As an expert in the real estate industry, I have been closely monitoring the housing market in Austin, Texas. The recent report from Zillow confirms what many of us have been seeing - a cooling demand for housing and a decline in home prices. This is a significant shift from the city's previous status as a rising star during the pandemic. As we approach the end of the spring homebuying season, it is clear that the market is overheating, particularly in terms of home prices.
The lack of inventory has driven up prices, making it challenging for potential buyers to enter the market. According to Black Knight's monthly mortgage monitoring report, while the retrospective annual growth rate in May was only 0.1%, the month-on-month gain of 0.7% would equate to an annualized growth rate of 8.9%. This is an exceptionally strong increase that is not sustainable in the long run. Andy Walden, vice president of business research at Black Knight, predicts that the annual growth rate will remain close to 0% for a short period before it inflects and begins a strong upward trend in the coming months.
This means that we can expect to see further increases in home prices, which will continue to pose a challenge for potential buyers. While many cities across the country are experiencing record-high home prices, Austin is an exception. The inventory in Austin is still higher than pre-pandemic levels, which is putting downward pressure on prices. In fact, prices have fallen by 13.8% below their peak, making it the largest gap in any market.
The report also highlights the impact of low inventory on affordability. Currently, single-family residential units only represent 40% of ongoing projects in Austin. When taking into account current income levels, the average payment for property and inclusion expenses is only covered by 35.7% of the median household income. To return to normal affordability, a 30% drop in home prices would be necessary.
Alternatively, if prices remain the same and rates fall to 5%, an income growth of 19% would be needed for the market to return to normal affordability. It is clear that the current state of Austin's housing market is a result of conflicting trends. On one hand, the city's inventory levels are keeping prices in check, but on the other hand, this is also limiting the options for potential buyers. This is a delicate balance that will need to be closely monitored in the coming months.
One factor that could potentially impact the market is the recent layoffs at major companies like Microsoft and Amazon. This could affect the ability of buyers to afford more expensive homes in the area. However, there are also reasons to be hopeful about Austin's long-term prospects. Despite these challenges, it is important to note that Austin is still a highly desirable place to live.
This has been evident in the influx of residents from other states during the pandemic and remote work boom. As a result, housing prices have skyrocketed, making it a much more expensive place to live than before. This increase in demand has also led to a concerning trend - homes are not selling at list price. In fact, many homes are selling above their list price, with buyers willing to pay in cash.
This has resulted in an average sale-to-list price ratio that is higher than usual. In addition to high demand, inflation and high mortgage rates are also contributing to the market's current state. This has left many potential buyers unable to enter the market, further driving up prices. Overall, the current state of Austin's housing market is a complex one.
While there are signs of cooling demand and declining prices, there are also conflicting trends that could potentially impact the market in the future. As an expert, I will continue to closely monitor the situation and provide updates on any significant developments.
