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Austin’s hot housing market is driving up down payments

The hot housing market is cranking up down payments that can deter some from buying their first home. (Shutterstock)

Austin home buyers are facing yet another hurdle as they battle high prices and bidding wars to get their patch of land: buyers are having to put more down—in cash.

Due to increasingly rising home prices, appraisers are skeptical of current values, which is putting buyers, more often than not right now, in what's usually a rare situation of having to fork up more money between what they agree to pay and what the appraisers say a home is worth.

The impact? Local mortgage brokers and realtors say it's pricing out some first-time homebuyers, who lack the cash from selling a home.

'A super heated market'

The median home sales price in the city of Austin has grown 22% in the last year, rising to $514,000 in March, according to the Austin Board of Realtors. A recent Redfin analysis found that the average home in the five-county Austin metro sold for 7% above its asking price, more than any other metro.

These high prices are the byproduct of a basic economic equation: high demand plus low supply. In an effort to compete, some buyers are offering more than $100,000 above asking price. Nearly all of them are waiving an appraisal, which means they commit to buying a home even if it is appraised for less than their offer price. This is the case 98% of the time, says Sydney Schuster, a realtor at Open House Austin, a real estate education company that specializes in first-time homebuyers and investors.

With sales prices rising so quickly, appraisals—which are based on historical sales data—often lag behind the offer price. "The problem is, if (a) house sold in April, it went under contract in March, two months ago," said Ashby McDonald, a loan officer for the Austin lender Highlander Mortgage. "In this super heated market, two months might as well have been two years."

How the math works

Let's say you want to buy a home in Austin. You're up against a lot of competition, so you bid $550,000 on a house that's listed for $500,000, planning to put 20% down. The seller picks your offer, and you enter into a contract and order an appraisal, scheduled by your lender, who has agreed to finance 80% of the appraised cost. Based on historical data, the appraiser values the home at $500,000. As a result, you can only get a loan for $400,000 and have to make up the difference in cash, fast. Your down payment just grew from $100,000 to $150,000.

Preparing for the worst

Aware of this trend, mortgage brokers and lenders are leveling with their clients. "Anyone who comes in looking for a house, I prepare them for the possibility that they will have to put down more than they think in a down payment because of this," McDonald said, adding that a down payment needs to be at minimum 10% of the offer price—and more likely 20%—to be competitive.

As a result, many buyers are required to make offers on houses that are less than what they can afford in terms of a mortgage but which allow them more flexibility in terms of a down payment or in case of a low appraisal. "I don't feel comfortable working with a client who's not prepared for the worst-case scenario," Schuster said.

Some clients are able to make such accommodations to be competitive in the current market. But those at the lower price range have nowhere else to go. "So you're priced out," said Dr. Luis Torres, a research economist at the Texas Real Estate Research Center at Texas A&M University.

There is room for hope, however. Austin's housing prices are at historically high levels, which are impossible to sustain in the long term, Torres said. Already McDonald is seeing the gap between appraisal values and offer prices shrink as the historical sales data catches up to current market values. "It's just that the growth has slowed down from insane to crazy," he said.


Tito's releases (not so?) ugly sweater line for the holidays, profits to charity

Tito's Handmade Vodka

Show your love for Tito's and for the community this year with a wide selection of not that ugly, uglyish, ugly, uglier, and ugliest holiday sweaters.

There's lots choose from, and plenty of accessories like scarves and socks, plus gear for your dog, too.

All of the items can be purchased online or at the Love, Tito’s Retail Store in Austin, TX. 100% of all net proceeds from online or in-store purchases go to one of the nonprofits we’ve teamed up with.

Click here to see the entire collection in the Tito's store.

Mac and Cheese Fest and Free Art Exhibit
Waterloo Greenway, Good Vibrations Installation

🗓 All weekend

🎨 Creek Show Art Exhibit

Check out this highly anticipated art exhibition with illuminated art along Waller Creek. Tickets are free and the event includes food vendors, dazzling lights, live music, and hands-on activities

All weekend 6 p.m - 10 p.m | 📍Waterloo Park

✨ Mozart's Light Show

This iconic holiday tradition lights up for the first time this holiday season starting this weekend! Reserve your spot for an enchanting light and sound performance, delicious hot cocoa, sweet treats, and some overall fun with your friends or family. The show runs till January 6th.

6 p.m and 9 p.m | 📍Mozart's Coffee Roasters - 3825 Lake Austin Blvd, Austin, TX 78703

🗓 Saturday

🥊 Kickboxing in the Park

This fitness event is free and open to the public. Get your morning started right with a "Fitness in the park" class for kickboxing! The class will be led by certified instructors and is a great way to get a cardio workout in while also honing your self-defense skills.

10 a.m - 11 a.m | 📍 Metz Park

🛍 The Front Market

Support local LBGTQ+ and female artists at this outdoor market with over 150 vendors. Get your holiday shopping out of the way at this event, with vendors for food trucks, handmade goods, raffles, hands on workshops and activities, and more.

11 a.m - 5 p.m | 📍Ani's Day and Night - 7107 E Riverside Drive, Austin, TX 78741

🗓 Sunday

🧀 Mac and Cheese Fest

Did someone say cheese?! If you're like me and always willing to get your hands on a bowl of mac and cheese, then this event is for you. Check out the Mac and Cheese festival happening this weekend to decide which vendor has. the best mac and cheese for yourself, and enjoy the bar with creative cocktails while you're at it. Tickets start at $45.

11 a.m - 3 p.m | 📍Lantana Place - 7415 Southwest Parkway