Why the Red-Hot Austin Housing Market Could Start to Cool Down in 2022

For over a year now, we’ve heard story after story about the red-hot real estate market in Austin, Texas. And it’s true. Among the nation’s major metros, the Austin area has led the way in terms of year-over-year price growth and other metrics.

But that kind of growth is generally unsustainable over time. It’s inevitable that the Austin housing market will start to cool down in the near future. We believe such a cooling trend will begin later in 2022.

With more inventory coming onto the market, and consumer costs rising across the board, the Austin-area real estate market could slow down considerably into the second half of 2022.

Austin Housing Market Could Cool Down in 2022

More homes are coming onto the market, easing a long-running inventory shortage in the Austin area. Meanwhile, home prices continue to rise at a steady pace, pushing some buyers out of the market.

As if that weren’t enough, mortgage rates recently rose to a 10-year high, and inflation continues to squeeze households nationwide.

Those are just some of the factors that could cause the hot Austin real estate market to slow down in 2022. In short, the supply-and-demand situation is starting to shift, and that could lead to slower price growth and slower sales later in 2022.

1. More homes are coming onto the market.

After a long, harsh “drought” of homes for sale, the Austin-area housing market is finally seeing some inventory growth. In fact, a recent report showed that it was the #2 metro in the country for year-over-year listing growth.

On May 10, researchers from Realtor.com published a real estate market update with data for the nation’s 50 largest metro areas. Among other things, this report showed that a handful of metros have experienced inventory growth over the past year or so. Austin was one of them.

In most of those 50 U.S. metros, the total number of real estate listings declined over the past year. But in a few housing markets (including the Austin-Round Rock metro area), more homes came onto the market during the past 12 months.

To quote the May 2022 Realtor.com report:

“Compared to the national rate, active listings declines from April 2021 were relatively smaller in the 50 largest metros, on average (-10.3%), and hit positive territory in eight markets, led by Riverside, Calif. (+23.3%), Austin, Texas(+16.5%) and Sacramento, Calif. (+11.8%).”

Overall, housing market inventory in the Austin area remains well below historical norms. The supply shortage that ramped up during the early days of the pandemic continues to this day. But the crunch appears to be easing, as more and more homes come onto the market.

If inventory levels continue to rise — which seems likely at this stage — it could bring a cooling trend to the Austin housing market during the latter part of 2022.

2. Fast-rising home prices have shrunken the buyer pool.

Austin used to be a relatively affordable housing market, when measured against the national average. But those days have passed.

Following a tremendous spike in prices over the past 18 months, a typical home in Austin now costs nearly $700,000. That’s roughly double the national median home value, as of May 2022.

Five years ago, in May of 2017, the median house price for Austin was around $353,000. So it has nearly doubled since then. Much of this growth occurred within the past two years alone, as shown in the chart below.

Home buyers can find lower prices in other parts of the metro area. For instance, the nearby cities of Leander, Pflugerville and Round Rock all have a lower median price point than the city of Austin itself. But even those real estate markets have gotten a lot more expensive over the past two years.

According to the real estate data company Zillow, the median house value for the Austin-Round Rock metropolitan area rose by a whopping 37% over the past year alone.

The Austin area has experienced major population growth in recent years. Relatively affordable housing contributed to that trend, attracting home buyers from more expensive parts of the country. But as prices continue to soar, this market will become less and less attractive to out-of-state buyers. This in turn could lead to a decline in buyer demand.

We’re starting to see signs of this already. For example, an April 2022 housing market report from the Austin Board of REALTORS® showed that “residential home sales decreased across the [metro area] for the second month in a row.”

3. Rising mortgage rates, inflation, and economic concerns.

Skyrocketing home prices and growing inventory, on their own, are enough to slow down the Austin-area real estate market. But other economic forces could compound this effect.

For one thing, we’ve seen steady growth in mortgage rates over the past few weeks. The average rate for a 30-year fixed mortgage loan rose by more than 2% from January to May of 2022. That’s based on the weekly survey conducted by mortgage buyer Freddie Mac.

According to a May 19 statement from Freddie Mac:

“Economic uncertainty is causing mortgage rate volatility. As a result, purchase demand is waning, and homebuilder sentiment has dropped to the lowest level in nearly two years.”

The economic uncertainty mentioned above includes everything from rising inflation to fears of an economic recession.

The bottom line is that a “perfect storm” of overlapping factors could cause the Austin housing scene to cool down in 2022. But it won’t be limited to Central Texas. Cities across the country could experience a cooling trend in the months ahead, as home buyers shy away from rising costs.