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HomeMy WebLinkAboutWSJ - Once America Hottest Housing Market - Austin TXWSJ PROPERTY REPORT Once America’s Hottest Housing Market, Austin Is Running in Reverse Home prices have fallen more than anywhere in the U.S. By Will Parker | Photographs by Tyler Dane Hansen March 18, 2024 The Sunbelt city that came to symbolize the pandemic housing boom is now leading a national property cool-down. Home prices and apartment rents in Austin, Texas, have fallen more than anywhere else in the country, after a period of overbuilding and a slowdown in job and population growth. That marks a sharp reversal from previous years when Austin’s real-estate market was sizzling. The city attracted waves of remote workers on six-figure tech salaries. Others arrived after companies such as Tesla and Oracle moved offices there, taking advantage of lower taxes and less business regulation. Austin’s economy grew at nearly double the national rate, and it became the country’s 10th-largest city. Now, it is contending with a glut of luxury apartment buildings. Landlords are offering weeks of free rent and other concessions to fill empty units. More single-family homes are selling at a loss. Empty office space is also piling up downtown, and hundreds of Google employees who were meant to occupy an entire 35-story office tower built almost two years ago still have no move-in date. Signs of emptiness in downtown Austin. Austin’s recent downswing is a sign that migration patterns that were turbocharged by the pandemic continue to fade. Housing markets in other Sunbelt cities, including Phoenix and 2 Nashville, Tenn., that swelled with new residents in recent years, have also softened from overbuilding, slowing population growth and a lack of affordability. Austin was at the forefront of the U.S. housing boom, when rock-bottom borrowing costs near the start of the pandemic fueled robust sales and sent home prices to new highs. Austin prices soared more than 60% from 2020 to the spring of 2022. A surge in interest rates crushed the housing market nationwide, and existing-home sales fell to a nearly 30-year low in 2023. Despite that collapse, home prices remain near record levels thanks to tight supply. But in Austin, according to the Freddie Mac House Price Index, prices have fallen more than 11% since peaking in 2022, the biggest drop of any metro area in the country. “Austin’s housing market remains extremely overvalued,” said Matthew Walsh, an economist at Moody’s Analytics. Housing affordability hit a four-decade low, even with recent price declines, he added. By Moody’s count, Austin home prices still run 35% higher than what the city’s underlying economic trends would typically support. Austin’s per capita income rose 23% between 2020 and 2022, but home prices increased more than twice as much. That disparity has veered greatly from historical norms. “It’s unsustainable,” Walsh said. 3 Despite slowdowns, Austin’s job growth remains higher than the national average. The rental market has a similar trajectory. Investors purchased a record $9.4 billion in apartments in Austin in 2021, according to MSCI Real Assets, seizing on rents that rose 20% that year. Since then, developers there have been building more apartments than in any other city, measured as a share of the existing housing supply. That has helped curb the rise in rents, while also slowing new investment in existing apartment buildings. “Clearly, there’s some pockets of overbuilding,” said apartment investor Larry Connor, whose company manages a 15,000-unit national portfolio. Rents in Austin are down 7% during the past year, more than in any other city, according to estimates from listings website Apartment List. Rental deals in downtown apartment towers appeal to Thomas Young, 24 years old, who moved to Austin from California two years ago to take a job in commercial real estate consulting. He rents a one-bedroom condo north of downtown for $1,600 a month, but said he and his partner could afford to spend an extra $1,000 to move into one of the glassy new high-rises that have recently slashed prices. Young is betting that Austin’s still-softening market means he is unlikely to face much of a rent increase if he chooses to stay in place. 4 “I’ve got a lot of options,” he said. Others are in no hurry to jump into a for-sale housing market that still looks overheated. Scott Collins, a 43-year-old who works remotely for a management consulting firm, was in contract to buy a new-construction home last year but pulled his deposit after the builder ran into trouble and never made progress on building the house. More recently, his landlord offered him a $1,500 cash concession to get him to renew his apartment lease. Now that home prices have come down, he is likely to start looking to buy again if rates come down, too. “I had no interest in paying the inflated prices that were going on here through the pandemic,” Collins said. “I might peek around in the summer and see.” But as rents and home prices remain overwhelmingly higher than they were just three years ago, a growing share of home buyers are looking to leave Austin altogether, some numbers suggest. In the third quarter of last year, more home buyers searching sales listings on the real estate website Redfin looked to move away from the Austin area than looked to move to it, according to a Redfin search analysis. 5 Austin’s downswing is a sign that migration patterns turbocharged by the pandemic continue to fade. Texas cities including San Antonio and Corpus Christi, where home prices are much cheaper than in Austin, topped the list of places searched by people looking to leave Austin. Still, even though Austin’s job growth has slowed, it is still higher than the national average, according to the Bureau of Labor Statistics. And while home prices continue to decline within Austin’s city limits, suburban home sales have held up much better, said Clare Losey, housing economist at the Austin Board of Realtors. “We still have quite a bit of room to grow,” Losey said. In the third quarter of last year, more home buyers searching sales listings on the real estate website Redfin looked to move away from the Austin area than looked to move to it, according to a Redfin search analysis. Texas cities including San Antonio and Corpus Christi, where home prices are much cheaper than in Austin, topped the list of places searched by people looking to leave Austin. 6 Still, even though Austin’s job growth has slowed, it is still higher than the national average, according to the Bureau of Labor Statistics. And while home prices continue to decline within Austin’s city limits, suburban home sales have held up much better, said Clare Losey, housing economist at the Austin Board of Realtors. “We still have quite a bit of room to grow,” Losey said. Austin’s per capita income rose 23% between 2020 and 2022.