Though the dust is settling Austin, Texas, after a two-year home price explosion, indicators suggest reasons for sellers to be bullish on the luxury market, even as median prices decline.
Among the cities where home prices are falling the most, Austin was ranked first in a report by Realtor.com. The median home list price in September was $558,275, a decrease of 10.3% from June, according to data from Realtor.com. The percentage of sellers who reduced their list prices increased 252% in September.
“There was an initial shock where people had a bit of FOMO [fear of missing out] that they missed the market. So we saw agents restructuring prices with their sellers to find out where the market was,” said Gary Dolch, founding agent at Compass and owner of Austin Luxury Group.
In terms of pricing, Austin’s luxury sector has fared much better than the broader market, although there was still some turmoil.
The median prices of the most expensive homes in Austin (the top 5%) increased 16% between June and August, when they reached $1.12 million, according to realtor.com data. Prices dipped slightly again over the following month, falling 4% to just under $1.1 million in September.
But while homes in this segment continued to see year-over-year growth, prices for luxury homes just one level below (those in the top 10% of the market) fell 1.2% to $746,000.
Rapidly changing home prices and activity rocked the Austin real estate market over the summer.
Mr. Dolch said he hadn’t seen listing activity plummet like this in Austin since the 2009 recession wrecked the market. He saw the most extreme changes occur between mid-July and September and said his office hasn’t seen more than one contract a week since the end of the summer.
“Mid-August was the quietest period I have seen since the financial crisis,” he said. “The phones didn’t ring. People had that frightened look in their eyes. Nothing was happening, on either side.”
But he had a clear message for his brokers and clients: don’t panic. Based on what he has seen in more than two decades of sales, Dolch said hitting the panic button and readjusting prices won’t make the problem go away.
“There’s nothing you can do when demand destruction starts happening like that. It doesn’t matter what price you put it at,” he said.
One more ‘normal’ year?
Considered one of the fastest growing cities in the US, Austin has been attracting residents from both coasts who are drawn to the city’s status as a tech hub with a lively music scene, unique personality and a more attractive tax structure than the one that exists in states like California.
Overall, Austin home prices mirror a trend in other cities that became real estate hotspots during the pandemic, as an influx of buyers from pricier parts of the country flocked to these areas in search of affordable housing. more affordable housing.
“We’re seeing this kind of springboard effect where they had a big bounce back during the pandemic, and people were really drawn to sunny, warm areas,” said Evan Wyloge, data reporter for Realtor.com. (Mansion Global is owned by Dow Jones. Both Dow Jones and Realtor.com are owned by News Corp.)
While a confluence of factors contributed to the drop in Austin home prices, industry watchers say recent changes suggest a market correction.
The fact that the number of sellers cutting their prices is up 252% compared to last year has more to do with the fact that the numbers are returning to normal, said Adam Perdue, an economist at the Center for Real Estate Research. Texas Roots at Texas A&M University.
While 2020 and 2021 were an anomaly in the Austin real estate market, 2022 is shaping up to be a more “normal” year, Perdue said.
“A lot of what we’re really seeing is a return to trends that we would have forecast in 2019, without the pandemic and changes in interest rates,” Perdue said.
Many of the cities that saw a rush of buyers in the last two years were in the Sun Belt. Like Austin, these cities attracted buyers looking to trade snowy, wet winters for better weather and quality of life.
“It makes sense that really high demand pushed prices up beyond where they should have been in the market,” Wyloge said, noting that parts of Texas, Arizona, Georgia and Florida were especially popular. “We’re seeing these corrections in those areas more.”
In the Austin luxury market, specifically, Mr. Dolch estimated that homes were up to 20% overpriced as recently as a few months ago.
“I don’t think all of a sudden we don’t have that market here,” Dolch said. “I think it is a reaction to the slowdown in the market. And it’s quite dramatic.”
Among other factors, the seasonality of the market explains at least part of the fall. Mr. Dolch noted that the market typically slows down substantially in mid-July.
But this summer, that seasonal dip coincided with rising inflation rates and fluctuations in the stock market. And before the November election, there was more hesitation in the housing market than usual, Dolch said. “I think once people feel more confident, they’ll start to pull the trigger even more,” he said.
Austin Economy boosts prices
Big price drops are unlikely in the future given that the fundamentals that drew buyers to Austin in the first place haven’t changed.
Mr. Perdue forecast minor declines, or possibly a flat trend line, in prices year over year for the next two years.
“We continue to see this increase in demand that helps support prices,” Perdue said. “That continues against the headwinds of rapid mortgage rate changes.”
Mr. Dolch, however, offered a more optimistic view. He predicts that the Austin housing market could see a 30% to 40% appreciation in the next five to six years because there simply isn’t enough housing for the influx of people moving to Austin, and luxury rental buildings are approaching its maximum capacity. “There’s just nowhere to go,” he said.
One thing real estate experts agree on is that Austin’s booming economy will continue to support prices in the real estate market.
Silicon Valley companies have increased their presence in Austin, with Amazon, Google, Oracle and Tesla expanding their operations there.
What’s more, Dolch said, is that many of the people moving to Austin come from places like California, New York and Chicago and still see value in the market. “Everyone thinks that our price is very good compared to what they are offering. That alone will drive the market higher,” he said.
Despite the timidity in the market, Dolch said there is a glut of homes available. They just don’t show up in MLS.
Agents don’t want the sight of homes racking up a bunch of days on the market while sales are slow. So instead they rely on private listings, which is a big reason MLS has dried up, he said.
“Austin is known for having a shadow market, with sites where brokers can view off-market inventory that isn’t in MLS. Those sites are currently full. There are hundreds and hundreds of them,” he said, adding that many of these houses are priced at $1.5 million or more.
There are also other signs of life. Dolch said he saw a notable increase in activity during the last two weeks of October and expects things to pick up after the election cycle is over.
“The phones are starting to ring again,” he said. “We could see a little outburst by the end of the year.”