Even if the dust settles Austin, In Texas, after a two-year boom in home prices, indicators suggest reasons why sellers are optimistic about the luxury market, even as median prices are falling.
Among the cities where house prices are falling the most, Austin came in first in a report by Realtor.com. The median home price in September was $558,275, down 10.3% from June, according to data from Realtor.com. The percentage of sellers who reduced their list prices increased by 252% in September.
“There was an initial shock where people had a little FOMO [fear of missing out] that they missed the market. So we’ve seen agents restructure prices with their sellers to find out where the market is at,” said Gary Dolch, founding agent of Compass and owner of Austin Luxury Group.
In terms of pricing, Austin’s luxury sector fared much better than the broader market, although there was still some turbulence.
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According to data from Realtor.com, median prices for Austin’s most expensive homes – the top 5% – rose 16% between June and August, to $1.12 million. Prices dipped slightly over the next month, dropping 4% to just under $1.1 million in September.
But while homes in this segment continued to see year-over-year growth, prices for high-end homes at a lower level — those in the top 10% of the market — fell 1.2% to $746,000.
Rapidly changing house prices and activity rattled the Austin real estate market over the summer.
Dolch said he hasn’t seen listing activity plunge like this in Austin since the 2009 recession gutted the market. He saw the most extreme changes occur between mid-July and September and said his office hadn’t seen more than one contract a week since late summer.
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“Mid-August was the quietest time I’ve seen since the financial crisis,” he said. “The phones weren’t ringing. People had this scared 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’s observed over more than two decades of selling, Dolch said hitting the panic button and readjusting prices won’t make the problem go away.
“There’s nothing you can do when the demand destruction starts happening like this. It doesn’t matter what price you set it at,” he said.
A more “normal” year?
Considered one of the fastest growing cities in the United States, Austin draws residents from both coasts who are drawn to the city’s status as a tech hub with a vibrant music scene, unique personality, and… more attractive tax structure than what exists in states like California.
Overall, home prices in Austin mirrored a trend in other cities that became real estate hotspots during the pandemic, when an influx of buyers from the more expensive parts of the country flocked to these areas for more affordable homes.
“We’re seeing this kind of trampoline effect where they bounced around 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. Dow Jones and Realtor.com are owned by News Corp.)
While a confluence of factors has contributed to Austin home prices plummeting, industry watchers say the recent changes suggest a market correction.
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The fact that the number of sellers cutting prices is up 252% from a year ago has more to do with the numbers returning to normal, said Adam Perdue, an economist at the Texas Real Estate Research Center of Texas A&M University.
While 2020 and 2021 were an anomaly in Austin’s housing 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 the trends we would have expected in 2019, were it not for the pandemic and interest rate changes,” Perdue said.
Most of the cities that have seen a surge in buyers over the past two years have been in the Sun Belt. Like Austin, these cities attracted buyers looking to trade snowy, wet winters for a better climate and better quality of life.
“It makes sense that very high demand pushed prices beyond where they should have been in the market,” Wyloge said, noting that parts of Texas, Arizona, Georgia and Florida were particularly popular. “We see these corrections the most in these areas.”
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In the Austin luxury market, in particular, Mr. Dolch estimated that homes were overvalued by 20% until a few months ago.
“I don’t think we suddenly don’t have that market here anymore,” Dolch said. “I think it’s a reaction to the market downturn. And it’s quite dramatic. »
Among other factors, market seasonality explains at least part of the decline. Dolch pointed out that the market typically slows down noticeably around mid-July.
But this summer, that seasonal dip coincided with rising inflation rates and stock market swings. And ahead of the November election, there was more hesitation in the housing market than usual, Mr. Dolch said. “I think once people feel more confident, they’ll start to pull the trigger even more,” he said.
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Austin Economy drives up prices
Significant price declines in the future are unlikely given that the fundamentals that attracted buyers to Austin in the first place are unchanged.
Mr. Perdue forecast minor declines, or perhaps a flat trend line, in year-over-year prices for the next two years.
“We’ve continued to see this increase in demand which is helping to support prices,” Perdue said. “It continues against the headwinds of rapid changes in mortgage rates.”
Mr. Dolch, however, offered a more bullish take. He predicts that Austin’s real estate market could experience 30-40% appreciation over the next five to six years because there simply isn’t enough housing for the influx of people moving to Austin, and luxury rental properties are nearing capacity. “There’s just nowhere to go,” he said.
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One thing real estate experts agree on is that Austin’s booming economy will continue to support prices in the housing market.
Silicon Valley companies have increased their presence in Austin, with Amazon, Google, Oracle and Tesla expanding their operations there.
Plus, Dolch said, most people moving to Austin come from California, New York and Chicago and still see value in the market. “They all think our prices are very good compared to what they offer. That alone will drive the market up,” he said.
Despite the market’s timidity, Mr. Dolch said there was a glut of homes available. They just don’t show up on MLS.
Agents don’t want to feel like homes are accumulating days on the market while sales are slow. So instead, they’re relying on private listings, which is a big reason MLS has been sold out, he said.
“Austin is known for having a parallel market, with sites where brokers can see off-market inventory that isn’t on the MLS. These sites are currently full. There are hundreds and hundreds of them,” he said, adding that many of these homes cost $1.5 million and up.
There are also other signs of life. Dolch said he saw a noticeable increase in activity in the last two weeks of October and he expects things to pick up after the election cycle ends.
“The phones are starting to ring again,” he said. “We might see some pop at the end of the year.”
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