How Much Has Austin’s Housing Market Dropped Off?
Last month, the Wall Street Journal put out an article entitled, “Once America’s Hottest Housing Market, Austin is Running in Reverse,” which raised a lot of eyebrows. The article highlights that pandemic-era overbuilding and a slowdown in job and population growth have teamed up to pull the e-brake on the freight train that has been the Austin housing market. It states that since mid-2022, home prices have fallen 11%, more than anywhere else in the country. And while there’s certainly some truth to it, it’s much more nuanced than how it’s presented in the article.
What’s missing from the WSJ piece is a more thorough explanation of the “where” and the “when.” But before we flesh out those missing pieces, we’d be remiss not to take stock of interest rates, which have had an outsized effect on housing markets across the country. Since 2022, interest rates have almost tripled, going from historic lows around 2-3% to Friday’s closing rate of 7.45%.
Figure 1. Mortgage Interest Rates (Jan 1, 2022 – Apr 26, 2024)
Source: Mortgage News Daily
That type of swing takes the monthly payment on a $500k home from about $3,124 to $4,494 – a 41% increase. Simple economics dictates that when buying a home becomes that much more expensive, less people can qualify for mortgages, demand decreases, and home prices come down. The sharp spike in interest rates, however, was felt nationwide. So why the fall off in Austin? In part, it has been a case of what goes up must come down. From spring 2020 to spring 2022, home prices in Austin went up a whopping 60%. The growth wasn’t healthy or sustainable, and a market correction was inline. Given how much prices had gone up, there was lots of room for them to come down.
Back to the WSJ article. While it points to a slowdown in population growth for the City of Austin, it leaves out the fact that the Austin metro area continues to boom. For the first time in 20 years, more people moved out of Travis County (which essentially overlays the City of Austin boundaries) than migrated in. However, in parallel, the Austin metro area, which stretches from San Marcos to Georgetown, was ranked as the 2nd fastest growing MSA (metropolitan statistical area) in the country, with over 50,000 residents in-migrating in the past year. (True, the Austin metro slipped from the #1 spot, which it had held for 12 years running.) The sharp rise in home prices has priced prospective homeowners out of the core and into the suburbs, but nonetheless, they’re still moving here.
Moreover, as Mark Sprague, one of the state’s top housing economists, points out, the article cherry picks its timeline.
Figure 2. Average Home Price in Austin MSA
Source: Independence Title
From spring 2020 to spring 2022, home prices in Austin went up a whopping 60%.
Since November 2023, we’ve seen 4 consecutive months of home price increases.
People have started to normalize the stubbornly high(er) interest rates and are buying regardless. Mark argues that if you zoom out to a 5-year time horizon (which includes both pre- and post-pandemic numbers), you’ll see that homes have consistently sold between 97-103% of the list price. He continues that Austin’s growth is founded and flourishes on its robust job market. The WSJ article asserts that the labor market has cooled considerably. However, it’s been established that a lot of the layoffs in tech were for entry-level positions, such as sales and admin, and that the high-skill, well-paying positions held strong. Meta, for example, is expected to pick up hiring in 2024 for technical roles in AI, and Apple is relocating its AI and Siri team from San Diego to Austin. On the other hand, Tesla just announced that it’s laying off 2,700 factory workers at it’s Austin plant between now and June. Finally, Mark points out that from 2018 to 2013, over 66 corporate and regional headquarters have relocated to Austin – more than any other city in the country and more than most entire states.
The Milken Institute recently ranked Austin as the #1 best performing city based on its effectiveness at leveraging its resources to promote economic growth and provide its residents with access to essential services and infrastructure needed for success. The number one ranking was fostered by strong job and wage growth and a robust high-tech presence. Austin has come back down into this stratosphere — there’s no denying that — but the fall off in the core of the city after interest rates spiked, seems to have signed a return to a more sustainable and healthier housing market.
