Real Estate Reflections: Understanding the New Reality of Austin's 2021 Real Estate Market
What in the world happened to the Austin real estate market?
When 2020 came to an end, I breathed a big sigh of relief. After all, we survived the pandemic and the market was strong. And then out of nowhere it was like someone gave the Austin real estate market an adrenaline shot that took it from strong to off-the-charts crazy.
In December homes were selling 5 – 8% over asking price, and suddenly after the New Year homes were selling for 20 – 30% over asking price. People were waiting in line for over an hour to get in to see homes. Properties were getting 10, 20, or sometimes even 30 offers. Buyers started waiving all contingencies in their purchase offers (no inspections, full appraisal waivers, free lease back periods, and more) so that everything lined up in the sellers’ favor. Well qualified buyers that were able to purchase a home in December were suddenly priced out of the market. Sure, this is normal for other states like California, but it definitely wasn’t normal for Austin.
I studied the data and our own anecodotal evidence. It was like nothing I’ve seen in my 25+ years of experience. And it doesn’t seem to be stopping. Here’s where the market stands, my thoughts on how we got here, and where I think we are headed.
WHERE THE AUSTIN REAL ESTATE MARKET CURRENTLY STANDS
In just the four months between November 2020 and February 2021 (that’s only 120 days), take a look at how sharply the median prices home prices have risen in the city of Austin:
November 2020 median Price
February 2021 median price
Daily rate of appreciation
$552 / day
(3 beds or less)
$450 / day
LARGER HOMES (≈3,000 sq ft & 4+ bedrooms)
$1,491 / day
LARGER HOMES WITH A POOL
$5,313 / day
$375 / day
$612 / day
$2,450 rent / month
$2,598 rent / month
RENTAL CONDOS & TOWNHOMES
$2,495 rent / month
$2,663 rent / month
Note: I omitted Westlake and the UT area from these stats. Westlake spikes the prices and skews the data for the rest of the city, and with such a high number of rental properties and a migrant student population it’s a market all of its own.
For the most part, we are up 10-20% in a very short period of time. Larger homes are in greater demand than smaller homes. We are seeing families with a steely determination to win and get settled in. If I were to sum it up, there is a lot of money moving into Austin, and they like awesome homes with pools!
The rapid appreciation we are seeing in Austin also extends to our suburbs. The difference is that the rates of appreciation are slightly lower.
November 2020 median Price
February 2021 median price
Daily rate of appreciation
$266 / day
$285 / day
$333 / day
I’m curious. What do you think of these numbers? Does it make you consider cashing in on your investment?
Certainly, some of our clients have reached out to see what their own home might sell for in this market. And now can be be a great time to sell, for some people. It’s pretty ideal for those with investment properties, those that were thinking of selling in a few years anyway, and those that were considering downsizing as children graduate or as they approach retirement.
But it’s not the right time for everyone. Our home inventory is at an all time low, which means its slim pickings and extremely competitive if you need to buy a comparable or larger replacement home in Austin. These two major concerns keep coming up:
1. Should I list my home when home values are continuing to rise? (I don’t want to miss out on more profit.)
2. Should I list my home in a low inventory market when I haven’t found a home to buy? (Where will I live?)
Those are genuine concerns. I have two thoughts. First, you will never perfectly time the market; it always has a natural ebb and flow to it. Since this surge is another “unprecedented” event, we don’t know for sure how long it will last. We’ve already seen rising interest rates slow things down a bit, and rates are expected to rise a little more.
Second, we will help you with your post-sale plan. We know what it takes to win in a multiple offer situation so that you can find a new home. Plus, we can build in lease-back periods and/or help you find temporary housing (check out these ten STRs in Austin) to hold you over during your search. It’s do-able. And we can help you do it.
If you’re interested to know how the last 120 days impacted the value of your home, send me an email, and I’ll run a custom report called a Comparative Market Analysis (CMA) that shows what homes in your neighborhood sold for and gives you an idea of what yours might sell for too. Whether you are seriously considering selling or not, this is good info to have. Just don’t laugh if you get an email back from me that says “You’re rich!”
WHAT IN THE WORLD HAPPENED TO THE MARKET?
Real estate is subject to the basic economic principles of supply and demand. We measure the “hotness” of the market by how many months inventory we have. A balanced real estate market has around six months of inventory. Austin hasn’t been balanced in a long, long time. In fact, there was already a shortage of homes as Austin hovered around 3 months of inventory for the last several years.
