Q4 2023: Falling Real Estate Prices Should Attract Investors
The greater Austin real estate market finally slows after years of explosive growth. Learn how falling prices are presenting opportunities for investors.
The Austin real estate market has seen major changes in recent years. The COVID-19 pandemic helped spur a boom in residential real estate, with housing prices rising considerably from 2020 to 2022. That trend has leveled off, but the greater Austin area remains a top-rated destination for people who are relocating. The commercial market is also doing well, with Austin ranking highly on many lists of the best U.S. metro areas for commercial real estate investments.
The news is not all rosy, of course, and some types of investments are likely to fare differently than others towards the end of 2023 and into 2023. For savvy real estate investors, there is more than enough good news to make Austin an appealing place to continue investing. Read on to learn about the possible outlook for Austin real estate in the fourth quarter of 2023.
What's happening with residential properties in Austin?
Photo by Ryan Friesen on Wikimedia Commons [Creative Commons]
The September 2023 Central Texas Housing Market Report from the Austin Board of Realtors (ABoR) shows a decline in home sales and prices between 2022 and 2023. It’s important to keep in mind, however, that the 2022 numbers still reflect the city’s massive real estate boom. Austin remains a much sought-after real estate market. Issues that may affect the residential real estate market in the greater Austin area include affordability concerns and ongoing debates over land-use regulations.
Single-family home prices and inventory
The greater Austin area, which includes Travis, Williamson, Hays, and Bastrop Counties, saw a reduced number of home sales in September 2023, as compared to September 2022. This contributed to a drop in home prices. The median sales price for the metro area in September was $452,080, according to the ABoR report, a 4.3% drop from 2022. The number of closed sales dropped by 18.2% year over year.
The housing inventory reached 4 months, its highest level in over eight years. Zillow reports that new home listings are dropping. The number of new listings in August 2023 was down 34.7% from the number a year earlier.
While numbers are generally down, this is not necessarily bad news. ABoR reports from earlier in 2023 showed year-over-year increases in home prices and sales in parts of the Austin metro. The current inventory, while at its highest point in years, still indicates a competitive market where demand outpaces supply. According to the 2023-Q2 Quarterly Housing Report from Texas REALTORS, 6 to 6½ months of inventory is necessary for a balanced market.
Multifamily properties
Photo by Dzahsh on Wikimedia Commons [Creative Commons]
The greater Austin area expects a significant increase in the number of available units in multifamily properties in late 2023. Population growth in Austin, Round Rock, and other communities is driving demand for apartment space. More than 40,000 new units are reportedly underway.
Despite some positive indicators, investors should approach this market with caution. The vacancy rate has also grown over the past year, reaching more than 10% in September. The growth rate for rent was at -3.9%. Much of the recent growth in multifamily real estate has been due to efforts by the city government to improve access to affordable housing. The city has acquired multiple apartment complex properties for this purpose.
Affordability
The City of Austin and surrounding communities are making efforts to address affordability. One recent study found that residents of this area are spending close to one-third of their income on rent or mortgages. While city governments are pursuing initiatives like buying multifamily properties to convert into affordable housing and revisiting zoning laws, investors may be able to find opportunities by getting creative.
Land use regulations
Austin’s current zoning laws are almost 40 years old. The city has been trying to revise those laws since 2017 but has met with resistance from various groups. These disputes have continued into 2023, and will certainly endure into the future. In July 2023, for example, community members clashed with homebuilders and others during a City Council meeting to discuss a proposal to reduce the minimum size of single-family residential lots. This would allow for the construction of more homes, but as critics noted, it would come with no guarantee of lowering home prices.
Stats on Austin’s commercial real estate market
Photo by Lily Wilkerson on Wikimedia Commons [Creative Commons]
Commercial property has had a good year in the greater Austin area. Large investments like the Tesla Gigafactory have claimed a positive economic impact. The commercial real estate services firm CBRE ranked the Austin metro area as the #2 market for investors for the second year in a row in its 2023 U.S. Investor Intentions Survey. The city ranked behind Dallas/Fort Worth and ahead of Miami.
A few statistics about Austin commercial real estate, as of earlier in 2023, include the following:
Office vacancy rate: 21.8%
New office construction: 4.9 million square feet
Retail vacancy rate: 3.3%
Multifamily vacancy rate: 5.1%
Development continues in downtown Austin, with some questions about what will happen to current projects. The tallest building in Austin — for now — known as Sixth and Guadalupe, is reportedly on track to open in late 2023. Still, questions about who will occupy its commercial space recently made the national news. Another downtown building, scheduled to open in 2026, will supplant it as the city’s tallest building. The area continues to present investment opportunities.
A plan to expand Interstate 35 through the center of Austin is creating controversy among businesses. It could also mean opportunities for investors. To add two high-occupancy-vehicle (HOV) lanes, the Texas Department of Transportation (TxDOT) needs to widen the road. This means displacing businesses located on either side of the highway. At least 59 businesses are expected to be affected.
What’s the outlook for Austin real estate in 2024?
Rising interest rates might be one of the most significant factors affecting the Austin real estate market as we go into 2024. Now that rates have reached their highest point in about 20 years, homebuyers may find the cost of borrowing money to buy a home to be too high. This can drive prices downward. However, demand continues to exceed supply for the time being, which keeps prices from drastic dips.
Ready to take advantage of falling prices?
The lending professional at Capstone Capital Partners provides fast and flexible financing to real estate investors all across Texas. Our experienced team will evaluate your project and work with you to complete another success project. Applying is easy – answer a few questions about you and your project, and expect to hear from us within the next business day.
