Given how the US housing market is cooling or slowing down, is 2023 a good year to buy investment properties in the Austin real estate market?
The Austin TX real estate market is an attractive one for real estate investors, especially those who want to start a rental property business. Thus, let us break down and analyze the Austin real estate market to know whether you should invest in long or short term rentals in this Texas real estate market in 2023.
Table of Contents
- The State of the Austin Real Estate Market in 2022
- Our Austin Real Estate Market Forecast for 2023
- What’s the Best Investment Strategy in the Austin Real Estate Market in 2023?
- Top 5 Austin Neighborhoods for Short Term Rentals in 2023
Out of the countless investment options for real estate investment, investing in rental properties is the most common one. Most of the predictions for the 2022 US housing market were quite optimistic, including for the Austin real estate market. 2022 was a year that the real estate industry made a solid recovery, but it was not without its challenges.
While the industry recovered from its pandemic-induced losses, property prices also went up, as well as mortgage rates. Despite the slowdown in the US real estate market in the past few months, high mortgage rates are keeping investors from going all-in on investment opportunities.
We will take a closer look at the Austin TX real estate market and see which predictions and forecasts came to pass. We’ll also determine which trends to look out for as a real estate investor interested in this particular Texas market. Hopefully, by covering the said topics, we can finally come up with an answer to the question, “Will the Austin real estate market crash?”
The State of the Austin Real Estate Market in 2022
The Austin real estate market in 2022 continued to get hotter. The fact is confirmed by the Austin Board of Realtors 2022 Report, which indicates that active listings experienced triple-digit year-over-year growth.
Inventory also went up in the Austin TX market. Property prices in the said Texas housing market were on the rise while the time properties actually spend on the market was falling.
However, despite the improvements, the number of sales dwindled during the last quarter of 2022. Many industry experts and analysts believe that the decrease in sales activity can be attributed to the Austin real estate market stabilizing.
The Austin Board of Realtors (ABoR) reported in November that despite the drop in sales and increase in inventory, property prices were higher compared to the same period last year. According to ABoR president Cord Shiflet, the Austin TX market continued to grow, albeit at a much different pace than people were used to.
While the last quarter of the year typically is the slowest, investors need not despair as there are plenty of opportunities available in this Texas real estate market. Shiflet said that the number of inventory was greater than levels in the past decade. Buyers and investors could enjoy more options now than ever before.
Investors might want to consider talking to a realtor in Austin TX to discuss all possible options for financing.
Investing in Austin TX in 2023
On top of the Austin market slowing down in terms of price increases, many other reasons bring music to real estate investors’ ears. They all pertain to the increasing demand for Austin real estate properties.
Austin’s population is expected to surpass San Antonio’s by the late 2020s, generating a greater demand for real estate properties. It is expected to lead to further growth in the Austin real estate market a few years from now.
Job growth is yet another factor leading to the growth of the Austin real estate market. The economists’ predictions and forecasts going into Q4 2022 are that Austin would be the second-fastest growing economy in the country, only behind San Francisco.
In October 2022, the Kenan Institute of Private Enterprise at the Flagler Business School of the University of North Carolina gave a forecast that Central Texas would see economic growth of 4.3% for the entire year. Unless a major catalyst for a downturn happens, it is one of the trends expected to go well into 2023.
With the said statistics and data, people asking the question “Will the Austin real estate market crash?” are given a clear answer. No. Again, unless something major happens like the last housing market crash, the Austin real estate market conditions present very promising numbers for real estate investors.
Although the affordability of real estate properties is the biggest challenge for both property buyers and real estate investors, real estate properties in Austin are still favorable compared to other cities.
Is the Austin Real Estate Market in a Bubble?
Because of the shifting markets caused by the instability of the pandemic, a lot of people are asking if the housing market bubble will burst any time soon. Austin is one of only eight metro areas in the country to fully recover over the past decade to pre-recession values, according to Norada Real Estate.
As such, industry experts and analysts assure potential buyers and investors that the Austin real estate market is under no circumstance in a housing bubble. Based on the current statistics and market trends in the area, they are making forecasts and predictions that the Austin market will grow stronger in 2023 and beyond.
An Austin housing bubble is a myth at this point, given the current conditions. There is still a high demand for housing in this Texas real estate market. Also, the inventory is tight enough to negate the concept that Austin is in a housing bubble.
It is good news because you can expect a steady market activity, as well as a good influx of people looking for housing.
