We need some new adjectives to describe the real estate market in Austin, Texas. “Hot” just doesn’t cut it anymore. Supercharged. Extreme. Overheated. All of these are good choices.
By some measurements, Austin is the hottest real estate market in the country as of spring 2021.
As usual, it comes down to two things. Supply and demand. But in this case, extreme conditions exist on both sides of the equation. The Austin metro area is experiencing a chronic supply shortage at a time when home-buyer demand continues to soar. This makes it one of the most competitive housing markets in the country.
Austin Housing Market Explained in Two Numbers
I promised you some numbers, so here they are. To understand why Austin’s real estate market is so hot in 2021, you simply have to look at population growth trends in relation to local housing inventory.
On the demand side, we have seen a steady increase in the number of home buyers pouring into the area. This has been fueled by tremendous population growth over the past decade. A Census Bureau report from March of 2020 showed that the population for the Austin-Round Rock-Georgetown metro area rose by nearly 30% from 2010 to 2019. And it just keeps growing.
On the supply side, the Austin real estate market has experienced a major reduction in inventory. One report showed that property listing dropped by -72.7% in just one year. This is directly related to the population trends mentioned above. As of spring 2021, there aren’t nearly enough homes listed for sale to meet the demand from buyers.
Let’s take a closer look at these numbers, and how they are shaping local real estate trends.
+29.8% (Population Growth from 2010 To 2019)
On the demand side, the Austin housing market has received a steady influx of home buyers from all over the country (and especially California). The entire Austin-Round Rock-Georgetown metropolitan area has seen explosive population growth over the past decade or so. This comes at a time when housing supply remains limited, resulting in a highly competitive housing market.
According to the U.S. Census Bureau, the population for the Austin-Round Rock-Georgetown metro area rose by 29.8% from 2010 to 2019. By contrast, the national growth rate during that nine-year timeframe was 6.9%. The population for the state of Texas rose by 17% during that same period. So we’re talking about some seriously above-average growth within the Austin area.
To quote the 2020 Census Bureau report:
“Three of top ten metro areas with the largest gains in population between 2010 and 2019 were in Texas. Dallas-Fort Worth-Arlington, TX, had the largest numeric growth, with its population increasing by 1,206,599 (19.0%), followed by Houston-The Woodlands-Sugar Land, TX, increasing by 1,145,654 (19.4%), and Austin-Round Rock-Georgetown, TX, up by 510,760 (29.8%).”
Some cities within the Austin metro area have experienced even greater population growth. Cedar Park, Texas (located about 25 miles north of Austin) grew by more than 44% from 2010 to 2019. Round Rock and San Marcos also experienced significant population growth during that timeframe.
This partly explains why the Austin-area housing market is so competitive and fast-paced in 2021. In short, the local population is outgrowing the available housing stock. Within the real estate market, this kind of imbalance leads to multiple-offer scenarios, bidding wars, offers above the original list price, and other characteristics of an overheated market.
But there’s another important side of this as well — and another significant number. So let’s shift gears and talk about the inventory situation.
-72.7% (The One-Year Decline in Property Listings)
During the first week of April, Realtor.com published a housing market report with data for the nation as a whole, as well as the 50 largest metro areas. It also revealed some noteworthy trends relating to the real estate market in Austin.
According to that report, the total number of active real estate listings within the Austin-Round Rock-Georgetown metropolitan area declined by -72.7% from March 2020 into March 2021. That’s nearly a three-quarter reduction in the number of homes listed for sale, in just one year’s time. Among the 50 metro areas included in the report, Austin experienced the biggest decline in real estate inventory.
To quote the April 2021 Realtor.com report:
“Nationally, the number of homes for sale in March decreased by 52% compared to last year, a steeper decline than February’s 48.6% drop. This amounted to 534,000 fewer homes for sale compared to March 2020. Austin topped the list of inventory declines, down 72.7% from a year ago followed by Jacksonville, Fla. (-70.7%), and Raleigh, N.C. (-70.3%).”
In many ways, the Austin real estate market in 2021 is marked by extremes. It has an extreme level of population growth and in-migration, along with extremely low inventory levels.
You don’t have to be an economist to put two and two together. With housing demand far exceeding the available supply, local home buyers are forced to compete fiercely. In many cases, this means making an offer that’s above the original list price. This is in turn has boosted home prices all across the metro area.
Home Prices Have Risen Sharply
Given these extreme conditions (on both the supply and demand side), it should come as no surprise that Austin home prices are rising steadily. In fact, the local housing market posted double-digit price gains over the past year.
According to the real estate data company Zillow, the median home value for the Austin-Round Rock-Georgetown metro area rose by 14.5% over the past year or so. (This was reported in late March 2021.) Looking forward, the company’s analysts predict that house prices in the Austin area will rise by around 10% over the next year.
New-Home Construction Is Still Lagging
At this point, you might be wondering: Why not just build more houses?
After all, the Austin metro area still has a lot of buildable land. This seems like a logical solution to an ongoing problem, and it is. On paper, at least. The problem is that new-home construction continues to lag behind population growth and demand. This is true for the Austin housing market and much of the country.
Lumber prices are very high right now, and that has led to a slowdown in construction and higher costs for buyers. And even in those areas where new properties are being built, it’s still not enough to meet the demand from a swelling population.
Jeffrey Mezger, CEO of KB Home, recently told CNN Business: “We’ve been under-building for the last 15 years.”
So there you have them, two numbers that explain why the Austin housing market is so hot in 2021. Tremendous population growth, combined with extremely low inventory levels, have created a pressure cooker of a real estate market across Central Texas. Buyers beware.