Luxury Home Sellers in Austin Don’t Have to Fear a Market Slowdown

Although the dust has settled in Austin, Texas, after a two-year house price explosion, indicators suggest reasons for sellers to be optimistic about the luxury market-even if the median price is down.

Among the cities where home prices fall the most, Austin came in No. 1 in the report. The median home listing price in September was $558,275, down 10.3% from June, according to data. The percentage of sellers who reduced their list price rose 252% in September.

“There were some early surprises where people got a little FOMO [fear of missing out] that they missed the market. So we’re looking at agents realigning their prices and sellers to figure out where the market is,” said Gary Dolch, founding agent of Compass and owner of Austin Luxury Group.

In terms of prices, Austin’s luxury sector has fared better than the overall market, despite the turmoil.

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The median price for the most expensive homes in Austin – the top 5% – increased 16% between June and August, when it reached $1.12 million, according to the data. Prices dipped back down slightly over the next month, falling 4% to just under $1.1 million in September.

But while houses in this segment continue to see annual growth, high-end house prices are only one level lower – those in the top 10% of the market-down 1.2% to $746,000.

The rapid shift in housing prices and activity rattled the Austin real estate market during the summer.

mr. Dolch said he hasn’t seen this kind of activity listing in Austin since the 2009 recession wiped out the market. He sees the most extreme changes occur between mid-July and September and says his office hasn’t seen more than one contract a week since the end of the summer.

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“Mid-August is the quietest time I’ve seen since the financial crisis,” he said. “The phones weren’t ringing. People had a look of fear in their eyes. Nothing was happening, on either side.”

But he has a clear message for brokers and their clients: Don’t give in to panic. Based on what he’s observed in more than two decades of sales, Mr. Dolch said hitting the panic button and readjusting prices won’t make the problem go away.

“There’s nothing you can do when damage claims start happening like that. It doesn’t matter what your price is,” he said.

A more ‘Normal’ year?

Considered one of the fastest-growing cities in the US, Austin has been attracting residents from both coasts who are drawn to the city’s status as a tech hub with a lively music scene, a unique personality and a more attractive tax structure than what exists in countries like California.

In general, Austin real estate prices mirrored trends in other cities that became real estate hotspots during the pandemic, as an influx of buyers from more expensive parts of the country flocked to the area for cheaper homes.

“We’ve seen this kind of trampoline effect where they’ve had a big bounce during the pandemic, and people are really drawn to areas that are sunny and warm,” said Evan Wyloge, data reporter for (Mansion Global is owned by Dow Jones. Both Dow Jones and are owned by News Corp.)

While the confluence of factors contributed to the fall of Austin’s housing prices, industry observers say recent changes suggest a market correction.

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The fact that the number of sellers reducing their prices is up 252% compared to last year is related to the fact that the number is back to normal, said Adam Perdue, an economist at the Texas Real Estate Research Center at Texas A&M University.

While 2020 and 2021 were anomalies in the Austin housing market, 2022 is shaping up to be a more “normal” year, Perdue said.

“A lot of what we’re actually seeing is a return to the trend that would have been predicted in 2019, without the pandemic and the change in interest rates,” Perdue said.

Many of the cities that have seen a surge in buyers in the past two years are in the Sun Belt. Like Austin, these cities appeal to buyers willing to trade snowy, wet winters for a better climate and quality of life.

“This makes sense that the really high demand pushed the prices up past where they should have been in the market,” said Mr. Wyloge, noting that parts of Texas, Arizona, Georgia and Florida were particularly popular. “We are seeing this correction in that area.”

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In Austin’s luxury market, specifically, Mr. Dolch estimated that houses are overpriced by as much as 20% until a few months ago.

“I don’t think that we suddenly don’t have that market here,” Mr. Dolch said. “I think it’s a reaction to the market slowing down. And it’s pretty dramatic.”

Among other factors, the seasonality of the market accounts for at least some of the decline. Mr. Dolch pointed out that the market generally slows down substantially around mid-July.

But this summer, the seasonal dip coincided with rising inflation rates and fluctuations in the stock market. And ahead of the November election, there is more hesitancy in the housing market than usual, said Mr. Dolch. “I think once people feel more confident, they’ll start pulling the trigger more,” he said.

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Austin Economy Drives Price

A further decline in prime prices is unlikely given the fundamentals that attract buyers to Austin in the first place have not changed.

Mr. Perdue predicted a minor decrease, or possibly a flat trend line, in year-over-year prices for the next few years.

“We continue to see this increase in demand which helps support prices,” Perdue said. “It continues against the headwinds of rapid changes in mortgage rates.”s

Mr. Dolch, however, offered a more bullish take. He predicts Austin’s real estate market could see 30% to 40% appreciation over the next five to six years because there simply aren’t enough homes for the influx of people moving to Austin, and luxury rental buildings are nearly at capacity. “No one is going to leave,” he said.

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One thing real estate experts agree on is that Austin’s booming economy will continue to drive up prices in the real estate market.

Silicon Valley companies have grown their presence in Austin, with Amazon, Google, Oracle and Tesla expanding their operations there.

What’s more, said Mr. Dolch, is that many people moving to Austin come from places like California, New York and Chicago and still see value in the market. “They all think our prices are very good compared to what they came from. That alone will drive the market,” he said.

Despite the fears in the market, Mr Dolch said there were plenty of homes available. They’re not showing up in the MLS.

Agents do not want an optician to have a shelf house for a few days on the market while sales are slow. So, they rely on private listings, which is a big reason why MLS has been reduced, he said.

“Austin is famous for having a shadow market, with sites where brokers can see off-market inventory that isn’t on the MLS. Those sites are now full. There are hundreds and hundreds of them,” he said, adding that many of these homes are priced between $1.5 million and higher.

There are other signs of life as well. Dolch said he saw a noticeable increase in activity during the last two weeks of October, and he expects things to pick up after the election cycle winds down.

“The phone started ringing again,” he said. “We could see a little pop at the end of the year.”

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