One more thing to note about why Austin is not in a housing bubble is that the city’s economy is strong and varied. Its expanding job market and rapid growth make it attractive for people to relocate to and invest in. While its inventory has grown a bit in Q1 2022, it still hasn’t caught up with the increase in population.
So, if economists and industry experts are to be believed by their predictions and forecasts, then no, Austin TX is in no housing bubble. So, the answer to “will the Austin housing market crash” is also no. At least not in 2023 and not anytime soon.
Austin TX by the Numbers
Given the different conditions and reasons that make investing in the Austin real estate market attractive, here are the corresponding rental market statistics based on real estate website Mashvisor’s December 2022 data:
- Median Property Price: $812,288
- Average Price per Square Foot: $1,629
- Days on Market: 84
- Number of Long Term Rental Listings: 984
- Monthly Long Term Rental Income: $2,118
- Long Term Rental Cash on Cash Return: 1.04%
- Long Term Rental Cap Rate: 1.05%
- Price to Rent Ratio: 32
- Number of Short Term Rental Listings: 4,960
- Monthly Short Term Rental Income: $3,184
- Short Term Rental Cash on Cash Return: 1.57%
- Short Term Rental Cap Rate: 1.58%
- Short Term Rental Daily Rate: $256
- Short Term Rental Occupancy Rate: 50%
- Walk Score: 51
The Austin real estate market, as seen on Mashvisor’s Investment Property Seach page. The heatmap also highlights the average Airbnb cash on cash return in each area.
Our Austin Real Estate Market Forecast for 2023
As early as summer, a lot of websites have made early predictions and forecasts on the 2023 real estate market based on the conditions and trends at that time. While it’s hard to deny the numbers and statistics, it was far too early to really make a calculated and well-informed forecast.
Now that we’ve already crossed into the new year, predictions and forecasts from summer 2022 are both validated and negated based on the market conditions we have now.
For one, many believed we were in a housing bubble and that the market was bound to crash with the way property prices and mortgage rates behaved in 2022. However, industry experts maintain that those predictions and forecasts were all borne out of fear. While it is true that the US market is slowing down a bit, the market still looks very promising for 2023.
Austin, in particular, shows promising signs, given its economic and population growth, as discussed earlier. Plenty of job opportunities arise in Austin, helping attract young professionals and families to the metropolitan area.
Its 4.3% economic growth has put Austin in a good place for further growth in 2023, where real estate is concerned. Tech jobs are increasingly accessible. There is a high concentration of venture capital in the city. Its tourism industry is in a very good place. Plus, it’s simply just a nice place to live.
All these and several other things give industry experts evidence that Austin’s economic and real estate boom is far from over.
What’s the Best Investment Strategy in the Austin Real Estate Market in 2023?
If predictions and forecasts from industry experts are to be believed, then Austin is one of the top markets real estate investors should consider going into 2023. Predictions and forecasts may not always be 100% accurate most of the time. However, the said experts base their predictions on statistics and data based on actual market conditions, real estate trends, and buyer behavior.
Based on these predictions and forecasts, we can already make a safe assumption that Austin is a good place for real estate investing. But what strategy is fitting for this particular market? If we take into account the different predictions for 2023, which investment strategy will give you an optimal return on investment?
Austin Real Estate Market: Investing in Short Term Rentals
By far, Austin is one of the biggest short term rental markets – if not the biggest – in Texas. This makes it one of the best places to invest in a short term rental property.
The most popular dates to fill up short term properties, like Vrbo and Airbnb rentals, in Austin are usually associated with events. They include the Austin City Limits Music Festival, the Formula 1 US Grand Prix, and South By Southwest.
Such events help the Austin real estate market to maximize accommodations to host as many visitors as possible, which consequently increases occupancy rate and return on investment.
All in all, investing in vacation rentals in the Austin real estate market seems lucrative and can be a good idea, especially for beginner investors. Mashvisor’s investment property calculator shows the following figures for short term rentals for the Austin real estate market going into 2023:
- Median Property Price: $812,288
- Monthly Short Term Rental Income: $3,184
- Short Term Rental Cash on Cash Return: 1.57%
- Short Term Rental Cap Rate: 1.58%
Note that Mashvisor’s investment property calculator or rental property calculator utilizes predictive and traditional analytics to provide users with reliable estimates of ROI metrics. The metrics include rental income, cash on cash return, cap rate, and median property prices.
