,600 per month, which isn’t too shabby.

If you want to see more of these, check out my Twitter. 

Tying it Together for Sellers

Sellers simply have less leverage today than they did last year. 

It’s crucial that sellers understand this seemingly rapid shift in the market and adjust their strategy accordingly. 

Unless your property is a unicorn-gem-snowflake property, you’ll need to adjust your expectations from last year. The market simply isn’t what it was in May 2022, where even the most “meh” home was receiving multiple offers over asking price. 

It’s also helpful to understand the mindset of an average buyer right now compared to last year. Buyers are generally more fearful and are looking for concessions and a “deal”. 

Another thing to consider is renting out your home for a year. Of course, this isn’t possible for everyone. If it is feasible, though, I would consider renting the home out to break even for a year and then try listing it come March/April 2024. 

If you’re looking to sell ASAP, though, I’d advise you to move quickly to catch the April/May peak and be sure to price your home conservatively. This will increase your chances of finding a buyer before the summer lull of June through August. 

Looking Forward in 2023

This next month should be interesting. 

The period between now and Memorial Day in late May is typically the busiest season of the year because it’s the sweet spot before folks leave for vacation from June through August.

Once Labor Day rolls around in September, I expect that things will pick up as folks return from vacation, especially since we may see interest rates come down. 

Of course, this is all speculation. You will never perfectly time the market, at least knowingly in the moment. 

Could home prices continue to drop? Sure. But how long will it take for homes to reach that “ideal” price point in your head? 

Interest rates may increase while you’re waiting for home prices to drop, canceling out any price decreases. Nick Maggiuli of Of Dollars and Data published a really good article last month about whether it’s a good time to buy a house and I recommend giving that a read, too. 

Regardless of which side of the coin you’re on, it's imperative that you have an agent who understands the new norms of the market.

If you're interested in your options, the next immediate next step is to speak with a local lender. Be sure to understand what your price range is and what makes the most sense for you, your finances, and your family.

Ready to talk about your options? Feel free to drop me a line!

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