Market Downturn Causation
At the beginning of 2022, we saw the pandemic boom continue resulting in ongoing demand and the market was incredibly high and supply low. Average Sold Price increased by +18.5% from January to May until the Fed stepped up to hedge inflation with rate increases and mortgage rates more than doubled to over 7.0% for the first time in years. This caused the market to give back all of the early gains and prices dropped -18% by December 2022 and a resulting decrease in prices back to near 2019 levels. It’s important to remember that the market downturn was caused almost entirely by the increase in interest rates and the drop in buying power.
- In 2021, Austin saw strong growth of 9.3% in real (price-adjusted) total personal income, an important, broad-based measure of the economy. Austin’s growth was the best among the 50 largest U.S. metros.
- Austin’s 6.8% real per capita personal income growth in 2021 ranked 3rd among large metros
- Overall price levels in Austin are at the U.S. average.
- U.S. inflation was 4.0% in 2021. The rate was 3.8% for Texas and 2.9% for Austin.
(courtesy of Austin Chamber of Commerce)
Austin Metro Job Growth
As of December 2022, 45 of the top 50 metropolitan areas have regained their pre-pandemic level of jobs. Comparing metros based on where they stand relative to pre-pandemic February 2020, Austin, up 11.3%, is the second-best-performing major metro. Ten private industries in Austin have surpassed pre-pandemic employment and only one has yet to regain 2020’s losses. Leisure and hospitality shed 62,200 jobs in March and April of 2020 (45% of all jobs lost). The industry finally regained those lost jobs in April 2022. Employment attained a new peak of 153,200 in November. Though employment fell back to 150,900 in December, that total exceeds every other month except November. The industry’s December jobs total represents 11.9% of all jobs—just below its 12.1% pre-pandemic share.
Mortgage Rate Stabilization
Mortgage rates have stabilized in the 6% range for 3 months now. Historically, buyers want to see 3 months of stabilization before entering (or re-entering) the market, which bodes well for 2023. The most likely scenario for 2023 is that the market improves over Q3/Q4 2022, but doesn’t reach “pandemic demand” levels of 2020, 2021, and early 2022. We will likely see significant year-over-year pricing declines in early 2023, but YOY is an extremely lagging indicator. We will monitor month-over-month pricing to see if Q4 2022 (and likely Jan 2023) is the bottom of the market in terms of pricing.
We’ve observed that buyer and seller behavior is returning to normal. Buyer demand in the real estate market heats up in Q1, peaks in Q2, begins to slow in Q3, and bottoms in Q4. We have every reason to believe that 2023 will follow this trend.
Austin Luxury Housing Market
We’re monitoring the luxury market very closely for homes exceeding $1,000,000 price points. Austin is fertile ground for the luxury market and has been for several years. These trends will changes are we get into the busier months of Q2 and Q3 of 2023. You’ll note from the charts below that March thru June expect to be the highest months in luxury sales for the Austin market and the best time of the year for the highest sales price averages.
- $1M+ homes currently listing ave. ATX $2,271,506 @ 104 days on mkt.
- 1303 homes listed in MLS $1M+ in ATX
- Average Sold Price = $1,809,890
- Average Days on Market $1M+ = 73
The charts below from Texas REALTORS® provide a snapshot of sales of Million-Dollar-Plus homes from 2022.
We’re already observing that entry-level price points are rebounding nicely (which is very normal in a recovering market). Resale properties in neighborhoods with active homebuilders are struggling because of the additional inventory and aggressive pricing these builders are delivering. Likewise, the luxury market is rebounding slowly because these buyers are not only affected by interest rates, but also by large investments they prefer not to sell in a down market. We can’t overstate how important it is to recognize that different submarkets will recover at different rates.
Austin’s prospects are incredibly strong. We fully expect job growth to rebound as soon as Fed tightening stops and to rebound more strongly with loosening monetary policy. 2022 was certainly a down year and 2023 will likely be sluggish. We expect 2024 to return to a more normal, stable demand level and appreciation (normal for Austin, which means quite strong) and we expect the following years to follow suit until, well, the next recession. We’ll leave you with a recent quote from noted local economist Angelos Angelou:
“It is going to be a little bit of a slowdown, nowhere near a recession as far as I can tell,” Angelou said. “The economy is still adding jobs so it does not feel like a recession, even if it may be one. Texas is not going to be affected as much, and Austin is going to be affected even less. The recession is going to hit different parts of the county differently.