Mashvisor’s investment property calculator provides almost identical numbers for long term and short term rental cash on cash return and cap rate, assuming the investment properties are fully paid in cash. Such types of data provide a more accurate and realistic investment property analysis, giving you greater confidence to make wiser investment decisions.
Austin Real Estate Market: Investing in Long Term Rentals
Comparing short term rentals vs. long term rentals in terms of generating positive cash flow is a hot topic between real estate investors, but each state and location presents its own case.
Austin is considered one of the fastest-growing economies in the US, offering many opportunities for jobseekers. Also, it is home to a university that attracts local and international students alike.
When you take into account market predictions and all the above factors, they lead to the need for long-term accommodation and increase the demand for it. It creates opportunities for real estate investors to purchase properties and turn them into long term rentals.
Mashvisor’s investment property calculator indicates the following in regard to Austin long term rental properties:
- Monthly Long Term Rental Income: $2,118
- Long Term Rental Cash on Cash Return: 1.04%
- Long Term Rental Cap Rate: 1.05%
Between the two rental property strategies, it is quite obvious that investing in short term rentals in Austin is more financially rewarding than long term rentals. However, as an investor, there are personal goals and biases you’re working with. Ultimately, the decision is yours to make. Knowing the above numbers, however, is a great way of looking at things objectively.
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Top 5 Austin Neighborhoods for Short Term Rentals in 2023
Given that Austin vacation rentals are more promising for real estate investors, we have listed some of the best places to buy short term rentals in this location. The data below are also from Mashvisor’s December 2022 data:
1. West University
- Median Property Price: $868,520
- Average Price per Square Foot: $576
- Days on Market: 74
- Number of Short Term Rental Listings: 785
- Monthly Short Term Rental Income: $3,334
- Short Term Rental Cash on Cash Return: 4.07%
- Short Term Rental Cap Rate: 4.14%
- Short Term Rental Daily Rate: $201
- Short Term Rental Occupancy Rate: 56%
- Walk Score: 88
2. Chestnut
- Median Property Price: $491,319
- Average Price per Square Foot: $620
- Days on Market: 110
- Number of Short Term Rental Listings: 1,238
- Monthly Short Term Rental Income: $3,494
- Short Term Rental Cash on Cash Return: 3.68%
- Short Term Rental Cap Rate: 3.73%
- Short Term Rental Daily Rate: $297
- Short Term Rental Occupancy Rate: 50%
- Walk Score: 75
3. MLK 183
- Median Property Price: $505,298
- Average Price per Square Foot: $359
- Days on Market: 111
- Number of Short Term Rental Listings: 352
- Monthly Short Term Rental Income: $3,153
- Short Term Rental Cash on Cash Return: 3.19%
- Short Term Rental Cap Rate: 3.23%
- Short Term Rental Daily Rate: $227
- Short Term Rental Occupancy Rate: 47%
- Walk Score: 29
4. Riverside
- Median Property Price: $571,833
- Average Price per Square Foot: $483
- Days on Market: 83
- Number of Short Term Rental Listings: 779
- Monthly Short Term Rental Income: $3,697
- Short Term Rental Cash on Cash Return: 2.53%
- Short Term Rental Cap Rate: 2.55%
- Short Term Rental Daily Rate: $219
- Short Term Rental Occupancy Rate: 50%
- Walk Score: 77
5. MLK
- Median Property Price: $554,690
- Average Price per Square Foot: $550
- Days on Market: 70
- Number of Short Term Rental Listings: 740
- Monthly Short Term Rental Income: $2,921
- Short Term Rental Cash on Cash Return: 2.16%
- Short Term Rental Cap Rate: 2.18%
- Short Term Rental Daily Rate: $236
- Short Term Rental Occupancy Rate: 50%
- Walk Score: 28
Go to Mashvisor now to start looking for and analyzing the most profitable short term rental properties in any location of your choice in Austin TX.
Final Words
Based on the current situation of the Austin real estate market, it is crystal clear that it makes a great opportunity for real estate investors to invest in both long term and short term rentals.
While both real estate investment strategies come with their pros and cons, you need to study all aspects of the two strategies to succeed and make money with lucrative real estate investments. Understandably, you will have your preferences but if ROI is the main concern, investing in vacation rentals is the way to go.
To ensure that you’re able to come up with proper rental property analysis, we encourage you to sign up for Mashvisor to get access to its large database and real estate investing tools. The website can help investors find the best possible deals in any rental market that fit their goals, needs, and budget.
Get started on your 7-day free trial with Mashvisor today.