It wasn’t that long ago that Austin, Texas was considered the hottest housing market in the country.
“I’ve never experienced anything like what we did from the middle of 2020 through March of 2022 and I wasn’t alone. Realtors all over were saying the same thing,” Scott Michaels, a local Compass agent, said. “You just did what you could to keep yourself healthy and sane.”
But since the Federal Reserve rate hikes began in March, Michaels said it’s as if someone “just slammed on the brakes” on Austin’s tech money-fueled housing market.
As of December 2, 2022, the 7-day average median list price for a home in Austin was $695,000, down from the pandemic high of $999,500 in late February 2021 and the annual high of $850,000 in early May 2022, according to data from Altos Research, which was recently acquired by HW Media.
Price drops have also been on the rise, recently hitting the highest level since 2017. An average of 63.3% of properties on the market have undergone a price reduction in the past seven days, up from 39.97% a year ago.
In addition, Altos reports that the 7-day average for the number of days a property has been on the market, which is an indicator of the pace of the market, has jumped from an average of 26 days in late May 2022 to an average of 82 days for the week ending in December 2nd. The average number of days on market was 57 one year ago.
“The forces slowing the housing market, such as high mortgage rates, are having an outsized impact on places like Austin and Boise that saw home prices skyrocket over the last few years,” Sheharyar Bokhari, a Redfin senior economist, said in a statement. “Home prices can only rise by double digits for so long before the growth becomes unsustainable.”
A return to a ‘more normal’ level
While these changes have occurred rather suddenly, the timing of the ups and downs of the market is in line with typical seasonal trends, and local real estate agents stress that housing market activity is simply returning to a more normal level.
“My team and I are seeing more ‘normal activity’ in the market,” Kent Redding, a local Berkshire Hathaway Home Services agent, said. “Austin is still strong and still growing. We are still seeing a good influx of people for jobs and higher education, but it is normalizing. Days on market have of course gone up, but there isn’t a sense of panic.”
Despite trends and overall market conditions feeling more “normal,” Michaels said that the normal seasonal rises have been a bit muted this year.
“Usually right around Memorial Day we see a slowdown occur, then it will typically pick up a couple of weeks into the school year, but we didn’t experience that this year because of the changing market conditions,” Michaels said.
Agents attribute the drop in demand to a confluence of factors, including rising affordability issues driven by higher mortgage rates and double-digit price gains, fewer homebuyers relocating to the metro and inflationary pressures.
“We noticed the slowdown right in the middle of April and you kind of had a few factors that were coming into play at that time,” Michaels said. “We had just had tax day, then new property tax evaluations for Travis County were also coming out at that time. Plus, the war in Ukraine and negative first quarter GDP numbers being announced — there were a lot of headwinds coming at you all of a sudden.”
Buyers are still out there
While demand has slowed, local agents say that buyers are still out there, but they have temporarily paused their searches or are still looking — but are doing so at a more casual, leisurely pace.
“The buyer pool is still there, but they are a little bit paralyzed by not knowing whether to move forward right now or pause their home search,” Redding said. “The ‘need buyers’ are still there, but in general, earlier this year and last year, buyers were a little shell shocked with the rapid increase in the marketplace. Some of them just backed off and signed leases or stepped back and took a breath while remaining in their current home. But, as we head into next year, those leases are going to come up and people are going to see more inventory on the market and they are going to come back because they still ultimately want to buy a house.”
Michaels added: “Mortgage rates almost doubled in a short period of time and that is going to have an impact on your buyer pool, so we knew that things were going to slow down.”
The good news for buyers who are still actively pursuing their house hunt, however, has been a near extinction of the nightmarish multiple offer scenarios that agents say occurred as part of nearly every transaction earlier this year.
“Buyers have the most leverage that they’ve had in this market in the past several years,” Meredith Alderson, a local Compass agent, said. “Of course there are going to be hot properties that come on the market, and you may find yourself in a multiple offer situation, but what we were seeing would be 15-plus offers on a property, and now very occasionally we’ll see maybe two offers. My clients have been in two multiple offer situations in the last three months, and earlier this year, basically every transaction was a bidding war.”
Michaels also noted that depending on the strategy of the seller’s agent, as well as how badly the seller needs to get their property under contract, some properties are being listed under what he would consider market value. This has created bidding wars, albeit smaller ones than those that occurred earlier this year.
Despite the overall slowdown, agents say it is still a good time for sellers to list and sell their properties, which is reflected in the metro area’s current Altos Market Action Index reading of 35. Altos considers an index reading of 30 to be a balanced market and anything above that to be a seller’s market.
“At the closing table, sellers might not be getting that ‘platinum return’ they could have gotten 18 or even 12 months ago, but they are getting a ‘diamond return’ and that is still pretty darn good,” Redding said. “So, a lot of it is educating sellers about what their equity now looks like. When pricing, we look a lot more now at active comps because sold comps are not going to be very reflective of the current market, and anything that sold prior to September is now completely unrelated to how we can price.”
Although local agents are looking at 2023 with some trepidation, they remain optimistic.
“This spring, I don’t think we will see anything like what we saw last spring or the spring of 2021, but I do expect that like most springs, we are going to see a good chunk of the year’s real estate transactions happen then,” Michaels said.
And in the meantime, they are taking advantage of the slower market to catch up on tasks that had been placed on the back burner for the past couple of years.
“It was so frenzied before May,” Alderson said. “Most active agents were working seven days a week and 15 to 18 hour days, so when you compare now to then, it feels very slow, but when I think back over the past few years, it really just feels more normal, more manageable. You have breathing room in your day and a bit more flexibility in your schedule. For me, I am taking advantage of that time to connect with past clients and connect with my sphere and deepening those partner connections, and then also educating myself through continuing education classes and spending a lot of time with my team collaborating and talking about how we can prepare during the slow time for the busier time.”
