First… 2023

Now if you want, you can check out my prediction for the 2023 Austin housing market and see if you think I was close or not.  In the mean time let’s look at what actually happened in 2023 to inform our prediction.

Price Trend
Just look at this change for the median closed price in Austin over the last 10 years.  We are coming down from the camel hump of 2021 and 2022 but the long term trend is still up.  To give you some context, last year the median closed home price in Austin was $555,000 according to ABOR with 613 sales in October.  This year the median closed home price in Austin is $540,000 with 602 sales in Austin in October.  The reality is, it barely moved.  Now we do have more inventory in terms of time (4.1 months) but only 2917 active listings, last year it was 2613 listings with 2.8 months of inventory.  Time is longer because higher rates are keeping buyers away.  To me these numbers don’t say the sky is falling, but rather we are in a tough part of a regular cycle.

Active Listings vs Sold
You can see these lines are on top of each other in 2020 through 2022.  So every house that went active sold right away during that time.  Since March of 2022 we have a nice big gap and that will remain.  It will slightly close as wages grow, interest rates maybe come down a little, and prices may come down as well.  I don’t see any reason for a wild swing.  The market is trying to reach a new equilibrium.

Sales Volume over 10 years
This chart looks so predictable up until 2022.  Note that the teeth are wider in 2021-2022.  The area under the curve means more sales in that time.  See calculus is useful, I was listening Mr. Fauntleroy.  Then rates move really fast in 2021 and we fall apart.  This is what we are living through now.

For better or worse, the trend will still go up because we aren’t building enough homes, and even though affordability is harder now than before, costs are higher too so we will continue to see upward price pressure in the long run especially in core areas of Austin with premium locations.

Housing Supply
Again we see the big interruption during the pandemic and we are back to an upward trend, but just like 2008 this created a gap in housing supply so we are not only playing catch up from then, but it’s worse now because of the pause in building.  You may hear some people say Austin is overbuilt.  If that were the case, prices would come down much faster.  A 3% drop in housing prices is not overbuilt, a 20% drop is. 

Housing Demand
Demand can be measured by mortgage applications as a pretty good metric.  You can see the nice smooth pattern interrupted by the pandemic then it shifts down into new territory.  Demand is down roughly 4% primarily because of higher mortgage rates.

Wage Growth
Wage increases will make homes more affordable and right now we have a pretty tight labor market with around 3% unemployment which should continue to increase wages. Wage growth has fallen a little but it is still historically high which is going to allow buyers to catch up and be able to afford more home, it may just take a little while. As long as this number is above inflation (currently at 3.5%) things will improve for home buyers.

Now… 2024

Prices
I predict prices will stay mostly flat outside of seasonal cycles, but the spring peak will be lower than the 2023 one.  There is still room for prices to come down as sellers are holding out and staying on the market longer.  Some seller’s really cheap mortgages are going to get wrapped with seller financing to get deals done, so it’s a race between price drops, wage growth, and rates.  In 2024 we will see the market establish a new equilibrium, which is going not match previous years.

Rates (aka Demand)
We are onto the soft landing now, rates may move, but not so wildly as they did in 2021. It looks like the Fed may just hold their course barring any other geopolitical surprise.  Besides a 6-7% mortgage is not that bad of a rate, but we may need even lower prices to reach higher sales volumes.

Wage growth
This should still go up in the 5% range which will help close the affordability gap I talked about two videos ago.  Labor markets are still tight and unemployment is still very low around 3%.  Austin is also a high value market so wages here are higher than national averages and there are many expansionist tech companies that will continue to add more high wage earners to the area. A short blip in affordability will not derail the likes of Samsung, Tesla, and others.

Supply
Housing starts have slowed with falling prices which is going to create a gap in supply.  It will be spotty in 2024. Assuming we reach a more stable housing market in 2024, we should see more starts this year but not come to market until 2025. So right now we actually don’t have that many homes on the market and there is fear in the hearts builders.

Wildcards
The 2024 presidential election is likely going to be ‘nasty’ no matter who the candidates are. This could pause some buyers. Artificial Intelligence could reach a tipping point and change unemployment numbers especially for high paid knowledge workers, but how fast? I doubt it will cause a large change to labor markets in the short term.  War with China while a big political wild card would probably not impact local housing markets unless the fallout from that potential conflict impacts the bond market.  It’s impossible to predict how that would play out, but it is certainly one I’m watching.

TLDR
We are recovering from the financial fallout of the pandemic and through the worst of it. The market is going to consolidate into a new equilibrium and this will be the first year of what is hopefully a long/medium term pattern. Prices may fall a little in Austin, but no more than 5%. 2024 is going to be our first normal year in real estate since 2019.

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