COVID exacerbated the problem. As the pandemic took hold, home inventory in Austin continued to drop. In January 2021 the Austin Board of Realtors reported that Austin’s inventory was down to .4 months – the lowest I have ever seen in my lifetime.
We simply don’t have enough available homes to house everyone that wants to live here.
There are a lot of issues contributing to the shortage. For one, Austin’s complicated building codes and lengthy permit process are a roadblock to new housing construction. New construction isn’t keeping up with demand. We also have fewer homes coming up for resale. The majority of homeowners in the U.S. are baby boomers or older who are less inclined to put their home on the market and welcome strangers into their homes in the middle of a pandemic. Other potential sellers are concerned about finding a new home, and then you have a portion of the market that is staying put because their home loan is in forbearance.
Yet, as home inventory dropped, demand from qualified buyers increased. Low interest rates essentially threw gas on the fire, encouraging people to buy when money is cheap. Additionally, the pandemic pushed people to move. Urban dwellers in dense cities who justified a high cost of living because of the perks of urban life suddenly found they couldn’t enjoy those perks anymore. People wanted more space and affordability; Austin met both criteria.
Whereas people seemed to move to Austin in 2020 because they were fleeing denser cities because of COVID, in 2021 it feels like working from home has gained permanence. If you can work anywhere, Austin’s relative affordability and attractions are a great bet. A recent CNBC report noted that for every one person that moves out of Austin, 1.53 new people move in. That’s a lot of demand in an already tight housing market. With high demand from active buyers and seller participation lagging, homes are selling quickly, often with 10+ offers, for hundreds of thousands of dollars over the asking price.
The problem isn’t limited to Austin, however. Housing inventory is down across the nation, with most states seeing a 30 – 45%+ drop in available homes according to Altos Research.
WHERE IS THE AUSTIN REAL ESTATE MARKET HEADED FOR THE REST OF 2021?
Unfortunately, February’s ice storm exacerbated the already tight inventory. There were approximately 365 homes for sale in the City of Austin when the storm hit. After the storm 116 homes were pulled off the market and not sold. By my calculations, about 32% of our already low inventory is temporarily grounded as sellers deal with storm damage. I anticipate most of those will come back on the market in April or May, but it’s certainly not helping things.
Until our home inventory levels go back up (or people decide to quit relocating here), I expect the Austin market to remain extremely competitive. I predict that the market will continue at these levels until we catch up to other competing urban cities. As it sits, Austin is still more affordable than Denver and slightly more expensive than Nashville. That makes us a good value overall (yes, hard to believe) compared to other markets.
For comparison, these 2020 statistics from the National Association of Realtors give us a pretty good idea of how Austin stacks up compared to other cities that made U.S. News and World Report’s top ten list of places to live in 2021. Austin falls squarely in the middle.
Median Home Price
Des Moines, IA
San Francisco, CA
That means as folks are looking at options on where to relocate, Austin continues to be an attractive choice. Job creation, low unemployment rates, and that Austin ‘cool’ factor are hard to resist. Until our home inventory levels go back up (or people decide to quit relocating here), I expect the Austin market to remain extremely competitive.
The question is really how long will this last? I’m not sure. If I were to make an educated guess, I think we are looking at another 3 years of growth. That’s pretty amazing considering that we were already in our 9th concurrent year as a seller’s market. I’m curious about what you are seeing and hearing out there. What do you think?
I do wonder what life will be like as Austin slowly returns to pre-pandemic norms or some semblance of normal. COVID sent everyone (or most everyone) home for the last 12 months. When we all come back out to play, and the playground is more crowded than it was, will Austin lose some of its appeal? Will people still want to move here if traffic creeps back up to pre-COVID levels? How are folks going to feel about long lines to eat at restaurants? It’s undefined, but we know it will be somewhat different as more people that move here seek to enjoy what locals have always loved about our city. How do you see this dramatic escalation of price appreciation impacting Austin?
For those of you that are considering making a move, my advice this month is pretty simple.
IF YOU’RE A SELLER: Make the most of this market while it lasts. That’s especially true if you’re an investor or were already considering a move in the next few years.
IF YOU’RE A BUYER: Every single day counts. Homes are literally appreciating hundreds of dollars a day. Be prepared to be decisive and act quickly when you find the home you want. We’ve got a winning formula, so be sure to reach out.
We love talking real estate, so please let us know your thoughts. We're happy to geek out over the numbers for fun, or we can dig into your own situation to see if this is a good time to capitalize on your investment. Either way, we hope to chat soon.
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