Although the dust is settling in Austin, Texas, after a two-year home-price explosion, indicators suggest reasons for sellers to be optimistic about the luxury market—even as median prices come down.
Among cities where home prices are falling the most, Austin came in at No. 1 in a Realtor.com report. The median home list price in September was $558,275, a 10.3% decline from June, according to Realtor.com data. The percentage of sellers who reduced their list prices was up 252% in September.
“There has been some initial shock where people had a little FOMO [fear of missing out] that they missed the market. So we saw agents restructuring prices with their sellers to find out where the market was,” said Gary Dolch, a founding agent of Compass and owner of Austin Luxury Group.
In terms of pricing, Austin’s luxury sector has fared much better than the overall market, even though there was still some turbulence.
More: Do Geothermal Systems Heat up Home Values?
The median prices for Austin’s most expensive homes—the top 5%—increased 16% between June and August, when it reached $1.12 million, according to Realtor.com data. Prices dipped back down slightly over the next month, falling 4% to just under $1.1 million in September.
But whereas homes in this segment continued to see annual growth, prices for high-end homes just one tier down— those in the top 10% of the market—fell 1.2% to $746,000.
The rapid shift in housing prices and activity rattled the Austin real estate market over the summer.
Mr. Dolch said he hasn’t seen listing activity take a nosedive like this in Austin since the 2009 recession gutted the market. He saw the most extreme changes take place between mid-July and September and said his office hasn’t seen more than one contract a week since the end of summer.
More: Big Canadian Cities Offer a Moment for Long-Hesitant Home Buyers
“Mid-August was the quietest period I’ve seen since the financial crisis,” he said. “The phones weren’t ringing. People had that scared look in their eyes. Nothing was going on, on either side.”
But he had a clear message for his brokers and clients: Don’t give in to the panic. Based on what he’s observed in over two decades of selling, Mr. Dolch said hitting the panic button and readjusting prices won’t make the problem go away.
“There’s nothing you can do when demand destruction starts to happen like that. It doesn’t matter what you price it at,” he said.
A More ‘Normal’ Year?
Considered one of the fastest-growing cities in the U.S., Austin has been attracting residents from both coasts who are drawn to the city’s status as a tech hub with a lively music scene, a unique personality and a more attractive tax structure than what exists in states like California.
On the whole, Austin’s housing prices mirror a trend in other cities that became real estate hot spots during the pandemic, when an influx of buyers from more expensive parts of the country flocked to these areas for more affordable homes.
“We’re seeing this kind of trampoline effect where they got a big bounce during the pandemic, and people were really attracted to areas that were sunny and warm,” said Evan Wyloge, a data reporter for Realtor.com. (Mansion Global is owned by Dow Jones. Both Dow Jones and Realtor.com are owned by News Corp.)
While a confluence of factors contributed to Austin’s housing price fall, industry observers say the recent changes suggest a market correction.
More: Heart Set on a New Build? Here’s Where Luxury Homes Are the Youngest
The fact that the number of sellers slashing their prices was up 252% compared to last year has more to do with the fact numbers are returning to normal, said Adam Perdue, economist at the Texas Real Estate Research Center at Texas A&M University.
Whereas 2020 and 2021 were an anomaly in the Austin housing market, 2022 is shaping up to be a more “normal” year, Mr. Perdue said.
“A lot of what we are really seeing is a return to trends we would have forecast in 2019, without the pandemic and changes in interest rates,” Mr. Perdue said.
Many of the cities that saw a surge of buyers in the past two years were in the Sun Belt. Like Austin, these cities appealed to buyers looking to trade snowy, wet winters for a better climate and quality of life.
“It makes sense that the really high demand pushed prices up past where they should have been in the market,” Mr. Wyloge said, noting that parts of Texas, Arizona, Georgia and Florida were especially popular. “We’re seeing these corrections in those areas the most.”
More: The Keys to Avoiding a High Mortgage Rate for Your New Mansion
In Austin’s luxury market, specifically, Mr. Dolch estimated homes were overpriced by as much as 20% until a few months ago.
“I don’t think it’s that we suddenly don’t have that market here,” Mr. Dolch said. “I think it’s a reaction to a slowing market. And it’s pretty dramatic.”
Among other factors, market seasonality accounts for at least some of the decline. Mr. Dolch pointed out that the market generally slows down substantially around mid-July.
But this summer, that seasonal dip coincided with rising inflation rates and fluctuations in the stock market. And ahead of the November election, there was more hesitancy in the housing market than usual, Mr. Dolch said. “I think once people feel more confident, they’ll start pulling the trigger even more,” he said.
More: Buyer’s Remorse: It’s Not Too Late to Ditch Your Country Home and Get Back Into the London Market
Austin Economy Drives Prices
Major price drops moving forward are unlikely given the fundamentals that attracted buyers to Austin in the first place are unchanged.
Mr. Perdue forecasted minor decreases, or possibly a flat trend line, in year-over-year prices for the next couple of years.
“We’ve continued to see this increase in demand that helps support prices,” Mr. Perdue said. “That’s continuing against the headwinds of rapid changes in mortgage rate.”s
Mr. Dolch, however, offered a more bullish take. He predicts Austin’s real estate market could see a 30% to 40% appreciation over the next five to six years because there simply aren’t enough homes for the influx of people moving to Austin, and luxury rental buildings are nearing full capacity. “There’s just nowhere to go,” he said.
More: Forget the Alps—as the U.S. Dollar Soars, a Better Currency Play Is on a Chalet in Japan
One thing real estate experts do agree on is that Austin’s booming economy will continue to prop up prices in the housing market.
Silicon Valley companies have grown their presence in Austin, with Amazon, Google, Oracle and Tesla expanding their operations there.
What’s more, Mr. Dolch said, is that many of the people moving to Austin are coming from places like California, New York and Chicago and still see value in the market. “They all think our pricing is very good compared to what they’re coming from. That alone will push the market up,” he said.
Despite timidity in the market, Mr. Dolch said there’s a glut of available homes. They’re just not showing up on the MLS.
Agents don’t want the optics of having houses rack up a bunch of days on the market while sales are slow. So instead, they’re relying on private listings, which is a big reason why the MLS has been depleted, he said.
“Austin is notorious for having a shadow market, with sites where brokers can view off-market inventory that isn’t on the MLS. Those sites right now are full. There are hundreds and hundreds of them,” he said, adding that many of these homes are priced at $1.5 million and above.
There are other signs of life, too. Dolch said he saw a noticeable uptick in activity during the last two weeks of October, and he expects things to pick back up after the election cycle winds down.
“The phones are starting to ring again,” he said. “We might see a little pop at the end of the year.”
Click for more in-depth analysis of luxury lifestyle news