State of the Market

Since we’ve taken a short blog sabbatical, the entire real estate world has changed. Although the evening news will sometimes say trite things like “Finally an opportunity for homebuyers…” everyone trying to buy knows the truth. Buyers have all lost 20-30% of their purchasing power from interest rate increases alone, compared to about a year ago. This doesn’t even take into account that home prices have appreciated more than 50% in many places over the past year or two, so the affordability deficit is even greater.

Fed rate hikes and appreciation have been causing this dilemma nationally, but in Austin, we have even more drama. About 37% of purchases last year were by investors (non-owner-occupants), so when financing gets tight and a market begins to look overvalued, they withdraw. 37% is a REALLY big slice of the market to vanish! Investors are also the group who owner-occupants look towards for guidance–a canary in the coal mine of sorts–reassuring or warning them about their investment’s future. When investors withdraw, owner-occupants become even more timid. Some of these potential buyers then decide to rent, even though they could purchase. In the end, how a city’s or neighborhood’s market is doing is based merely on a ratio of buyers to sellers. If you lose more than 3/4ths of buyers due to economic anxiety or purely loss in purchasing power, you can find yourself in a buyer’s market nearly overnight. That’s where we are now–functionally in a buyer’s market. In March we hit a tipping point with rate hikes and buyer’s falling optimism. The good times for Austin sellers came to a halt seemingly in a matter of a few weeks and only got worse throughout the summer. Now we top the national list for the most significant price drops in the nation.

Are buyers missing an opportunity by staying on the sidelines? Well, assuming it’s even possible for them to buy, they know it’s hard to catch a falling knife–no one really knows where the bottom of this downturn actually is. If you had the funds right now, would you want to put them into Austin real estate? Their “wait and watch” mentality doesn’t seem so irrational to me. We’re almost certainly not at or near the bottom yet. Our problem is largely driven by Fed rate hikes, and they’ve essentially promised to keep making purchasing harder and harder for the foreseeable future. How does Austin climb out of this hole and back into a seller’s market? Well, for starters, the Fed will have to ease up on things a bit. I’m sorry I don’t have cheerier words to describe our market, but this is where we are right now…