The Austin Texas real estate market is showing some signs of a slowdown. Home sales are down, but property prices are still on an upward trend.
According to a recent news article, the real estate market in Austin, Texas is slowing down. The reality about the Austin Texas real estate scene today is that home sales are down but inventory is on the rise. Despite the recent market developments, one would expect that property prices would also stabilize. However, it continues its upward trek with no signs of stopping any time soon.
What does it mean for real estate investors interested in Austin, Texas?
Is the Austin Texas Real Estate Market Cooling Down?
Perhaps the main indicator that the local Austin market is cooling down is the number of pending home sales recorded over the past year. In May 2022, pending home sales in the Austin area were down 4.4%, compared to the same period a year ago.
The drop may be incremental, but it is still enough for real estate professionals and investors to notice. What’s even more surprising is that inventory went up by 19.2% as pending home sales declined.
In a separate report by the Austin Board of Realtors (ABoR), in May 2022, active listings went through the roof at 146% compared to May 2021. It represents an additional 4,173 listings on the market. Cord Shiflet, ABoR’s president, says about the inventory, “It’s kind of exciting because for the first time in a long time, we’ve actually seen triple-digit growth and active listings are on the market.”
Shiftlet added that Austin has been an inflated market for the past couple of years. We are now just seeing the valve opened and the pressure released. According to the top ABoR executive, the Austin Texas real estate market is gearing towards pre-pandemic normalcy.
But what is affecting the relatively lower sales despite the increase in housing stock?
It’s the Mortgage Rates
One of the main reasons why buyers are holding off is the rapidly increasing mortgage rates. We might have enjoyed historically low interest rates during the pandemic’s peak, but it has since gone beyond the 5%-mark.
Almost every forecast for the 2022 US housing market predicted that the year would end with mortgage rates at 5%. However, due to unforeseen circumstances, like the geopolitical conflict in Eastern Europe, we already hit that mark in mid-Q2 2022. This is the first time in 10 years that interest rates surpassed the 5%-mark.
Along with rising interest rates, median property prices continue to go up. ABoR said in its report that the median price went up by 19.6% in May 2022. This is despite several sellers dropping their asking prices. According to RedFin, the number of price reductions went up by 24.2% in June 2022.
It somehow coincides with what’s taking place on the national level as mortgage applications also went down significantly. As of June 2022, applications declined by 24%, and 6.5% of sellers, on average, reduced their asking prices.
Related: When Will Mortgage Rates Go Down in 2022?
Or Is the Austin Texas Real Estate Market Crashing?
Despite the increase in inventory, investors should still proceed with caution. It is still critically low despite the growth in the housing stock.
We continue to hear talks about an impending housing market crash. Given such conditions, one would assume that Austin is on the verge of a collapse. However, that is simply not the case. Industry professionals and experts acknowledge what’s going on right now in Texas, specifically, the Austin real estate market. But they all agree that a market crash is very unlikely.
Local data does not seem to support the idea despite the ongoing changes. The real estate market in Austin, Texas may be slowing down but only by a little. It is a slightly cooler market today compared to how it was the past several months. Keyword: slightly.
Buyers are holding off because home ownership is getting expensive, but that’s not to say that it is unaffordable. We’re living in extraordinary times where we are still navigating the economic effects of COVID-19, as well as other world events. What’s going on in the Austin market right now may indicate that we are slowly easing back into the pre-pandemic normal. But it doesn’t necessarily mean that things will go back to exactly what they were before.
Even if spring and summer are the best seasons for the real estate industry, buyers also need to adjust their spending. The pandemic taught all of us to become more practical, especially where real estate investing is involved.
So, is the market crashing? Nope. But there is a shift in power that is more likely to benefit buyers soon.
The Austin Texas real estate market may not crash soon. However, market participants can expect a shift in power to buyers.
Should You Invest in Austin, Texas This Year?
Despite the current market condition in Austin TX, investors can still invest in the city with confidence. That is if they do their homework first.
As a real estate market, Austin is one of the top cities in TX to buy an investment property. According to CoreLogic’s April 2022 report, Austin saw the biggest increase in single-family rents year over year. It makes the city an ideal place for rental property investors who want a good positive cash flow.
Even though home prices rose from May 2021 to May 2022, investment properties are still affordable in Austin compared to other metros.
Another reason why you should still consider investing in Austin is it is one of the fastest-growing metro areas in the country. It has gained an average of 184 new residents per day over the past decade. This population growth is due largely to the city’s thriving economy and growing job market.
As far as real estate investing is concerned, real estate properties in Austin went up in value by 29.4% over the past year and 99% in five years. It indicates a very attractive renters’ market with a very high price-to-rent ratio of 32 points. As an Airbnb rental, investors can enjoy a 3.04% cash on cash return rate and make an average of $4,276 per month on a 53% Airbnb occupancy rate.
Yes another factor you should take into consideration is the position of Austin within Texas, one of the most landlord-friendly states. For instance, there are no rent control policies, and landlord insurance in Texas is not regally required.
Austin by the Numbers
If you’re interested in investing in the Austin, Texas real estate market, here are the latest numbers, according to the real estate website Mashvisor:
- Number of Listings for Sale: 573
- Median Property Price: $829,955
- Average Price per Square Foot: $542
- Days on Market: 45
- Monthly Traditional Rental Income: $2,195
- Traditional Cash on Cash Return: 1.05%
- Traditional Cap Rate: 1.07%
- Price to Rent Ratio: 32 (high)
- Monthly Airbnb Rental Income: $4,276
- Airbnb Cash on Cash Return: 3.04%
- Airbnb Cap Rate: 3.09%
- Airbnb Daily Rate: $236
- Airbnb Occupancy Rate: 53%
- Walk Score: 50
Given the above numbers, investing in Austin TX, at this point, still seems like a sound investment move. While traditional rental properties are performing well in the city, vacation rental houses are doing a lot better with higher cash on cash return and cap rates. How much you make will depend on the rental strategy you adopt. And your investment goals and financial situation will significantly influence your chosen rental strategy.
If a big city setting is not your thing, you could consider living in a smaller city close enough to Austin, like Hutto. However, it is best to engage a local realtor to help you identify some of the best places to live in Hutto before investing your hard-earned money.
Mashvisor is a real estate platform that is designed to help investors locate the right investment properties by giving them access to a wide database covering almost the entire US market. It comes with valuable investment tools like the property finder, real estate heatmap, and investment property calculator. It can also help you make side-by-side comparisons to see which rental strategy works best for a particular property.
To learn more about how we can help you make smarter real estate investment decisions, click here.
Wrapping It Up
To end, there is, indeed, some shift in dynamics in the Austin, Texas real estate market. And while the market seems to be cooling down, it is no indication that a collapse is bound to happen soon.
Investors can still buy investment properties in Austin and still make a good return on investment. You can search for the right property that aligns with your investment needs using Mashvisor.
Check out Mashvisor’s real estate investment tools today. Sign up for a 7-day free trial, followed by 15% off for life.