Austin Real Estate 2022 Outlook

Last year was one for the record books in real estate. The pandemic aided in the onset of a buying frenzy, resulting in a 34% increase in property prices in Austin between August 2020 and August 2021. 

In the fourth quarter, however, there were hints that the sweltering housing market was beginning to cool. Only 60.3% of sales in October involved a bidding war, down from a peak of 74.5% in April.  While this trend could be explained by seasonality, it could also indicate that the real estate frenzy has cooled.

So, what's in store for the housing market in Austin in 2022? Here's where the market is expected to look like in the coming year.

MORTGAGE RATES WILL RISE

Mortgage rates are expected to gradually rise this year after reaching record lows in late 2020 and early 2021, according to most economists. The 30-year fixed-rate mortgage is expected to average 3.5% in 2022, up from roughly 3% in 2021, according to Freddie Mac.

By the end of the year, the Mortgage Bankers Association anticipates that rates will have risen to 4%. At the Mortgage Bankers Association's 2001 Annual Convention & Expo in October, Mike Fratantoni, chief economist, said, "Mortgage lenders and borrowers should expect increased mortgage rates over the coming year, as better economic growth pushes Treasury yields higher." Add in the increasing pressure from inflation and a rise is interest rates is all but guaranteed.

It's crucial to remember, too, that even a 4-percentage-point mortgage rate is modest by historical standards. According to The Mortgage Reports, a trade blog for the mortgage business, “Between 1971 and December 2020, 30-year mortgage rates averaged 7.89%.”

As a potential home owner, it may make sense to lock in historically low interest rates by acting quickly to find the home of your dreams.  Even a slightly lower interest rate will reduce your monthly payment, making your home more affordable. Your trusted real estate advisor can connect you with a reputable lender to help you run the numbers.

MORE BALANCE WILL RETURN TO THE MARKET

We had one of the most competitive real estate markets in history in 2021. Fears of the virus, as well as a move to working remotely, sparked a surge in demand. At the same time, many existing homeowners postponed their intentions to sell, while new building was hampered by supply and labor constraints.

This resulted in a massive imbalance in the market which favored sellers while frustrating home buyers.  After a historically one side market it appears that things will even out some heading into 2022.

According to data from Realtor.com, November saw more than double the listing price reductions that we had for February 2021. Similarly, the average days on market (a measure of how long it takes a home to sell) has been inching higher since June.

Lawrence Yun, the group's chief economist, told members at the National Association of Realtors' annual conference last November that he expected greater supply to come from an increase in new construction—which is already underway—and the conclusion of the mortgage forbearance program. "As more housing inventory becomes available, the extreme multiple offer situation will begin to subside," he said.

In the coming year, demand is expected to decrease marginally. However, for a growing percentage of Americans, homeownership has become unaffordable due to rising mortgage rates and record-high prices. In a recent Reuters poll, nearly 80% of property analysts predicted that house affordability will deteriorate in the next years.

If you had trouble buying a home last year, there may be some good news on the way. Increased supply and easing demand may make it easier to get the house of your dreams. If you are a home owner it's still a terrific opportunity to cash out your substantial equities gains if you're thinking of selling! Plus, you'll also have an easier time locating your next home with greater availability on the market. 

HOME PRICES WILL CONTINUE TO RISE BUT AT A MORE MODERATE PACE

In 2021, housing prices rose 29% in Austin.  However, in 2022, the average pace of appreciation is expected to ease.  Home list prices decelerated in the second half of 2021. However, experts vary on how much higher home values will rise in 2022. Home values are expected to jump 13.5 percent, according to Goldman Sachs, while Fannie Mae and Freddie Mac foresee 7.9 percent and 7% increases, respectively.

Not all analysts, though, are as optimistic. The National Association of Realtors predicts a 2.8 percent rate of appreciation for existing homes and a 4.4 percent rate of appreciation for new homes by the end of the year, while the Mortgage Bankers Association predicts a 2.5 percent drop in the average home price.

While the majority of experts nationally expect home prices to rise and are mostly debating how much, for those looking at the Austin real estate market, they can expect prices to outpace the national market again as demand remains high and inventory low.  Double digit price growth is likely given the current conditions.

You might be out of luck if you've been waiting for housing prices to decline on the sidelines. Even if home prices were to dip slightly, which is highly unlikely, the savings will almost certainly be offset by higher mortgage rates. The good news is that with less competition, there will be more options and a lower chance of a bidding battle. Navigating the market will continue to be challenging and having a trusted advisor assist with the process will be significantly beneficial.

RENT WILL CONTINUE TO RISE

Rental rates climbed considerably last year, along with homes, gasoline, groceries and used vehicle prices. Rents for single-family homes increased 10.2% year over year in September, according to CoreLogic. Realtor.com economists predict that they will rise another 7.1% in 2022.

In November, Zillow Senior Economist Jeff Tucker told CNBC that "homes are expensive now...but for most consumers, the most significant comparison is how that cost of homeownership compares to the cost of renting." Rent is also less predictable than a mortgage, according to Tucker, and is more likely to rise in lockstep with inflation.

Real assets, such as real estate, are frequently employed as inflation hedges. This is due to the fact that property values often rise in tandem with inflation. When a person decides to purchase a home, they are locking in a house payment for a potential 30 years. Renters, on the other hand, are at the mercy of the market and do not benefit from any of the advantages of owning, such as tax deductions, equity, or appreciation.

It's important to consider your budget and timeline when thinking about buying. Property and rent costs are projected to rise in over the next few years. Even with higher prices buying makes sense if you plan to stay in the home for at least three to five years because you can lock in your mortgage payment and take advantage of appreciating home prices.

FINAL THOUGHTS

While the national outlook forecasts more inventory and a slow down in price appreciation it’s important to remember that real estate is a local business.  In Austin, while things will not be as frenetic that they were in 2021, price will continue to rise and inventory will remain low.  Having a great team to advise you on a strategy to help you achieve your real estate goals for 2022 in important to making the most out of a stressful situation.