Austin housing market continues to break sales price records—but record-low inventory could spell trouble
The Austin housing market continues to thrive despite the ongoing pandemic, but a continuing inventory shortage could jeopardize its growth.
The median sales price in the city of Austin increased 10%—to $433,493— in November, according to the latest Austin Board of Realtors market report. Meanwhile, the housing inventory fell to less than a month's worth. The Real Estate Center at Texas A&M University estimates a balanced housing market has more than six months' inventory.
"Despite the economic roadblocks and challenges the global pandemic has presented, Austin's housing market activity is stronger than it's been in several years," ABoR President Romeo Manzanilla said in a statement Wednesday.
The rising home prices and falling inventory go hand in hand.
"This near-zero level of housing inventory throughout the region is staggering, and it will put enormous pressure on home prices and the rental market," he said.
The trend is not limited to Austin; the five-county Austin-Round Rock metro also reported a record-breaking median sales price—as well as an all-time low level of inventory.
The median home price in the metro increased nearly 20% to $365,000 while the housing inventory fell to 0.9 months' worth, according to the report.
This is concerning, Manzanilla said.
"Central Texans who could not find a property within Austin's city limits have historically been able to expand their searches outward to find a home," he explained. "But, when the entire region has virtually zero inventory, its leaders must think about how such a broad lack of housing will ultimately impact Austin's sustainability as a destination for business and economic growth."
Demand for housing is amplified by the influx of new residents.
Austin leads U.S. cities in population growth, according to LinkedIn's latest workforce report, which was published earlier this month. And hiring is up year-over-year.
Some big-name tech companies have also attracted national attention for their presence in town.
Tesla is hiring executives for its forthcoming Southeast Travis County Gigafactory, and its CEO Elon Musk is also house-hunting in Austin. Software giant Oracle also recently relocated its headquarters to Riverside Drive from its previous location in Silicon Valley.
"This growth is not sustainable," said Mark Sprague, state director of information capital at Independence Title, in a statement. "The one variable that will hold the market back is the lack of inventory."
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So you want to buy a house?
To anyone trying to get on the "housing ladder," it's been a discouraging couple of years as prices skyrocketed in a market crowded with buyers bidding against each other for just about any available home.
Things may be calming down, with the Austin Board of REALTORS reporting fewer sales and more available homes this summer.
Mortgage rates have more than doubled in the last year, from around 3% to well over 6% on a 30-year fixed rate loan, getting even more of a bump this week after the Federal Reserve raised bank rates on Wednesday.
So how affordable are homes right now? That, of course, depends on what you want and how much you're able or willing to pay, but here are some rough estimates of what a typical buyer would pay to buy a $650,000 home, which would be considered "mid-price" in today's market.
Mortgage banker Chris Holland (NMLS 211033) of Austin's Sente Mortgage ran some numbers for Austonia to illustrate a typical purchase.
Holland says that while the 30-year fixed rate mortgage is often mentioned in the media, the most popular loan that he's seeing now is a 7/1 adjustable rate mortgage, which has a fixed rate for 7 years and then adjusts every year based on market rates, with a limit on how much it can increase each year. The interest is amortized over a 30-year period. Adjustable Rate Mortgages (ARMs) offer lower rates than fixed rate loans.
Here are the numbers, which are examples. In practice, exact numbers vary with a buyer's credit rating and overall financial situation, and with the rate, which can move up or down at any time.
- $650,000 home purchase price
- 7/1 ARM at 5.875%
- 5% down payment, equals $32,500
- 95% financed, equals $617,500
- $4,990 payment, including principle and interest (P&I), insurance, and property tax
- Typically, a borrower's debt to income ratio needs to be at or below 45%. So for this mortgage, a borrower, or borrowers, would need income of roughly $11,100/month, or $133,200/year. That number could be higher, depending on the buyer's outstanding credit balances on things like credit cards and car loans.
Holland says he's had a lot of clients approved for loans who were house hunting but have put that on hold, hoping prices come down.
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