Surging Housing Prices in Austin, Elsewhere, Were 'Not Sustainable'

As the interest rates began to climb and market demand slowed, Austin homeowners have seen some of the equity gained during the last calendar year diminish.

However, according to James Austin, Austin general manager at New Western, Austin “is still one of the most equity-rich markets in the country, providing an opportunity zone for investors, especially those who are able to pay in cash.”

The Austin market is now seeing an inevitable drop in home prices, Austin said, “because the conditions that drove prices up over the last three years were not sustainable with the steep rise in interest rates as we saw this year.

“The record increases driven by surging demand and low inventory simply couldn’t continue forever.

“Despite some cooling off, we are still in a place where our housing inventory levels are not what is considered balanced, but we are starting to see a healthier market for buyers.”

Austin, Phoenix, and Boise are among the home-market high-fliers from the past few years, and they are beginning to cool overall, according to Redfin. Those markets saw prices shoot up due to “out-of-towners moving in with big budgets,” Redfin reported.

Rising Price Per Square Foot Gets Tripped Up

According to the report, Austin’s median price per square foot was up 1.3% year over year in October. That’s down from about 24% year over year in February, when mortgage rates were still hovering under 4%, near record lows.

In Phoenix, price per square foot was up 6% from a year ago, down from nearly 29% in February. Those 23-percentage-point drops are the biggest among the 99 most populous U.S. metros from February 2022 to October 2022.

High Interest Rates, ‘Stumbling’ Tech Stocks Not Favorable

Redfin senior economist Sheharyar Bokhari said in prepared remarks that the forces slowing the housing market, such as high mortgage rates, are having an outsized impact on places like Austin and Boise that saw home prices skyrocket over the last few years.

“Home prices can only rise by double digits for so long before the growth becomes unsustainable,” Bokhari said.

“High rates and stumbling tech stocks are making it unsustainable quite quickly, especially in destinations popular with tech workers. Plus, many of the out-of-towners with big budgets who wanted to move into those places already have.”