Steady as She Goes

Jan 27

Written By Sam Lee

Ahhhhh yes, 19° and snowing last week and a forecasted high of 77° this weekend. That’s a 58° swing from one week to the next. Thank God we have the calm seas of the Austin real estate market to keep us steady during these turbulent times.

Don’t worry, the rest of this article is better than that opening transition. But the point I wanted to make here is that the Austin real estate market in 2024 – and at present – could fairly be characterized as steady and predictable. Take the median home price, for example, which began 2024 right around $425,000, and at the close of the year sat at $445,000. Even during seasonal fluctuations, the peak to trough delta was less than $35k.

Figure 1. Austin MSA Median Home Price (2018-2024)

In fact, going back almost two and a half years to September 2022, the peak to trough delta has stayed within $50k. For most full time agents out here living and breathing the market, this shouldn’t come as a surprise. But to other casual observers, this might be a bit of a shock given how much of a paradigm shift it is to go from the nation’s hottest real estate market to one that’s seasonal, well-balanced, and a little less sexy. I would argue, however, that the latter is much healthier.

We ended the year with three consecutive months of modest price increases, and while January numbers haven’t been released yet, both what I’m seeing on the ground and what my colleagues are reporting is that it has been an uncharacteristically busy jump to the year (some of my teammates are even reporting running into multiple offers – gross!). I would expect to see a steady uptick in home prices throughout spring and summer.

*The year ended with three consecutive months of modest price increases.*

Number of Homes for Sale Comes Back Down to a Healthy Level

While median home price is a top shelf metric, other data also support stability and growth. None has been more positive than inventory numbers. During the first half of 2024, we went from three months of inventory to almost five months worth in a relatively short period of time. As a reminder, “three months of inventory” means that if we freeze new listings, based on current demand, it would take three months to sell all the homes on the market. The sharp spike was a serious cause for concern – if the trend would have continued, it would have put even more downward pressure on prices.

Figure 2. Austin MSA Months of Inventory (2018-2024)

Instead, you can see on Figure 2 that inventory plateaued once the summer rolled around and then finally broke downwards in Q4. For reference, a balanced market between buyers and sellers is typically defined as having between 4-6 months of inventory. You can see in 2021, when at one point we were down to 14 days (yes, days) of inventory and the result was multiple offers over asking on every single listing and buyers getting unmercifully dragged through the mud. Extremes in either direction aren’t desirable. Seeing the months of inventory come back down in Q4 of 2024 was a really positive sign for the long-term sustainability of our market.

Mortgage Rates Remain Stubborn

Figure 3. Average 30-Year Fixed-Rate Mortgage Rates (Past 12 Months)

For much of 2024, mortgage rates hovered between 6.5% and 7.25%, with the 30-year fixed-rate mortgage rate average closing this week at 7.11%. Don’t expect drastic changes to mortgage rates anytime soon. The truth of the matter is that the U.S. economy is quite strong and seems to have fought off inflation, so there’s no need for the Fed to cut interest rates in an attempt to provoke spending. In September of last year, the Fed had predicted that it would make four rate cuts in 2025 – now they are predicting just two. Government mortgage agency, Fannie Mae is forecasting the average rates to be 6.6% and 6.7% for Q1 and Q2, respectively. (My preferred lenders here in Austin can typically quote about 0.25% better than those national averages.) This type of predictability enables buyers and sellers to plan transactions with greater confidence.

On the buy-side, the best strategy is to use your leverage to try and get the seller to pony up some cash to help you buy down the rate, which basically means that you pay extra money to the lender at closing for a better mortgage rate. And even when the seller won’t agree to this, it may be worth coming out of pocket to do it yourself. For example, say it costs $10k to buy down your rate from 6.5% to 6%, and that 0.5% rate change is going to reduce your monthly payment by $500, it would take you 20 months to break even. Assuming you’re going to stay in the home longer than 20 months, it would make sense to pay – or have the seller pay – the $10k up front. The numbers I’m using here for the example are oversimplified, but you get the point. A lot of new construction home builders are offering incentives like this.

Trump’s Proposed Policies May Have Outsized Impact

Before I go on, I should highlight one giant, orange caveat to everything I’ve written here: Donald J. Trump. Until this point, I’ve painted a picture of health and predictability, and hate him or love him, the President has a track record of, well, unpredictability. Last week, he demanded that the Fed lower interest rates. Jerome Powell, the Chairman of the Federal Reserve and the one capable of lowering interest rates, is independently appointed and does not answer directly to the President. The system was designed this way to allow him to make impartial decisions based on the overall health of the economy. Powell’s appointment runs to 2026. However, under enough pressure, he’s indicated that he might step down, leaving the door open for Trump to instate a loyalist that would be willing to lower interest rates, despite it being at the expense of the long-term health of the economy. For potential homebuyers, however, the short-term effect would be lower mortgage payments.

Another factor to consider in regards to the President’s mercurial temperament is the tariffs that he’s threatened to implement. Doing so would drastically increase the cost of the materials needed to build new homes and renovate the old ones. Much like during the pandemic when supply chain issues had a similar effect, the cost of housing would likely take a sharp turn upward if imports become much more expensive. Mass deportations are likely to further amplify this as many construction trades rely on immigrants. All of this, however, is speculation. For now, they are issues worth keeping on the radar.

Austin Bucks National Trends

The National Association of Realtors just put out a report in which they highlighted that there were 4.04 million homes sold last year, the lowest number since 1995. Interest rates, inflation, low inventory, etc, etc – people couldn’t afford to buy homes. When you read headlines like this, do keep in mind that Austin often performs much better than the rest of the country. Take a look at Figure 4, for example. Yes, things have been slower, particularly over the summer, but we’re not far from where we were a few years ago, let alone at a 30-year low.

The Austin-Round Rock-San Marcos Metropolitan Statistical Area (MSA) is the second fastest growing large metro area in the United States. This is after holding the top spot for 12 years in a row. People are still moving here at a high rate, they have well-paying jobs, and they are still buying homes, particularly in the suburbs. Expect moderate growth this year with seasonal fluctuations that make for a balanced and healthy real estate market.

There’s plenty more that we could parse out here, but each person’s situation is unique to them. Someone looking to sell a single-family home in 78704 is going to interpret the data differently from someone looking to buy a condo by the Domain. If you’d like to discuss your personal situation and develop a plan for 2025, please don’t hesitate to schedule a consultation with me below.

Figure 4. Austin MSA Number of Transactions (2018-2024)