The real estate market in Austin, Texas has been sizzling for quite some time now. The coronavirus pandemic gave it an extra boost, spurring an influx of new residents from pricier areas like California. Austin is currently one of the hottest housing markets in the country, with annual price gains that dwarf most other U.S. cities.
Zilker Park in Austin, Texas. Photo by Megan Bucknall (Unsplash.com)
This meteoric rise has some people concerned. Many home buyers and homeowners are now wondering if the Austin real estate market will crash in 2022? They fear this region is experiencing a housing bubble that could soon pop.
But such fears may be overblown.
Austin Housing Market Crash Unlikely in 2022
Based on current real estate conditions across the Austin metro area, a “crash” seems highly unlikely anytime soon. Record-low inventory and strong demand will keep this market humming for the foreseeable future, and certainly well into 2022.
Of course, no one can predict future housing market trends with complete accuracy. The past 18 months have shown us just how much uncertainty there is in the world — and within the economy. Still, the idea of an Austin, Texas real estate market crash in 2022 seems far-fetched at this point. The reasons for this are outlined below.
More Likely Scenario: A Gradual Cooling Trend
While Austin’s housing scene probably won’t experience a major downturn anytime soon, a cooling trend could certainly be on the horizon.
Home prices in cities like Austin, Round Rock, Cedar Park and San Marcos have risen so far so fast that many buyers have been priced out of the market. Going forward, this could lead to a gradual decline in housing demand, and less upward pressure on prices.
We’ve seen this pattern in many fast-rising real estate markets over the past few years. In cities from Boise to Denver to Seattle, extreme home-price appreciation has created affordability problems for many would-be buyers. Over time, this kind of scenario tends to reduce demand and slow price growth.
This could be the future for the Austin metro area, as well. A full-blown housing market crash in 2022 appears unlikely. But the Texas capital city and surrounding area might see a general cooling trend over the coming months.
Home-Price Growth Expected to Continue Into 2022
The Austin area real estate market has experienced phenomenal home-price growth over the past 12 to 18 months. This might be good news to homeowners, who are currently experiencing a surge in equity. But it’s not a sustainable trend over the long-term.
The rapid run-up in prices has frustrated a lot of home buyers in the Austin area, causing them to back out of the real estate market altogether.
This is one reason why some fear that a real estate market crash might hit Austin in 2022. Unusually rapid price growth is always a cause for concern. But, as stated above, it probably won’t lead to a bubble-bust scenario.
According to the real estate data company Zillow, the median home value for Austin, Texas rose by a whopping 35.7% over the past year or so. That’s an insane number anyway you slice it.
Chart: Austin-Round Rock home values | Source: Zillow.com July 2021
Looking back 30 or 40 years, average annual home-price growth in the U.S. has run closer to 3% to 5%. The Austin-area housing market has exceeded that metric by miles. So we’re talking about an abnormal rate of price growth, from a historical standpoint.
Looking forward, the team at Zillow expect home values in the area to continue rising at an above-average pace. They recently predicted that the median price for the Austin-Round Rock metro area would rise by around 24% between now and July 2022.
Based on those numbers, team Zillow doesn’t seem to expect a real estate market crash in Austin anytime soon. Their forecast suggests that price growth might begin to slow, as we move into next year. But that’s about it.
A July 2021 report from Realtor.com showed that Austin home prices are rising faster than most other U.S. metro areas. According to that report, this Central Texas region had the highest price growth of the nation’s 50 largest housing markets. The median selling price for existing single-family homes in the Austin area rose by 34.3% from June 2020 to June 2021.
Low Inventory Could ‘Shield’ Austin from a Downturn
What can we say about the inventory situation within the Austin area real estate market that hasn’t been said before. There just aren’t enough homes listed for sale to satisfy the demand from buyers.
In fact, the Austin-Round Rock metropolitan area currently has one of the lowest levels of housing market inventory of any major city in the country. As a result, many buyers struggle to find a property.
This is another reason why the Austin real estate market probably won’t crash or “bust” in 2022. Market crashes are usually preceded by major changes on both the supply and demand side. It happens when buyers stop purchasing homes and inventory piles up.
But that’s not the case in Austin, Texas and the surrounding area. In fact, it’s quite the opposite.
There is still plenty of demand for homes in this housing market, as evidenced by recent sales data. But there’s not nearly enough inventory to meet that demand. According to a recent report, this metro area had a 1.2-month supply of homes for sale as of June 2021. That was one of the lowest levels of any major metro in the U.S.
This lopsided supply-and-demand situation could essentially “shield” the Austin real estate market from a 2022 crash — or even a major downturn in home prices.
Tight inventory conditions have also increased competition among buyers, forcing many of them to make offers above the asking price. In June of this year, more than 70% of homes sold in the Austin area ended up selling for more than the original list price. These statistics indicate a highly competitive, overheated real estate scene. But they don’t necessarily mean that a housing market crash is coming to Austin anytime soon.
A Hopeful Sign: Recent Rise in New Listings
Now for a bit of good news for home buyers.
The July Realtor.com report also showed a significant increase in the number of new real estate listings within the Austin real estate market. According to that report, new listings in the area rose by 18.8% from June 2020 to June 2021. That’s a positive sign for buyers, and it could help cool down this red-hot real estate market over the coming months.
Overall, however, housing inventory in the Austin area remains tight. The 18.8% figure above only applies to new or recently added listings. Total inventory was down by -59.7% in June, compared to a year earlier. So while there are more homes coming onto the market, the supply situation will likely remain constrained for many months.
It’s Still a Fast-Moving Real Estate Market
Here’s another reason why an Austin real estate market crash seems highly unlikely. Homes are still selling very quickly across the metro area, outpacing the national average by a wide margin.
Realtor.com reported that homes sold in the Austin area during the month of June spent a median of just 16 days on the market. That was well below the national average for the same timeframe, and one of the fastest paces among the nation’s major metros.
Additionally, the median number of “days on market” for the Austin housing market declined by -33 days over the past year. So we have a situation where an already fast-moving real estate scene has accelerated even more. Buyers beware.
Disclaimer: This report contains predictions and forecasts issued by third parties not associated with the publisher. Real estate forecasts are the equivalent of an educated guess and should be treated as such. The Home Buying Institute makes no claims about future housing trends or conditions.