Is it a good time to buy a house in Austin?
Given the uncertain economic times, there are a lot of questions to sort through as you decide whether to buy a house in Austin this year:
- Has the Austin real estate market hit bottom?
- Is it the right time to buy a house?
- What can you afford given the rise in interest rates?
- Will Austin continue to be a strong real estate investment?
There's no right answer that works for everyone. Buying a house is a big deal, and it's a highly personal decision that is impacted by your risk tolerance, personal finances, and other factors. Here's our take as you work through these questions and more.
THERE ARE INDICATORS THAT WE MAY BE CLOSE TO THE BOTTOM OF THE MARKET
I don't know when the Austin real estate market will hit bottom; no one does. But there are some positive signs that we may be close.
Austin home prices trended downward for the last seven months, dropping around $15K per month at one point. Between October and November, however, we saw the price declines begin to slow. Earlier in the year we saw declines of around $6 per square foot each month, but between October and November the price decline dropped to $1 per square foot.
But that's not all. Interest rates began to fall on November 7th after the last Consumer Price Index was released. While we peaked at 7.08%, today rates are down to 6.33%. We also saw a small uptick in buyers applying for mortgages, with the index average inching up from 199.9 to 204.2, another signal in a positive direction. The stock market has also been on a rally since the beginning of October.
Is this a sign that we are getting close to the bottom?
Or is this a head fake?
We don't think we are out of the woods, but there are positive things happening on both a local and national level. While we are facing some headwinds as we move into 2023, we have an overall optimistic outlook for Austin home buyers.
Between the typical holiday slow down and the chilling effect of rising interest rates and the uncertain economy, the market should feel quiet this time of year. Yet, we feel movement. There’s an undercurrent of activity building. Hence, our optimism.
We're not sure if it’s interest rates or impatience or people coming to terms with our current economic situation, but things are starting to move. We see it in the number of buyers that are reaching out to us. It's reflected in the number of clients that are starting to make offers on homes. We measure it by how quickly the homes we are scheduling to show our clients go under contract. We're not ready to say we've hit bottom, but there is definitely a shift in temperament here in Austin as our market shows more and more signs of life.
YET, OUTSIDE FORCES COULD DELAY AN AUSTIN MARKET REBOUND
The 2023 real estate market is going to be driven by two things: the Fed and unemployment. There are a lot of unknown variables at play that may deter or delay Austin's natural tendency to rebound.
You may have seen that the most recent job report came back really strong. Usually, that's great news. However, a strong job report will likely encourage the Fed to err on the side of caution and continue with their interest rate hikes in order to get us to a 4 – 5% unemployment rate. We are currently at 2.7% unemployment in Austin, which means to get to 5% unemployment a staggering 24,935 Austinites will need to lose their jobs. Since about half of the population owns a home, we assume that if 24,935 Austinites lose their jobs many of them will displaced. Displaced home owners will probably result in an increased supply of homes for sale. Combine this potential increase in home inventory with downward pricing pressure from rising interest rates, and we may end up seeing a stronger buyer's market in 2023 than we saw in 2022.
IS IT A GOOD TIME TO BUY A HOUSE IN AUSTIN?
Deciding whether it's a good time to buy a house in Austin depends a lot on your perspective and available resources. As you weigh your options, here's what we know about the Austin real estate market as of December 2022:
1) Right now you have less competition for homes because fewer buyers are house hunting. We aren't seeing as many multiple offers or homes selling for over the asking price.
2) You have more inventory to choose from, which again helps reduce competition.
3) You don't have to be in such a rush to make a purchase decision since there is less competition.
4) In 2020 and 2021 we saw a lot of draconian measures in purchase contracts that were purely designed to benefit the seller. Those are gone.
5) Sellers are negotiable! Most negotiations are resulting in a 3 – 6% price reduction, and in some cases more. Make an offer. You may be surprised where things land.
6) In some areas Austin home prices are declining at a high enough rate to help offset higher interest rates.
7) Most of the time your mortgage interest rate can be adjusted later once rates come down. We know many lenders that are getting creative with their offerings, and we are glad to connect you with them so you can explore your options.
8) Interest rates may continue to rise over the next couple of months as the Fed continues to fight inflation. Today’s 6.33% interest rate may look good in the rearview mirror. For comparison, consider these historic interest rates:
- 8.86% in the 1970s
- 12.7% in the 1980s
- 8.2% in the 1990s
- 6.29% in the 2000s
- 4.07% in the 2010s
9) Austin home prices will go up at some point. For starters, Austin's historic seasonality is likely to nudge prices up a bit in the spring. And we expect that once interest rates (and risk) go down, market prices will go up. Plus, cash buyers and investors are waiting for a signal that we've hit bottom, and then they will swoop in and scoop up properties. Today's prices aren't permanent.
10) Declining home prices will likely put you in a position to see your home appreciate in value when the market heats up again. And history tells us it will heat up again...
BUT WHAT ABOUT MORTGAGE INTEREST RATES?
Of all the considerations, mortgage interest rates are certainly top of mind as higher rates negatively affect your buying power. Right now rates and prices are like a see-saw:
- You can get a lower purchase price now with higher rates and plan to refinance your loan to a lower interest rate later on.
- You can wait for the Austin market to recover and pay a higher purchase price with lower rates later on.
It’s all a trade off.
Generally speaking, we like the first option. It’s the bold move. And fortune favors the bold.
If you can hold onto your property for several years, we think you will be pleased with the result when it’s time to sell. Folks that can get in the market when prices are on the decline reap bigger rewards when prices go up. And over time, Austin real estate prices have historically gone up. Either option will likely help you build wealth, but the first option is likely to see a better return.
START PREPARING EVEN IF YOU AREN'T READY TO BUY NOW
Even if you aren’t ready to buy a home now, it is a good time to start preparing so you are ready when the time comes. We find that buyers often lose out on their first few homes as they get a real world education on the Austin real estate market. Here are three things you can do now to shortcut that learning curve:
1) Start watching the market more closely. Get online and look at homes, see if there are homes you like, and pay attention to how long they sit on the market. We can even set up an automated search for you so it's easy. Just say the word.
2) Educate yourself about the process of buying a home. Talk to an experienced Realtor, like us, and get your questions answered.
3) Develop a relationship with a lender and begin to explore what type of house payment you are comfortable with, what purchase price you can get pre-approved for, and how much downpayment may be required.
By taking these preliminary steps, you'll be ready to act with decisiveness once you feel like the time is right for you.
LET'S TALK THROUGH YOUR OPTIONS
We see our current real estate market as an opportunity.
- An opportunity to get that first home you've been dreaming about.
- An opportunity to get properties for a price we likely won't see in years to come.
- An opportunity to build a real estate portfolio and wealth in the process.
If buying a home in Austin is one of your resolutions for 2023, we can help you sort it out. Don’t get discouraged. And don’t give up. There is always a path forward.
We will collaborate with you, answer all of your questions, and come up with a plan with discrete, actionable steps. And then you decide what makes the most sense for you.
We’re here for you regardless.
December 9, 2022
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